..Shrinking trade, Covid-19 push firms on the edge
PHILLIMON MHLANGA
The year 2020 was rocky for business as firms battled to mitigate the effects of the Covid-19 pandemic, foreign currency and power shortages, captains of industry said this week.
The economy was also beset by curtailed net capital flows, declining investor confidence, rising unemployment, rising raw material prices and dented sentiments, which inflicted huge damage and wrecked the Zimbabwe’s fragile economy, apparently pushing businesses on the edge.
Captains of industry told Business Times this week that the situation has been so dire and might take many years to take local companies off the life support and start revitalising them.
Many have become vulnerable as the economy is expected to plunge into recession this year and have warned of more company closures.
They are sceptical that a quick solution is even feasible; saying the worst is expected next year, unless drastic reforms are made, which is highly unlikely.
The pandemic has generated much volatility, no matter what industry one is in, they are all feeling the heat of the virus.
They are all inherently open to more risks. Unlike big or publicly listed companies who end up in a bankruptcy court when closing, small businesses seem to vanish without trace, quietly closing one’s doors and not putting up a loud fight.
In fact, the overwhelming majority-big and small- are all hurt and have been left in shambles and are now in survival mode, scrambling for robust survival strategies.
And many are completely unaware of the pressure building up again as the threat of a second wave of the deadly virus is building up.
Several businesses permanently closed since the pandemic struck and jobs were lost.
Those that are still operating are teetering on the verge of collapse meaning more layoffs are expected in 2021 as the pandemic rages on.
Employers’ Confederation of Zimbabwe president Israel Murefu described 2020 as “one of the most difficult in living memory” which was characterised by highest inflation in a decade and serious devaluation of the local currency coupled with debilitating drought which came hardly after the devastating Cyclone Idai in the previous year.
“The Covid-19 was, however, the most notable and devastating as well as disruptive phenomena, which saw many businesses struggling to keep their heads above water.
So, economically, it was one of the worst years we have ever suffered as business and a nation.
And we need more concerted efforts to fight the pandemic and ensure we get back to some modicum of normalcy in the economy,” Murefu said.
“It [2020] also saw frustrating fuel, electricity and water shortages.
All these issues culminated in the loss of value to businesses and employees alike with capacity utilisation at probably its lowest culminating in rampant job losses and increased poverty levels.”
For businesses, the Covid-19 pandemic was devastating due to mandatory lockdowns and social distancing restrictions imposed to curb the spread of the deadly virus.Small businesses or the informal sector, which relies on walk in-person traffic to drive sales, were especially hard hit.
Formal jobs in Zimbabwe are now rare with the informal sector now absorbing an estimated more than 90% of the country’s workforce.
Businesses are not expected to recover to pre-pandemic levels before 2022.
This has also seen digital business models increasing this year with consumers flocking to e-commerce due to public health restrictions amid Covid-19 pandemic.
It also meant that those that did not diversify suffered the consequences.
A number of companies suffered massive plunge in revenues due to a demand shock, and the problem threatened the supply of goods and services.
Analysts said a business’ sink or swim factor really boils down to their ability to keep revenue coming in, and keeping the cash register ringing to be able to sustain any hardship the business might suffer.
Local CEOs failed to defend their businesses resulting in companies’ revenues plunging to unprecedented levels.
In the absence of healthy cash-flows, which would ordinarily act as a buffer in a crisis like this and is the oxygen of any business, it was inevitable that cut backs would happen.
Cash-flow is the oxygen of any business. It’s any business’ beating heart and blood.
Consequently, many businesses in Zimbabwe failed or folded during 2020, adding to a growing corporate graveyard, as they ran out of funding, with an inability to generate new money.
Many workers have also been thrown onto the streets as a result.“For many businesses, it [the year 2020] was a tough year.
It was difficult to plan and execute strategies.
Many were affected in a big way with quite a number closing for good,” the Zimbabwe National Chamber of Commerce vice president, Mashonaland, Mike Kamungeremu told Business Times this week.
Kamungeremu, who is also the managing director of Tendo Electronics, added that the pandemic also created some opportunities for some who pushed deeper into the digital tools space riding on innovation.
Confederation of Zimbabwe Industries president Henry Ruzvidzo while first half of the year was difficult, the economy had a second half that was “much better” as businesses opened up and “some” stability of the macro-economic environment was re-established.
“The challenges of fuel, power, foreign currency supply and high inflation, which had hit businesses hard, were to some extent resolved after mid-year and have allowed for some recovery of industry,” Ruzvidzo said.
Although President Emmerson Mnangagwa’s administration seems to be more optimistic about the economic recovery and growth, several captains of industry and a neutral measure of economic performance points to a negative outlook.
Good news, however, is that there is a new vaccine to fight Covid-19 developed by United States of America drug maker Pfizer, which was approved last week.
And distribution of the first doses began this last Sunday in the US and could spread to other parts of the world, including Zimbabwe.
Some believe this could be the beginning of the end of the pandemic that has killed many and paralysed large parts of the economies across the globe.
In Zimbabwe, according to official data obtained from the Ministry of Health and Child Care, at least 11 220 cases have been confirmed, including more than 9 360 recoveries and more than 300 deaths were recorded.
Despite the approval of the vaccine, many, however, believe that there could still be many more hurdles to come.
The pandemic, several analysts say, is one of the many factors contributing to the need to re-shape the future of local businesses and the way people work.
“It’s a critical moment for business. We lost money.
Many companies closed.
Many workers were retrenched.
And we have written it off. It’s actually the worst year for business.
And, we might lose many more (companies), something which will create a long drag on the ability of the economy to recover.
I tell you, we haven’t even seen the tip of the iceberg of company closures,” a Harare business executive with a listed conglomerate who requested anonymity told Business Times this week.
Government has tried to salvage the economy by unveiling an ZWL$18bn stimulus, meant to help businesses ride out of the pandemic.
But, many believed this did not help the industry recover as the money is said to have benefited only a few recipients.
There is, however, some bit of stability, following a decision by the fiscal and monetary authorities to introduce the foreign currency auction system in the second half of the year, which sort of curtailed the unprecedented fall of the Zimbabwe dollar against the greenback as well as other currencies.
The runaway inflation was also dealt with.
