adminTawanda Musarurwa
The depreciating local currency is likely to remain a major headache for listed sugar processor, starafrica Corporation Limited (SACL), as the firm seeks to meet obligations to its foreign currency-denominated loans.
For its full year results to March 31, 2019 the emerging depreciation of the local currency (at that time) resulted in significant exchange losses of $84,5 million on foreign currency denominated liabilities for SACL.
Between March 31, 2019 and September 30, 2019, the exchange rate moved from 1:3,012 to 1:15.1653 between the United States dollar and the local currency (RTGS$/Zimbabwe dollar).
Currently, the exchange rate on the interbank market is trading at around 18 to the US dollar, although on the illegal foreign currency market the rate is almost double.
Analysts at Akribos Research Services opine that the increasingly depreciating rate will make it difficult for SACL to effectively meet its obligations on the foreign currency-denominated loans.
“The depreciation of the Zimbabwe dollar will remain a thorn in management’s side because of SACL’s foreign denominated loans.
“A cautious approach to exchange rate adjusted prices is imperative for the group to ensure they continue to meet their obligations despite fluctuations in the exchange rate,” said the analysts.
Zimbabwe’s local currency has been on a free-fall since the removal of the 1:1 peg between the US dollar and the then RTGS$ last February.
The effects of a weakening currency are, however, not just limited to the group’s foreign currency liabilities.
“The trading environment for the period under review was characterised by economic challenges that included depreciation of the local currency and a rise in inflation.
“The exchange rate between the local unit and the United States dollar ended December 2019 at 16,77: 1,” said the group in its trading update for the nine months to December 31, 2019.
“Year-on-year inflation ended the calendar year at 512 percent. The company managed to navigate through the challenges using initiatives to rein in costs, exploration of export opportunities and effective procurement strategies.”
But companies such as SACL could get some relief going forward in view of recent strategies announced by Treasury to stabilise the Zimbabwe dollar.
Earlier this week, Finance and Economic Development Minister Mthuli Ncube announced a number of measures in this respect, including the introduction of a “managed floating exchange rate system”.
“Zimbabwe has had no transparent and effective foreign exchange trading platform for a long time. Consequently, official rates have not been effectively determined, while a thriving parallel market has developed. To correct this anomaly, an electronic forex trading platform based on the Reuters system is being immediately put in place,” said the Finance Minister.
“This platform will allow foreign exchange to be traded freely among the banks and permit a true market exchange rate to be determined. The bureaux de change, will also participate on this platform through their authorised dealers.
“The trading rules of the bureaux de change are being liberalised so that they can conduct all wider range of transactions. The RBZ will continue to be a significant player in the market, providing liquidity to stabilise the exchange rate, where necessary.
“This mechanism will be immediately operational. All the foreign exchange requirements will be available through the interbank market which will use a market determined exchange rate.”
Online Reporter