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.
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.”
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.
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