Companies sing the blues in Q1

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TAURAI MANGUDHLA

From demanding payment only in hard currency to reducing tenure of leases and cutting working hours for employees, business in Zimbabwe is adopting a host of austerity measures to remain afloat in an environment characterised by foreign currency shortages, low disposable income and fast rising inflation.

After years of negative inflation, the country reported significant inflation figures since October 2018.

Latest figures from Zimstat showed that Zimbabwe’s annual inflation rate for March gained 7,27 percentage points to 66,8 percent while month on month inflation rate gained 2,71 percentage points on the February rate to close March at 4,38 percent.

However, experts argue the figures are understated and not a true reflection of the real inflation being felt by consumers.

The inflation movement alone poses a huge question on bank interest rates which by far remain uncompetitive and make lendingunsustainable. Banks have thus watched closely the central bank’s move on interest rates.

Other industries such as telecoms have been forced to increase tariffs by at least 20 percent although indications remain they arepushing to increase further.

Citizens’ lives changed starting late 2018 when parallel market exchange rates on the US dollar skyrocketed, prompting a price madness that put many goods beyond reach.

Even corporate citizens were not spared as the cost structures changed overnight. Until February 22, when the RBZ floated the local dollar-Bond notes were at par with the USD.

The new move saw prices going up and import costs being, for the first time, officially rated and with it came a myriad of challenges.

While the question remains on the gap between the official interbank rate and what is obtaining on the black market – where cash is still available – businesses are singing the blues. Where they are registering growth, the question remains how much of that is inflation driven and how much of it is real.

In the first quarter of 2018, a number of companies had to take time, at least, to explain the complexities that came with the new regime including its impact on financial reporting. The obvious challenge for a while now has been lack of foreign currency for key imports causing some downtime on manufacturing equipment or delays.

On the other hand, the production costs went up significantly with producers passing on the cost to the consumer.

But with the rising cost of living after annual inflation breached the 56 percent mark in January, employers are faced with a herculean task of incentivising workers. This, obviously, comes at a cost.

First Mutual Holdings CEO Douglas Hoto said his business remained largely solid in the first three months of the year despite economic challenges. However, he added, employment costs are now a huge headache.

“So far everything is on target based on what we thought. Expenses are higher than particularly because of the need to review salaries. This is higher than what we had planned so we have had to redo the budgets beginning of March but we are still generally on the right track,” Hoto said.

“Revenues are higher than last year, but the expenses are growing so we are trying to ensure the expenses are not growing faster than revenues and that’s a hard job to do, it’s a hard one but we are pushing.” First Mutual Properties MD Christopher Manyowa said the
property industry was renegotiating leases to catch-up with the recent changes and reflect hard currency pricing.

Manyowa said the operating environment remained difficult in the first quarter of 2019 to March prompting the company to reduce tenure of leases to six months.

“It is only fair to say the operating environment is very difficult but at the same time, as business, we just have to be bold. We are on track in terms of delivering the strategy both in terms of revenue collections, we are profitable despite the difficult operating environment,” Manyowa said, adding costs were a threat to the business.

“But operating costs are still a concern which needs to be looked at carefully.  One needs to try and push revenue up while at the same time containing costs,. We are responding to the reality of rentals, which in 2018, were contractually leased in US but coming in as RTGS.

He said the property concern has started a process of renegotiating rentals and to ensure there is value, “when we conclude the negotiations, the tenure must not be very long”.

“So your review period has to be very short maybe six months, up and until we have clarity in terms of where things are going,” Manyowa said.

The rent review is on a sector basis with a focus on sustainability.

“We have to say office park tenants can  never be looked in the same manner as CBD, as industrial and residential… it’s a properly thought out process,” Manyowa said.

Turnall Holdings MD Roseline Chisveto said her company had long introduced payment terms for customers given the low disposable incomes.

She however said strictly cash sales except for select clients were being emphasised to manage risk. At the same time, an export strategy is being actively pursued to generate adequate foreign currency  for imports while local substitutes are being procured.

Chisveto said the first quarter of the year was a difficult one for Turnall in terms of volumes and the persistent foreign currency shortages. Turnall needs about US$300 000 foreign currency monthly for inputs and spares to meets its average  $2,5m per month order book.