daniel chigunwe
Oliver Kazunga
FOOD and dairy products producer, Dairibord Holdings Limited (DHL), says Zimbabwe’s economic outlook remains complex on the back of internal and external shocks that include depressed mineral output and the El-Nino-induced drought.
In recent years, global commodity prices including those for minerals except for gold have remained subdued, ultimately impacting adversely on the production of Platinum Group Metals as well as lithium, not only in Zimbabwe, but the world over.
For instance, the World Platinum Investment Council (WPIC) has indicated that the platinum market recorded a deficit of 878 000 ounces in 2023.
Total supply fell by 2 percent while demand spiked by 25 percent year-to-year, but this has failed to lift prices.
On the other hand, Zimbabwe and other countries in the southern African region have experienced the El Nino-induced drought, which locally due to a bad 2023/2024 agriculture season, has seen most of the crops declared a write-off.
In addition, water sources have been diminished and the net effect has been that 7,7 million people in Zimbabwe are food insecure.
In a statement accompanying financial results for the half-year ended June 30, 2024, DHL said the slow global economic growth was posing a potential risk to the country’s export revenues.
“The economic outlook remains intricate. Slow global economic growth, particularly subdued mineral prices, pose a potential risk to Zimbabwe’s export revenues.
“While the introduction of the ZWG aimed to stabilise the economy, its long-term impact remains to be seen,” it said.
The Reserve Bank of Zimbabwe (RBZ) introduced the ZiG, the country’s new medium of exchange in April this year, as part of several policy measures to address exchange rate volatility, curtail inflation, and restore macro-economic stability.
DHL said Zimbabwe continues to grapple with foreign currency shortages, which affects imports and economic activity.
“Maintaining currency stability and curbing inflation are imperative for safeguarding purchasing power and fostering a conducive business environment.
“The prevailing drought conditions exerted a substantial negative impact on agricultural yields, which is anticipated to impede overall economic growth and contribute to food price inflation.
“This adverse condition is also projected to curtail raw milk production.
“Nevertheless, the group’s substantial raw milk supply growth realised during the first half of the year is expected to partially offset some of these potential adverse consequences,” said the company.
It said given the persisting constraints within the operating environment, cost reduction has emerged as a paramount imperative.
And thus, concerted effort, the firm said will be directed towards minimising expenditures by targeting the major cost drivers.
“The group will continue to prioritise the expansion of export activities.
“This focus aims to bolster foreign currency inflows, optimise production capacity, and elevate brand recognition within the region.
“A pivotal component of this strategy involves the full commercialisation of our toll manufacturing operations in South Africa.
“By capitalising on this cost-effective production model, we anticipate broadening our export reach and mitigating risks associated with domestic market fluctuations.”
During the period under review, DHL experienced significant cost increments on account of imported inflation, changes in the tax regime and price distortions arising from exchange rate movements.
The imposition of a special surtax on added sugar in beverages at a rate of US$0,001 per gramme effective February 9, coupled with standard rating of maheu and Value Added Tax on milk powders, and reclassification of liquid milks from zero-rated to exempt, resulted in a substantial increase in the cost of production.
“This immersed significant pressure on working capital and exacerbated the financial burden on operations.
“However, cost containment measures employed on manufacturing overheads were successful in reducing cost of sales by 1 percent from prior year, notwithstanding the volume and revenue growth.
“The rapid depreciation of the local currency prior to the introduction of the ZiG resulted in significant net foreign exchange losses of US$3,3 million (2023: US$3,84 million) arising from foreign currency denominated obligations,” it said.
Included in the finance costs figure of US$2,48 million, are foreign exchange losses on foreign currency denominated loans and borrowings amounting to US$1,46 million.
“However, amidst volatile and challenging economic headwinds, the business managed to achieve a profit for the period of US$3,06 million, a notable recovery from the US$0,74 million loss incurred in the comparative period last year,” said DHL.
Bongani Ndlovu