Vusumuzi DubeNelson Gahadza
Companies are projecting the operating environment to remain uncertain given the ongoing shortage of liquidity in terms of forex for working capital and limited USD borrowings.
In addition, they say the situation is being compounded by high interest rates and power shortages, which are driving companies to adopt expensive alternative energy sources, which in turn eat into growth and margins. As a result of the difficult operating environment, the companies are focussing more on cost containment measures in order to preserve margin and improve profitability.
“The economic environment continues to show signs of strain with the El Nino-induced drought having had an adverse effect on the agricultural season.
“Power shortages, particularly at the Ruwa plant, affected the operation, resulting in the increased usage of generators to meet customer demand.
“The third quarter of 2024 was largely affected by tight liquidity following the introduction of the new currency Zimbabwe Gold (ZiG) from the 5th of April 2024,” Nampak Zimbabwe said in its recent financials for the period to June 30, 2024.
The group said it will continue to focus on cost containment measures in order to preserve margin and improve profitability across all the businesses.
Nampak Zimbabwe is a holding company that engages in the manufacturing of paper, plastic, and metal packaging products.
In response to a difficult operating environment, businesses have demonstrated resilience through the adoption of low-cost operating models, diversifying products, and expanding markets to include exports.
Businesses have been struggling to liquidate their local currency on the official forex exchange market, negatively impacting working capital while relying on expensive short-term borrowings.
In other instances, the lead time to convert reasonable amounts of working capital through formal channels is dragging into weeks, compromising the production value chain. Businesses that have embraced the local currency and made significant sales in ZiG are experiencing shortages of foreign currency to import raw materials and restock. Tapiwa Karoro, the Zimbabwe National Chamber of Commerce (ZNCC) president, told Business Weekly that the shortage of liquidity in terms of forex for working capital and limited US dollar borrowing is a complex issue.
He said as long as the country continues to have US dollar-based local transactions, collectively, both the private and public sectors will, therefore, continue to put a strain on the availability of US dollars in circulation.
“This is why the issue of having a stable local currency is very important. We must remember that we do not produce, or rather print, US dollars.
“So, the mismatch will continue to prevail as long as we have what should be locally or rather ZiG-denominated transactions having to be paid for in a foreign currency,” he said.
He added that, for instance, things like rentals are being paid in US dollars, the same as wages and salaries.
“Ordinarily, we would all be earning our wages and salaries in our local currency. Payment of utilities: understandably, some of these utilities, like electricity, require ZESA to be able to meet its offshore obligations. But this is where the issue of the trade balance becomes important,” he said.
Karoro said the US dollars that the country is generating vis-à-vis our import bill indicate that the economy should be able to meet its import bill from the forex generated from exports. “The pressure comes when we now have local transactions requiring US dollars,” he said.
On limited US dollar borrowing, Karoro said the utterances in the public domain against the journey towards de-dollarisation did unfortunately create some uncertainty around.
“Is de-dollarisation happening immediately, or are we still working with the 2030 deadline? “So this uncertainty in the market causes nervousness for both the financial markets, which obviously include the banking institutions and other lending financial institutions.
“In this regard, clarity of policy becomes very critical for investors and providers of funding if they have certainty in terms of our currency regime,” he said.
In this particular case, Karoro noted that by clarifying the use of the US dollar and the journey towards de-dollarisation, funders will have that line of sight and certainty in terms of to what extent they are prepared to expose themselves as far as lending is concerned. “Resultantly, those are particularly the key issues that will continue to cause this strain in terms of US dollar liquidity in the market,” he said.
Hippo said at the beginning of the current year, to navigate through operational dynamics and ensure business sustainability, the company launched ‘Project Zambuko’, an initiative focused on enhancing operational efficiency, commercial excellence, and maximising opportunities to reduce costs.
Cafca believes foreign currency access through the willing-seller willing-buyer market has remained challenging, and the impact of the drought, decline in commodity prices, and inadequate power generational performance will continue to moderate infrastructure development in the period ahead. Economist Dr Prosper Chitambara told Business Weekly that the mismatch between demand and supply of hard currency is a major issue, but the Central Bank should use part of its reserves to liquidate the demand.
“They should support businesses in key economic sectors, mainly those that would need to import critical inputs for export growth and production, and this will ensure businesses have access to foreign exchange,” he said.
Dr Chitambara said the Reserve Bank of Zimbabwe (RBZ) should leverage on its reserves that it has built to support the productive sectors of the economy.
He said they can do this in the form of some loans where the central bank could also get interest on the reserves. “We can use the reserves to create a revolving fund to support export-orientated businesses across the economy,” he said.
Hippo Valley Estates, in its financials for the period to June 30, 2024, said while the introduction of the new currency has demonstrated its potential to anchor the economy through stabilisation of prices and restoring confidence, there is currently a cashflow mismatch between the two major trading currencies (ZiG and USD).
It said this is resulting in limited USD-denominated receipts than required for critical imports and other local supplies, which are currently priced in USD.
“The company continues to engage customers and suppliers of goods and services for a win-win currency mix on settlement to ensure business viability and sustainability,” it said.
Retailer, OK Zimbabwe, in its 2024 annual report, said it is extending its sources of supply to countries like Turkey and China with the goal of diversifying its product assortments and making the products cheaper for shoppers.
According to its report, erratic supply of essential products was the biggest challenge in its supply chain during the financial year.
“The financial year saw an increase in the level of direct imports mainly from South Africa, with additional sources of supply coming onboard such as the Shoprite Group, Tradeport Group, and Food Lover’s Market Distribution. “Going forward, we will be extending our sources of supply to countries like Turkey and China with the goal of diversifying our product assortments and landing the products cheaper for our shoppers,” reads the group’s annual report.
However, the government believes sustaining the ease of doing business reforms plays an important role in creating an environment conducive to entrepreneurship and investment and allows the country to attract both domestic and foreign investors.
According to the Budget Strategy Paper: 2025, Finance, Economic Development, and Investment Promotion Minister Professor Mthuli Ncube said sustaining ease of doing business also creates a favourable climate for innovation and development of new businesses. “During 2025, the government will develop a policy framework that supports sustainable business growth and enables entrepreneurs, both local and foreign, to operate with increased ease and efficiency.
“Priority will be on streamlining administrative procedures that facilitate business approvals in an efficient and transparent manner,” he said in the paper.
Economies are ranked on their ease of doing business, and a high ease of doing business ranking means the regulatory environment is more conducive for businesses to thrive without many hindrances.
Online Reporter