daniel chigunwe
Nelson Gahadza
Local companies have lined up several recapitalisation plans to bolster capacity to meet market demand as they anticipate aggregate demand to remain firm within the economy despite a few temporary setbacks.
The bulk of these companies are Zimbabwe Stock Exchange (ZSE) listed firms who in their first quarter 2022 assessments of business performance, indicated they will soldier on despite threats from exchange disparities and rising inflation.
The ZSE is considered a barometer of the performance of the economy and these companies represent diverse sectors of the economy such as agriculture, manufacturing, mining, tourism and services.
Government on its part has placed hands on the deck to try and address some of the issues impacting on business and create a conducive environment for them to thrive.
Beverages giant, Delta Corporation (Delta), in its financials published recently, said it had lined up an ambitious capitalisation programme that will see the group investing in additional capacity as it anticipates demand to remain firm.
The beverage maker said it has been expanding its portfolio after launching Sable Lager in March 2022 and a new Chibuku Super plant is expected to be installed at the Southerton brewery.
“The Group is undertaking an ambitious recapitalisation programme to address the capacity gaps and improve customer service.
“There are indications that aggregate demand will remain firm largely driven by mining activities, diaspora remittances and infrastructure developments. The business remains poised to exploit these opportunities,” Matts Valela, the group’s chief executive said.
He said the group’s capital expenditure is also premised on the hope that the authorities will continue to implement progressive policies in line with the National Development Strategy (NDS1).
Finance and Economic Development Minister, Professor Mthuli Ncube, has in many instances indicated that the Government will continue to implement appropriate fiscal measures to bring inflation down.
Inflation, which erodes the value of currency, has a deleterious effect on the economy as it hinders pricing mechanisms, capital formation, stimulates speculative activities and hoarding and leads to misallocation of productive resources, something that has previously thrown Zimbabwe into turmoil.
Recently, the Treasury announced a raft of measures aimed at taming exchange rate fluctuations and curb speculative behaviour.
Tanganda Tea Company chairman, Herbet Nkala, said the firm has invested in new machinery at the packaging factory in Mutare in line with its value addition strategy and factory conversion efficiencies.
He said the investment is expected to grow volumes across the group’s market. Tanganda Tea is the biggest grower and processor of tea and coffee in Zimbabwe and one of the biggest tea producers in Africa.
Economist and former member of the RBZ monetary policy committee, Eddie Cross, told the Sunday Mail Business that many companies are facing capacity constraints in meeting both domestic and export demand at a time Zimbabwe’s economy is expanding rapidly and increasingly becoming more competitive regionally.
“Investing makes complete sense to these businesses and the only constraint is how to fund the investment and the raw materials required,” he said.
Cross said domestic demand has remained high although the growth has eased slightly and the export demand is in the same category and the companies have to work harder to secure these regional markets.
Packaging material supplier, Nampak Zimbabwe, said the overall situation facing the economy is that it remains fluid.
Nampak is engaged in the manufacturing of paper, printing and packaging products, leasing biological assets and the timber processing plant. It operates through segments in the Printing and Converting, Plastics and Metals and Services.
The packaging sector is considered a barometer in terms of economic activity, because sectors such as in agriculture, beverages, edible oils, require packaging.
The sector achieved a positive growth in 2021 with a 35 percent growth in terms of volumes driven by increased demand that was experienced across all sectors of the economy, including horticulture, indicating positive movement in the economy.
Chiedza Chonzi, a research analyst at FBC Securities, said despite the uncertainties prevailing locally, the economy appears poised for positive performance owing in part to increased economic activity coming off the pandemic and relative stability as a result of government efforts, including the introduction of the auction system and maintaining a tight grip on money supply.
As a result, she said aggregate demand is anticipated to rerate downwards, in line with inflation and exchange rate developments.
“The first half of the year was largely characterised by sudden policy changes in response to economic conditions. A stable operating environment, characterised by policy consistency, will positively contribute to business’ performance,” she said.
Another economist Vince Musewe, said that companies are taking a long term view and the economy will be liquid as the country approaches elections.
“Consumer demand is currently being driven by Diaspora remittances, which are increasing each year and soon will reach US$2 billion per annum and that is what is holding up aggregate demand,” he said.
He added that in the medium to long term, Zimbabwe does offer opportunities and resolving the currency issue can only make things improve.
Properties firm, First Mutual Properties (FMP), on its part said the favourable economic outlook is expected to stimulate the demand for quality real estate product; as a result, the Group remains alive to the socio-economic developments in the country.
“We will continue to scout for opportunities within the market to further grow and differentiate our property portfolio by sector and location.
“Further, the Group will continue to invest in its existing portfolio in order to improve the long-term return profile. Various initiatives will be explored and implemented to sustain business operations and deliver favourable returns to its key stakeholders including the shareholders,” it said.
Construction company, Masimba Holdings, said it acquired a land bank valued at US$3,6 million to bolster its properties segment’s strategic business focus amid rising property demand.
Gregory Sebborn, the group’s chairman said Masimba Properties Limited, 100 percent owned unit, was during the year focused on refurbishment of its industrial assets to enhance their earning capacity.
“As at the reporting date, refurbishments for one of the properties in Harare were substantially complete. Plans are underway to refurbish, in the new financial period, other properties in Harare, Bulawayo and Gweru,” he said.
Masimba Holdings is a Zimbabwean contracting and industrial group, providing innovative engineering and infrastructure client solutions to the agriculture, commercial, communications, housing, mining, water and transport sectors.
The company is one of the five leading companies contracted to rehabilitate the Harare-Beitbridge Highway.
The construction firm said it has a firm order book at US$214 million, boosted by the government’s renewed interest in infrastructure development and determination to improve the ease of doing business.
Under NDS1, the government committed to infrastructure development, supported by the private sector.
The NDS1 is the government’s current five-year economic management master plan through to year 2025, which has a strong focus on building, expanding and restoring infrastructure.
Collins Chibafa, the president of the Chamber of Mines at a recent conference, said most mining companies are utilising the additional profits to reinvest in their operations.
Economist, Victor Bhoroma, said on his part the recapitalisation plans differ from economic sectors point of view and these offer different risks and opportunities.
“Similarly, investors have different levels of risk appetite just as they have different sources of capital. In the worst periods of economic decline, certain businesses flourish. Investors in mining have a better chance of getting more return due to the export nature of the produce and government incentives.
“Similarly, selected businesses investing in certain manufacturing subsectors can realise profits even if most are struggling due to preferential tax holidays and privileges.
“Those who increase capacity have a scope to make profits and may be looking at long term or they may be enjoying various tax holidays and have sufficient capital,” he said.
He said the government should put a total freeze on money supply, using long term financing instruments to fund infrastructure projects such as Bonds, implement a managed floating exchange rate and institute tax reforms and put in place a clear debt repayment plan.
Bongani Ndlovu