Foreign banks are insisting that Zimbabwean importers arrange fully funded letters of credit (L/Cs) from domestic banks due to the country's worsening foreign currency crisis.

The future of the Zimbabwean dollar is uncertain, and the foreign currency shortage is threatening to weaken the country's already febrile economy.

Economic threat

Up until recently, importers have not needed to provide advance funding for L/Cs, but the economic situation has weakened local banks' creditworthiness to the extent that unconfirmed L/Cs are being rejected by foreign lenders.

The situation is now so bad that the inability to obtain L/Cs for raw materials and equipment for Zimbwabe's value added industries poses a further threat to the economy.

Importers of non-essential goods meanwhile have already been hit by a government ban on the import of at least 100 products, a move intended to promote the revival of local industries.

Gravely affectedLocal bankers say the sectors most affected by the requirement for fully funded L/Cs are manufacturing and mining, on which the Zimbabwean economy is structurally dependent.

Exports of manufacturing and mining output are key to Zimbabwe's ability to mobilise much needed foreign currency. The mining industry accounts for over 50 per cent of export earnings.

The Confederation of Zimbabwe Small Scale Chrome Miners said its members have been gravely affected by the rejection of unconfirmed L/Cs issued by local banks.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.