Corporate bloodbath deepens

…. wave of layoffs, closures marks escalating turmoil

LIVINGSTONE MARUFU

Zimbabwe’s corporate sector is in turmoil, with numerous prominent companies succumbing to financial instability as the country’s deepening economic crisis takes its toll.

The latest casualties include Triangle Limited and Hippo Valley, following several other firms such as Khayah Cement and Beta Bricks, that have been placed under receivership. This underscore the severe challenges Zimbabwe’s economy is facing, with worsening conditions pushing more businesses to the brink of collapse.

As the economy continues to contract, both small enterprises and large corporations are grappling with an increasingly hostile business environment. Many analysts warn that unless swift reforms are implemented to stabilize the currency, curb inflation, and address foreign currency shortages, the corporate sector will continue to deteriorate, pushing the country’s businesses into further disarray.

This escalating corporate crisis has seen retrenchments become more widespread. Triangle Limited this week announced plans to lay off workers due to the extremely tough operating environment. Other major companies, such as Old Mutual South Africa and PPC, have moved to disregard the performance of their Zimbabwean units. It also comes at a time when Old Mutual Zimbabwe is delisting its Zimbabwe Stock Exchange Top 10 Exchange Traded Fund tomorrow.

Analysts suggest that these corporate crisis are only the beginning of a broader corporate collapse if decisive action is not taken. The continued rise in retrenchments and business failures threatens to further exacerbate the country’s high unemployment rate, placing additional strain on the economy.

Economists attribute Zimbabwe’s corporate turmoil to a combination of policy missteps, a high tax regime, and escalating costs of doing business.

Tinashe Kaduwo, an economist, points out that the erosion of purchasing power, compounded by prolonged economic mismanagement, has severely stunted business growth.

High levels of taxation, power outages, and poor infrastructure continue to push businesses beyond their capacity to operate sustainably.

“The formal economy is under siege. Depressed demand, exacerbated by the collapse of the middle class, coupled with high operational costs and rampant inflation, has made it increasingly difficult for businesses to stay afloat,” Kaduwo told Business Times, a market leader in business, financial and economic reportage.

He also noted that the informal sector, while providing short-term relief, has undermined the formal economy by eroding the tax base and discouraging long-term investments.

Vince Musewe, another economist, echoed similar concerns, emphasizing that the country’s economic instability, compounded by competition from cheap imports, has placed immense pressure on businesses.

“”The viability of majority business operations is under extreme pressure reflecting The state of an economy that has become highly informalised and unstable. All the factual reasons are given in the statement, the key ones being high production costs and competition from cheap imports. Every company in Zimbabwe is facing similar problems and this is the time for self evaluation and reflection  especially by political leaders.

The economy is shrinking and we need urgent attention and solutions. We know the solutions but there seems to be an unwillingness to face the truth and consult those with the competence to advise.”

Victor Boroma, an economic analyst, warned that the ongoing economic decline is directly linked to issues such as foreign exchange losses, inflation, and currency shortages. He argued that cutting operating costs has become the only way for businesses to survive, a trend that began in the banking sector and is now spreading across industries such as retail and manufacturing.

Another economist Tony Hawkins criticized the government’s handling of the crisis, calling the economic mismanagement a direct cause of the growing corporate bloodbath. “Government interventions, such as the overvalued exchange rate and inconsistent policies, have driven businesses to the brink,” Hawkins said.

Yet another economist Professor Gift Mugano also lamented the government’s failure to support local businesses, particularly in sectors like sugar production.

He pointed out that the government’s inconsistency in policy, such as allowing the import of sugar despite the country’s capacity to meet demand, undermines local production.

“The disparity between the power market rate and official rate, which is giving massive exchange rate losses to the companies, is taking a knock-on effect on this company,” Professor Mugano told Business Times.

He added: “  The tax regime of the country, you know the 2% tax, the tax on sugar, I am very clear that in a way it is slowing down the demand for sugar. At a time when you want to drive volume to hit your break-even and go into profit levels.Now, the tragedy is , so much inconsistency in policy where the government is allowing imports of sugar, when we have enough capacity in the countries to meet the local demand, it is just tragic.

“And, of course, I also noted that Zimbabwe has not been kind in terms of giving them their VAT income tax refunds, which again continue to compound the cost of producing sugar in Zimbabwe at a time when sugar is imported VAT-free from the region.”

Dr. Prosper Chitambara, another prominent economist, noted that while the past three years have been challenging, the drought in 2024 further exacerbated an already difficult operating environment. “The business environment remains hostile, and the country’s competitiveness gap continues to widen due to factors like electricity shortages, taxation, and overall macroeconomic instability,” said Dr Chitambara.

Triangle Limited, a key player in Zimbabwe’s sugar industry, recently outlined its dire financial situation.

In a statement, managing director Tendai Masawi explained that the company has faced escalating operational costs, particularly in fertilizer, fuel, and maintenance, compounded by inflationary pressures and a weakened currency. Triangle’s profit margins have plummeted by 55%, while manpower costs have surged by 133% as a proportion of revenue.

“The inability to claim VAT on inputs after sugar was exempted from VAT, and the competition from low-cost imported sugar, have severely impacted our ability to sustain operations. We have been unable to generate positive cash flows for the past three years,” Masawi said. He noted that despite numerous cost-reduction and revenue-enhancement initiatives, these efforts have been insufficient to stabilize the business.

Triangle’s situation reflects the broader struggles facing Zimbabwe’s corporate sector. The company’s decision to implement retrenchments was not just a financial necessity but a painful step towards safeguarding the company’s future in a severely constrained operating environment.

Even blue-chip companies like Delta are not immune to the ongoing crisis.

In its half-year results for the period ending September 30, 2024, Delta acknowledged the challenges posed by Zimbabwe’s economic conditions.

The introduction of the Zimbabwe Gold (ZiG) currency in April 2024, the subsequent depreciation of the exchange rate, and the introduction of new taxes all contributed to a difficult operating environment.

Delta’s chairman, Todd Moyo, stated that pricing distortions and reduced foreign currency inflows had significantly impacted the company’s operations.

Similarly, Innscor, in its latest financial results , noted that inflationary pressures and volatile currency dynamics had created significant uncertainty.

Chairman Addington Chinake described the business environment as complex and challenging, with constant shifts in policy making it difficult for companies to plan for the future.

The corporate bloodbath unfolding in Zimbabwe is a clear indicator of the worsening economic conditions that are forcing businesses to close, retrench workers, and scale back operations. If the government does not take immediate action to stabilize the economy through currency reforms, tax relief, and improved infrastructure, the corporate sector will continue to unravel, deepening the country’s economic woes.

Economists agree that urgent reforms are necessary to restore confidence in the economy and encourage sustainable growth. Until then, businesses will continue to face an uncertain future, with many more expected to close their doors in the coming months.

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