Turmoil engulfs corporate sector

CLOUDINE MATOLA

Zimbabwe’s corporate sector is in crisis as a growing number of companies succumb to financial distress, forcing them into corporate rescue, judicial management, or receivership, Business Times can report.

The country’s deteriorating economic environment, characterised by liquidity shortages, high inflation, and policy uncertainty, has rendered many businesses unsustainable.

The government introduced corporate rescue mechanisms through Part XXIII of the Zimbabwe Insolvency Act [Chapter 6:07], which provides for judicial management, compromise, and restructuring of struggling companies. Despite this legal framework, the number of companies requiring intervention continues to escalate, highlighting the depth of economic turmoil.

Corporate rescue is a legal process aimed at rehabilitating financially troubled companies to prevent liquidation. When a company is placed under corporate rescue, a corporate rescue practitioner is appointed to take control of the business and assess whether it can be saved. The company continues operating, but major decisions require the approval of the practitioner. Debt restructuring, asset sales, or operational changes may be implemented to restore financial stability, and creditors may agree to reduced payments or extended repayment terms to keep the company afloat.

On the other hand, judicial management is a process where a financially distressed company is placed under court-appointed oversight. A judicial manager takes over operations, replacing existing management, and the company is temporarily protected from legal action by creditors. The judicial manager implements a turnaround strategy, which may involve restructuring debt, seeking new investments, or selling assets. If successful, the company is handed back to its original management. If not, it may proceed to liquidation.

Receivership, on the other hand, primarily aims at recovering debts for secured creditors. Unlike corporate rescue and judicial management, which focus on business survival, receivership is often a step toward liquidation. A receiver, usually appointed by a bank or creditor, takes control of the company’s assets with the primary goal of recovering funds owed to secured creditors. The receiver may sell company assets, restructure debt, or close parts of the business. In most cases, companies in receivership do not recover and end up being liquidated.

Recently, several high-profile companies have been placed under judicial management or corporate rescue due to financial distress.

Sinosteel ZIMASCO, a leading player in the ferrochrome industry, is battling a hostile takeover  by three Kwekwe businessmen. The company has approached the High Court to block the takeover.

Other companies facing significant challenges include Khayah Cement Limited (formerly Lafarge Cement Zimbabwe), which has been placed under administration due to operational and financial difficulties, resources firm Bindura Nickel Corporation (BNC), which is under administration, Food World, a supermarket chain, Beta Holdings, a large construction material supplier, Truworths Zimbabwe Limited, a clothing retailer, Cairns Foods, a food processing company, PG Industries, a building materials supplier, Air Zimbabwe, the national airline, which has been under judicial management for years, Hwange Colliery Company, Zimbabwe’s largest coal producer, and Makomo Resources, a key player in the coal mining sector.

Several other firms across various industries, including Border Timbers in the forestry sector, have also been affected.

Economist Dr. Prosper Chitambara attributes the rising number of companies seeking corporate rescue to the challenging economic and business environment in Zimbabwe.

“The sharp rise in the number of companies placed under judicial management points to a tough macroeconomic environment,” he said. “Many businesses are struggling to stay afloat due to the difficult operating conditions.”

Investment analyst Tafara Mtutu noted that the government’s tightening of monetary policy has exacerbated financial struggles for companies.

“An abrupt halt to capital flows from banks and the government has had a ripple effect, impacting working capital for many businesses,” he explained.

Enock Rukarwa, a research and investment consultant, stated that the liquidity crunch and limited funding have exposed many businesses.

“The contractionary stance adopted by the Treasury and the Reserve Bank of Zimbabwe to stabilize the new currency, ZiG, has created acute liquidity challenges,” he said.

“Limited funding has exposed many businesses, especially those without strong fundamentals, leading to widespread insolvency.”

Economist Eddie Cross criticised both the Treasury and the Reserve Bank of Zimbabwe (RBZ) for policies that have undermined the economy. He pointed to the disparities between the official and parallel exchange rates, which force companies to trade at an unrealistic rate while suppliers demand US dollar payments or use forward pricing models. He also emphasized that Zimbabwe’s local currency is not widely accepted or easily convertible to US dollars, compounding the challenges for businesses. Additionally, Cross criticised the government’s failure to service its liabilities, which has worsened the financial crisis for companies.

“The main problem lies in both monetary and fiscal policies,” Cross said.

“The disparities between the parallel and official exchange rates are forcing companies to operate at unsustainable rates. Moreover, the local currency is not acceptable in the market, which further exacerbates the situation.”

Economic analyst Victor Boroma argued that the authorities’ failure to address the currency crisis has led to continuous depreciation and uncertainty. He explained that foreign exchange-related losses are one of the key challenges for businesses, as companies must replenish stock using US dollars but cannot adjust their prices in real-time to match fluctuating exchange rates. Boroma also noted that excessive taxation has become a significant burden on compliant companies, forcing them to raise prices to cover new tax obligations. He urged authorities to allow a market-determined exchange rate and permit the repatriation of dividends to restore confidence.

Professor Gift Mugano warned that Zimbabwean firms will continue to struggle throughout 2025 due to the severe exchange rate losses incurred after the September 27 devaluation. He explained that companies invoiced stock at one exchange rate, only for the central bank to devalue the currency by over 43%, wiping out profit margins. Mugano pointed to tight liquidity conditions, electricity shortages, and a punitive tax regime as major obstacles to business sustainability.

“I predicted that 2025 would be a more difficult year than 2024, and now we’re seeing that prediction come true,” Mugano said. “The currency crisis is the primary driver of company closures in Zimbabwe.”

Economist Vince Musewe expressed concern that the current crisis would persist due to a lack of tangible solutions. “The currency issues and informality are not going to be resolved anytime soon. We are in a season of paralysis and business atrophy,” he said.

Business leaders have issued urgent warnings, describing the situation as a bloodbath and an unprecedented economic carnage. They argue that excessive taxation, exchange rate volatility, high public debt, inflation, and erratic power supply are creating an unsustainable environment for businesses. Executives stress the need for the permanent adoption of the multi-currency system, cautioning that plans to phase it out by 2030 would destabilize financial markets and disrupt operations. They also dismissed the idea of transitioning to a mono-currency system, noting that the Zimbabwe Gold (ZiG) remains too weak and volatile to support economic stability.

Oswell Binha, chairman of the CEO Africa Roundtable, emphasized the importance of economic certainty. “Government policies must prioritize macroeconomic stability before pursuing a mono-currency system,” he said. “Excessive taxation is stifling business growth, and the exchange rate must be fully liberalised to restore confidence and eliminate inefficiencies.”

The message from business leaders is clear, immediate action is needed. The government must stabilise the economy, reform taxation, ensure exchange rate flexibility, and address the liquidity crisis. Failure to act will push more companies into distress, further weakening Zimbabwe’s fragile economy.

As economic headwinds intensify, the government faces growing pressure to implement bold, business-friendly policies—or risk deepening the country’s economic crisis.