daniel chigunwe
Nelson Gahadza
Companies in Zimbabwe are devising different survival strategies to sustain operations in a difficult operating environment characterised by exchange rate volatility, power shortages, and a lack of working capital.
The operating environment in the period to June 2024 mirrors two different quarters, upon which the first quarter was characterised by high ZWL inflation, which however normalised in the second quarter following the introduction of the Zig on April 5, 2024.
However, the ZiG had shown resilience until September, when it started to depreciate rapidly on the informal market, which prompted the Central Bank to devalue the local currency last Friday.
According to the Confederation of Zimbabwe Industries (CZI), the various companies and businesses are facing the same problem, but it just manifests itself differently, and it’s all around the pricing of foreign currency.
The businesses are constantly tweaking operational models with a major focus on costs as part of contingency strategies to keep their companies afloat.
The challenges also include inconsistency of policies, a rigid tax system, and export surrender ratios, resulting in the unstable socioeconomic situation that makes it difficult for businesses to operate.
These major challenges have necessitated the need for businesses to structure themselves in order to survive the unfriendly.
Recently, published half-year financials for Zimbabwe Stock Exchange (ZSE) and Victoria Falls Stock Exchange (VFEX), show contrasting performances despite operating in the same environment.
Manufacturers who are at the core of the production value chain and have largely been accused of demanding USD payments, have their financials showing some resilience.
Agro-focused companies had their performance affected by the El Nino-induced drought in addition to other compounding issues, while service companies faced low demand due to weak consumer appetite.
Dairibord Holdings returned to profitability after overcoming losses in the previous year with revenue growth of 13 percent.
FBC Securities, in its earnings review, said the company has improved its gross profit and expanded its market share, particularly in the liquid milk segment, while also seeing a significant 59 percent growth in export volumes.
“The improvement in profitability and reduction in losses indicate that Dairibord is effectively navigating the difficult economic environment. The focus on exports and foreign currency generation, along with strategic initiatives to reduce costs and provide a positive long-term outlook,” reads part of the review.
FBC Securities said the major cost-related challenges that the company is facing are more exogenous than endogenous, for example, implications of changes in VAT regulations, the impact of a newly introduced sugar tax, and an increase in the cost of raw materials due to supply chain disruptions and foreign exchange losses.
The research firm said the ability of the company to remain resilient and profitable in the face of these headwinds is evidence of the robustness of its business model and competence of its management.
“In the outlook, the economic environment remains challenging, with risks related to uncertain global economic dynamics, the growing threat of cheap imported milk and beverage products, as well as acute foreign currency shortages,” reads the review report.
According to the group’s financials, overall, volume grew 2 percent while the liquid milks and foods categories demonstrated strong performances.
Diversified conglomerate Innscor Africa has had its overall volume growth in 2024 supported by the extensive investment programme undertaken between 2021 and 2024 across operations.
The group has since 2021 invested US$157 million across the group’s operations, which saw the expansion of existing capacities, extension of manufacturing capabilities into adjacent product categories and investment into new products for the group.
According to group chairperson, Addington Chinake, despite the complex trading environment, positive volume growth was registered across all core group manufacturing units.
“This was underpinned by a firm recovery within the Mill-Bake segment, combined with increased contribution and capacity uptake in both the beverage and other light manufacturing segments.
“Volumes within the protein segment closed marginally ahead of last year on aggregate,” he said.
Innscor’s operations span across various sectors of the economy. The group engages in the manufacture, distribution, and retailing of household commodities and fresh produce.
The group said while it remains cautiously optimistic on the medium- to long-term prospects for the economy, it is hopeful that the authorities will pursue a pathway of implementing consistent and clear policies that encourage more market-determined outcomes, which in turn will allow for improved capital allocation decisions by industry.
Chinake said the group has undergone a three-year period of intensive and significant investment into factory expansion and, in doing so, has also entered a number of exciting new categories.
“Many of these investments are now complete or nearing completion, and as a result, focus will now be deployed by management in ensuring that these new investments generate the targeted returns,” he said.
He said that as a manufacturing entity, the attainment of critical volume mass is vital to ensure that the necessary operating efficiencies and economies of scale can be achieved.
National Foods recorded an overall volume growth of 6 percent over the comparative year, driven by a strong recovery across the mature milling operations and supported by pleasing volume uptake in the new FMCG business cluster.
Volumes in the maize division grew 21 percent year on year, with volumes being driven by
Proplastics Limited, a leading plastic pipe manufacturer, said government and non-government agency measures to mitigate the effects of drought have resulted in increased demand for its products.
The company, listed on the ZSE, produces polyvinyl chloride (PVC), high-density polyethylene (HDPE), low-density polyethylene (LDPE), and related fittings.
Group chairperson Gregory Sebborn said the company also anticipates the complementary measures supporting the ZiG currency to also help create demand for its products.
Economist, Victor Bhoroma told Business Weekly that companies are largely hamstrung by a punitive business environment, high inflation, inconsistent monetary policy, and a volatile economy.
“As such, there is no way out of the ever-increasing cost of doing business locally. Firms have to adapt and evolve within the space provided or risk closing shop,” he said.
Financial economist Malone Gwadu said businesses, particularly the manufacturing sector in Zimbabwe, are in need of serious re-tooling to modernise their equipment in order to be competitive.
“Outdated technologies currently in our market increase the cost structure and, by derivation, business costs, which are in US dollars; hence, retooling is quite key in arresting costs that render our local produce uncompetitive,” he said.
Gwadu said the electricity situation is unfortunately here for a while until the necessary interventions are finished, such as the Hwange power plants.
“Alternative sources may need to be considered, especially solar energy. We have abundant solar power, which we are not utilising beyond household level even for our industries,” he said.
Proplastics Limited, in its recent financials, said it expects the operating environment to remain challenging due to liquidity constraints and the continuing effects of the devastating drought in the region.
TSL Limited said its unit Tobacco Sales Floor (TSF) cumulatively handled 52,5 million kg of tobacco during the third quarter ended July 31, 2024, compared to 52 million kg in the comparative period.
During the period, Propak Hessian volumes were 27 percent below prior year cumulatively due to lower uptake of product by tobacco merchants as the national crop size declined.
A diversified agro-concern, Zimplow Holdings says it is engaged in new initiatives to return the business to profitability in 2024, riding on the back of strong order books across the agriculture, logistics, and mining sectors.
According to the group’s interim financials to June 30, 2024, the El Nino-induced drought impacted the group’s flagship business units within the agriculture cluster, which also witnessed a significant reduction in volumes across all businesses within the cluster.
Zimplow manufactures and markets a diverse range of products for the construction, infrastructure, and agricultural sectors in Zimbabwe. It also manufactures and distributes metal fasteners for the mining, construction, and agricultural sectors and has interests in property management and leasing.
Bongani Ndlovu