Crunch time for firms

LIVINGSTONE MARUFU AND CLOUDINE MATOLA

Business leaders   and economists have expressed their frustration with the harsh operating environment which they described as VUCA, an acronym for volatility, uncertainty, complexity and ambiguity, Business Times can report.

They said the deteriorating economic conditions, characterised by shortages of foreign currency, volatile exchange rate, crippling power cuts, liquidity crunch and rising cost of production, among many other problems, have  threatened the companies’ viability.

They said the situation was dire.

Addington Chinake, the board chairman of Innscor Africa Limited, a cash-rich and diversified conglomerate, said: “The operating environment during the financial year remained challenging and complex. Local currency inflationary pressure and volatile currency dynamics persisted for much of the financial year. Pricing distortions in certain channels, most notably in formal retail, persisted throughout the financial year. These pricing distortions continue to cause significant trading complexities within the formal retail sector, and many consumers now choose to shop in the informal sector.”

Another business leader, Edwin Manikai, the chairman of National Foods, concurred.

“Market liquidity in the form of access to local debt facilities and foreign exchange via the Willing Buyer, Willing Seller (“WBWS”) platform remains severely constrained. In addition, the market remains limited in its ability to transact with the ZWG, with many key commodities such as fuel, power, raw materials, as well as human capital and certain statutory payments, mostly requiring settlement in United States dollars.

“The price of power increased considerably during the year, and this resulted in a substantial growth in the operating cost profile of the business,” Manikai said.

Gregory Sebborn, chairman of publicly traded construction and industrial company Masimba Holdings, stated that local businesses are having difficulty in the wake of the VUCA environment.

“For the past few years, the operating environment has remained challenging and the first half of the year 2024 has been no exception. Financial capital has become scarce, with infrastructure development failing to reach the level required to ensure financial robustness, job creation and sustainability. The Zimbabwean dollar (ZWL) continued to depreciate against other currencies,”  Sebborn said.

Yet another business leader, Grenville Hampshire of Turnall Holdings, echoed the same sentiments.

“….the economy is facing headwinds ranging from liquidity constraints, foreign currency shortages, inflationary pressures and exchange rate volatility particularly in the last quarter of the year.”

Douglas Hoto, the board chairman of listed hospitality group Rainbow Tourism Group (RTG), said the business continued to face  serious headwinds.

“Inflation and rising operational costs presented significant challenges to the business,” Hoto said.

Zimbabwe largest milk processor, Dairibord Zimbabwe Limited the company chairman Josphat Sachikonye also highlighted  that the business operating environment was tough.

“…the group is operating under a complex and dynamic economic environment characterised by rapid devaluation of the Zimbabwe dollar, tight liquidity and unpredictable market conditions. This was exacerbated by ongoing supply chain disruptions on imported inputs, equipment and machinery.

“Pricing distortions prevailed, leading to market arbitrage that further undermined confidence in formal channels,” Sachikonye said.

Simbisa Brands CEO, Basil Dionisio, also expressed concern over worsening market conditions.

“…the second half of the year saw a significant acceleration in inflation and exchange rate disparities,putting additional pressure on consumer cost of living and spending habits. Cost pressures, exacerbated by a drought year, have put operating margins under pressure,” Dionisio said.

Economist Professor Gift Mugano weighed in saying: “We are certainly in a VUCA as businesses and individuals woke up to a local currency collapse where the ZiG’s value loss was more than 40% on Friday. The ZiG depreciation has continued from Friday up to now and it is a serious volatility, uncertainty, complexity and ambiguity situation we are faced with. This means the ZiG balance sheet can be wiped in a day therefore we are in an environment faced with various complexities.”

Another economist Vince Musewe concurred.“Yes we are in a VUCA environment. Currency volatility is the death of any economy. Uncertainty speculation profiteering illegality become the norm as all try to survive. This is a clear result of uninformed policy making which does not take a holistic approach to the economy. We are indeed on a slippery slope,” Musewe said.

Yet another economist, Dr Prosper Chitambara said:”The macroeconomic environment has been volatile of course. We saw some period or moments of relative stability following the introduction of ZiG but we are witnessing volatilities around the exchange rate and then of course uncertainties also around the current issue and of course complexities in terms of even the whole doing business and economic environment. So it is a very challenging environment to do business.”

Economic analyst Victor Boroma said: “….the Zimbabwean market has long been a VUCA environment. So when you look at, for example, the monetary policy itself, Zimbabwe has never had a market-driven exchange rate. So if you do not have a market-driven exchange rate, what it means is that you have a fixed exchange rate or different variation of foreign currency allocation by the central bank and in a way it is not sustainable.

“ It has always been volatile because the central bank has always been engaged in quasi-fiscal operations where they print excess money to fund government operations in order to get foreign currency or to boost production of certain commodities which are meant for the export market or to pay external debt.”