Firms fret over foreign obligations, rising costs
LOCAL companies that rely on foreign systems and software are reeling under pressures of high cost of foreign currency and limited availability, a situation that is threatening viability as well as relationships with foreign service providers.
Following Government's decision to make the Zimbabwe dollar, the only legal tender in the country, some companies have suffered exchange losses mainly arising from their foreign obligations.
The hardest hit are companies whose goods and services are regulated and cannot be quickly adjusted in line with the weakening local currency.
Since its introduction, the local currency has weakened from trading at par with the US dollar to an exchange rate of $17,7 as of Friday.
However, prices, tariffs, commissions and fees charged by some of the affected companies have not quickly adjusted to meet the increased cost of foreign currency required to meet foreign obligations for systems and software licenses.
Telecommunication companies are also in this category as they rely on foreign systems and software in their operations.
But with regulated and sometimes static tariffs and charges, they have not been able to meet some of their costs resulting in margin erosion.
A source at EcoCash said the major upgrade they carried out in November last year cost the company upward of US$15 million and yet charges are taking longer to be reviewed for them to be able to recover the costs.
“We have seen banks reviewing their bank charges, but for us the approval is not coming and yet we are in the same boat with banks. We have foreign obligations that need to be met,” she said.
She added that the parent company Cassava reported exchange losses of $506 million in its maiden half year results to August 31, 2019 which were reported in December of last year.
ZB Financial Holdings chief executive Mr Ron Mutandagayi said while the banking group has been able to at least service current obligations, legacy debts owed to foreign service providers were still pending.
He added that the biggest worry at the moment were legacy debts that the RBZ said it would assume: “We are still awaiting finalisation of those debts.”
Following currency reforms, the RBZ announced that it would assume foreign debts of approximately US$1,2 billion and these according to Mr Mutandagayi include obligations for licence fees for systems used by the bank in its various units.
The other worry he highlighted was that the cost of servicing external obligations was now high given the currency weaknesses.
“Costs have gone through the roof and sometimes banks are not in a position to absorb all the costs,” he said.
He said ZB Holdings requires between US$2 to US$3 million to meet licence fee obligations, but with currency weaknesses some of the cost pressures have to be absorbed through increase in transaction fees.
A local stockbroker who, however, requested not to be named, said it was the same in the stockbroking fraternity.
“We have foreign payment applications that are in the queue for repatriation but banks prioritise foreign payment in proportion to your influence and connections to the bank.
“We need just over US$6 000 per year for Sybrin, for the system we use but that is still a lot in RTGS,” he revealed.
“Everything is pegged to the USD and there is a huge increase in our expenses because of that.
“Our fees are fixed.
“The hope is that share prices will increase at the same rate as the exchange rate, but that is never the case. Prices should be up 17 times cumulatively for us to have keep up.”