High-interest rates give Seed Co nightmares
LIVINGSTONE MARUFU
The country’s leading seed producer, Seed Co Limited, says the 200% interest rates are hurting the businesses causing serious viability challenges on the business.
The Reserve Bank of Zimbabwe increased the interest rates to 200% from 80% to curtail speculative borrowing in the market.
But Seed Co group secretary, Tineyi Chatiza told Business Times that the exorbitant lending rates are choking the business and creating viability challenges.
“Finance costs escalated dramatically with the 200% policy rate benchmark and this is a major challenge for the business and they were a major drain to the business,” Chatiza said.
He said operating expenses were up 34% in inflation-adjusted terms in line with the official sharp depreciation of the ZWL$ to ZWL$410 per US$1 during the 2023 first half from an average of ZWL$86 per US$1 in the same period the prior year.
Seed Co’s first-half performance was characterised by hyperinflation, usurious ZWL$ interest rates, local currency depreciation on both the official and alternative markets, crippling shortage of power and other utilities and a crippling liquidity crunch.
Seed Co Limited revenue went up 5% to ZWL$8.44bn during the half-year results ended September 30 2022 from ZWL$8.06bn recorded during the same period last year.
The company is back in the black, posting a profit of ZWL$2.6bn from a loss of ZWL$7.4bn in the same period last year.
“Despite the jump in overheads, finance costs, lower volume and monetary loss; value and profitability were hedged through the foreign currency gains.
He said payables for mainly grower deliveries were not yet paid for at reporting date.
“Financial performance adversely impacted by funding constraints and hyperinflation.
“Volume dropped 20% overall with maize declining 45% to 2,088metric tonnes, wheat decreased by 13% to 5,606mt with no repeat 2,000mt exports to Nigeria,” Seed Co Limited said.
Local wheat volume increased by 27% as the government intensified import substitution.
Barley increased by 61% to 713mt on the back of increased demand.
Chatiza said despite overheads tracking inflation (34% up in inflation-adjusted terms, the company’s profitability was weighed down by rising operating expenses and finance costs.”
“The key issues to remain viable are finance cost reduction, harnessing more local US$ sales, export revenue generation leveraging associate regional operations and sales and marketing blitz aiming to surpass prior year volume and US$ revenue contribution in Zimbabwe.
“The company will also manage the interest bill by liquidating expensive ZWL$ borrowings to stay afloat,” he said.
In the outlook, the business has enough seed stocks for the current summer cropping season with the company also prepared for the regional demand.
Seed Co has various varieties which can withstand weather vagaries.
