RYAN CHIGOCHE/LETTICIA MAGOMBO /FAITH MADZINGA
Industry is in a precarious position following mounting threats from worsening economic conditions, with the majority of companies confronted by a dip in production and shrinking domestic demand.
The rising prices of raw materials due to currency shocks have left companies battling to stay afloat.
Business executives are warning of a tough road ahead as industry is also confronted with dwindling profit margins, high inflation, forex shortages, currency volatility, among other headwinds.
Inflation hit 131.7% in the month of May from 94.6% in April. It is expected to keep soaring.
The Zimbabwe dollar continues to lose value against major currencies.
This week, the Zimbabwe dollar traded at ZWL$500:US$1 on the parallel market, ZWL$325:US$1 on the auction system and ZWL$315:US$1 on the interbank market.
RioZim board chairman Saleem Rashid Beebeejuan painted a gloomy outlook in a statement accompanying the resources group’s financial results.
“The operating environment has been challenging. It has been characterised by significant exchange rate distortions, ongoing power supply deficits and policy changes amongst other challenges, which negatively impacted the operations of the group,”
He added: “This continued to put pressure on the group’s profitability.”
Other top executives shared similar views with Mashonaland Holdings MD, Gibson Mapfidza, expecting the economic problems to persist throughout the year.
“High interest rates in ZWL$ terms remain prohibitive for industry and commerce. Inflation is forecast to keep increasing due to currency depreciation on the unofficial market. Currency exchange rate distortions remain a major economic problem,” Mapfidza said.
“The economic outlook for the rest of the financial year remains uncertain due to persisting foreign currency shortages and inflationary headwinds.’’
Masimba Holdings company secretary, Pearl Mutiti said the unstable operating environment, characterised by hyperinflation and volatile exchange rate hit the construction company with inflation threatening the viability and sustainability of long-term infrastructure development projects, given its impact on US$-denominated materials pricing.
“The group has a firm order book the execution of which may be negatively impacted by the prevailing instability in the current macro environment,” Mutiti said.
First Mutual Properties company secretary, Dulcie Kandwe, said the commercial property development activity remained constrained as there is limited new demand.
“Rental yields are expected to remain weak due to the slow nature of the price discovery process for rentals, coupled by limited upside on rentals due to excess supply of space,” Kandwe said.
Axia Corporation Limited said the continued shortages of foreign currency on the official auction system coupled by increased arbitrage and market distortions negatively affected the group’s operations through pricing challenges and value preservation as retail and distribution rank low on the auction allocation continuum.
The president of the Confederation of Zimbabwe Industries, Kurai Matsheza told Business Times that industry has plunged into a turmoil which could result in massive layoffs.
Matsheza said: “With the inflationary pressures and continuous depreciation of the local Zimbabwe dollar, the impact on production output and productivity is going to be negative. The current macroeconomic environment is not conducive for business growth. Most sectors of the economy may start to sneeze. With a slowdown in economic activity employment numbers will decline hence pushing more people into the poverty bracket.”
The Reserve Bank of Zimbabwe has been battling to disburse forex allotted from the auction system.
This has put a huge strain on industry. Companies are required to deposit the Zimbabwe dollar equivalent first with the Reserve Bank of Zimbabwe, meaning their Zimbabwe dollar funds continue to be locked up for several months as they await to be allocated forex.
“We are engaging the authorities so that they keep focusing on clearing the backlog as it is causing serious working capital challenges for all our members. Now that the auction size has been hovering around $25m a week, we hope the RBZ will address the backlogs,” Matsheza said.
University of Zimbabwe economics lecturer, Moses Chundu told Business Times industry was in dire-straits saying: “The current environment of high inflation, unstable exchange rate and diminishing purchasing power, have hit the industry.”
Another economist told Business Times that the delay in settling the forex backlog was detrimental to industry.
“The clearance of the auction backlog has taken longer than anticipated. This puts a huge strain on companies whose funds are still locked up for months while waiting to be allocated forex.
“A mechanism to clear the current backlog needs to be agreed with industry among others,” the economist said.
“The consumer purchase power has been eroded. Weak consumer demand affects local manufacturing companies. Increased dollarisation while salaries are paid in the Zimbabwe dollar means workers struggle to buy the United State dollar quoted products. Companies are faced with erosion of the Zimbabwe dollar balance sheet as the local currency continues to lose value.”
