Lack of for­eign cur­rency crip­pling Zim busi­nesses

For­eign com­pa­nies in Zim­babwe are strug­gling to make pay­ments due to a short­age of hard cur­rency. High labour costs and im­ported goods are also im­pact­ing mar­gins.

Finweek English Edition - - THE WEEK - By Mem­ory Mataranyika


rains and a steady­ing liq­uid­ity sit­u­a­tion could pro­vide Zim­babwe with some respite this year, but a lack of for­eign cur­rency, a high pro­duc­tion cost base and an un­cer­tain op­er­at­ing and po­lit­i­cal frame­work still pose risks for cor­po­rates ex­posed to the coun­try.

The lack of for­eign cur­rency is caus­ing de­lays in mak­ing pay­ments for im­ports, a ma­jor threat for busi­nesses in Zim­babwe. An­a­lysts said for­eign and other big­ger cor­po­rates in the coun­try will also be re­quired to con­trib­ute more into state cof­fers through taxes and le­vies.

“Elec­tion time is al­most upon us and with the econ­omy still strug­gling [lead­ing to lim­ited tax rev­enue], big busi­ness will once again be ex­pected to bail out gov­ern­ment through new taxes and other schemes,” said Moses Moyo, an eco­nomic an­a­lyst.

Low water sup­plies have also been a ma­jor headache in the past year and have con­trib­uted to poor eco­nomic growth in the coun­try, with com­pa­nies un­able to op­er­ate at max­i­mum ca­pac­ity. How­ever, the cur­rent rains, which have led to flood­ing in some ar­eas, have al­most filled up dams, which will sig­nif­i­cantly boost com­pa­nies such as sugar pro­duc­ers Hippo Val­ley and Tri­an­gle Sugar – both con­trolled by Ton­gaat Hulett.

Con­sumers un­der pres­sure

Con­sumers re­main un­der pres­sure, how­ever, as il­lus­trated by the lat­est re­sults from Delta Cor­po­ra­tion, the Zim­bab­wean unit of the merged SABMiller and AB InBev. Delta said on 16 Jan­uary that the De­cem­ber quar­ter had seen “sub­dued vol­ume and rev­enue out­turn […] on ac­count of de­pressed ag­gre­gate de­mand and in­ter­mit­tent prod­uct short­ages oc­ca­sioned by water sup­ply” dis­rup­tions.

Lager beer sales vol­umes were 8% lower year-on-year in the nine months to end De­cem­ber, while soft drink bev­er­age vol­umes were 6% lower over the same pe­riod. Sales of Delta’s tra­di­tion­ally re­silient sorghum-based Chibuku of­fer­ing also took a hit.

Al­though Zim­babwe has moved to re­strict im­ports of most goods and com­modi­ties, ex­ec­u­tives at Delta high­lighted that “im­ports from neigh­bour­ing coun­tries which are cov­ered by pref­er­en­tial trade pro­to­cols and are fu­elled by the cur­rency ar­bi­trage op­por­tu­ni­ties” had neg­a­tively im­pacted on its sales vol­umes.

De­spite these chal­lenges, Delta, just like com­pa­nies such as Zim­plats and PPC, which has also opened its sec­ond plant in the coun­try, is pos­i­tive about the fu­ture prospects of Zim­babwe. Demon­stra­tors be­long­ing to rad­i­cal Zim­bab­wean pres­sure group Ta­ja­muka/ Sesjik­ile protest out­side Stan­ley Hall in Makokoba town­ship, Bu­l­awayo, in Septem­ber last year. The Zim­bab­wean brewer has just com­mis­sioned a new Chibuku plant in Kwekwe while an­other plant at Masvingo will start pro­duc­tion next month. Zim­plats, a unit of Im­pala Plat­inum, is also build­ing a new mine to sus­tain and add pro­duc­tion from Zim­babwe.

“Elec­tion time is al­most upon us and with the econ­omy still strug­gling [lead­ing to lim­ited tax rev­enue], big busi­ness will once again be ex­pected to bail out gov­ern­ment through new taxes and other schemes.”

Po­lit­i­cal risk

An­a­lysts say the coun­try still of­fers some prospects in the long term. They are also hop­ing that elec­tions in 2018 will bring a de­gree of cer­tainty to the coun­try’s le­gal and reg­u­la­tory frame­work.

There is still in­fight­ing in Pres­i­dent Robert Mu­gabe’s Zanu-PF party ahead of the elec­tions and ex­perts say his fail­ure to speed­ily pick a suc­ces­sor is fur­ther di­vid­ing the party and crip­pling pol­icy im­ple­men­ta­tion.

Vice-pres­i­dent Em­mer­son Mnan­gagwa ap­pears to be the front-runner, but a gen­er­a­tion of younger politi­cians in Zanu-PF is op­pos­ing this, ac­cus­ing him of plot­ting to oust Mu­gabe from power pre­ma­turely. Protest ac­tions against Mu­gabe and his gov­ern­ment are ex­pected to es­ca­late ahead of the elec­tions and this could dis­rupt busi­ness and com­pany op­er­a­tions.

In 2016, protests and strike ac­tions were mo­bilised mainly on so­cial me­dia against de­layed salary pay­ments and poor per­for­mance of the econ­omy, with banks and other com­pa­nies hav­ing to close down tem­po­rar­ily as the protests flared up.

“Mu­gabe can ex­pect more of the same in re­gard to protests and demon­stra­tions op­pos­ing his rule this year,” says Gary van Staden, an­a­lyst at NKC African Eco­nomics.

Op­er­a­tional chal­lenges

Al­though com­pa­nies and busi­nesses will be wor­ried about the po­lit­i­cal sit­u­a­tion, it is the op­er­at­ing en­vi­ron­ment that will cause even more con­cern. In­dus­try ex­ec­u­tives con­firmed to fin­week that some com­pa­nies have ap­plied for shorter work­ing hours to man­age labour costs.

“There are more and more prob­lems be­ing faced by man­u­fac­tur­ers. We have al­ways said that labour costs are high; now we have more com­pa­nies ap­ply­ing for shorter work­ing hours for em­ploy­ees and oth­ers are re­trench­ing,” Bu­sisa Moyo, pres­i­dent of the Con­fed­er­a­tion of Zim­babwe In­dus­tries (CZI), told fin­week.

Labour costs are but one op­er­a­tional prob­lem Zim­bab­wean com­pa­nies are fac­ing. They are also bat­tling to com­plete out­bound pay­ment trans­ac­tions be­cause of a

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