TINASHE MAKICHI/ LIVINGSTONE MARUFU
The re-introduction of the United States dollar as a transacting currency has pushed up Turnall Holdings Limited’s cost of production making its products uncompetitive on the export market, a company executive has said.
Government last year in June banned the use of foreign currencies, leaving the Zimbabwe dollar as the sole legal tender in the country.
But, in March this year, the Reserve Bank of Zimbabwe, was forced to re-introduce the use of the foreign currencies for the purchase of local goods and services, exactly eight months after it instituted the exclusive use of the Zimbabwe dollar, a move meant to mitigate the impact of Covid-19 pandemic.
The exchange rate for the use of free funds to pay for goods and services was fixed at ZWL$25:US$1. This week, however, the Zimbabwe dollar was trading at ZWL$81.7:US$1.
Turnall acting managing director, Samuel Mavende, told Business Times this week that the high production costs has crippled demand on the regional market as they cannot sell below the cost of production.
Mavende said the prices being charged are way above those around the region as the cost of raw materials are quoted in the greenback.
This has, he said, pushed the cost of production to levels that rendered Turnall products uncompetitive compared to similar products coming out of other regional countries.
Mavende said Turnall was no longer considering opening up new markets in the region but would focus on existing markets.
“We are exporting to the same markets and we have no plans to open new markets soon.
This has been necessitated by Covid-19 because you need physical presence in new markets.
Also the re-introduction of US$ has made our exports uncompetitive,” Mavende told Business Times.
Turnall’s focus on export had been driven by the company’s appetite for foreign currency required to import critical raw materials.
The company is currently exporting around 100 tonnes of tiles and PVCs to South Africa.
During the second quarter of the year, Turnall did not export anything as the supply chains were disrupted by Covid-19 pandemic.
Borders were closed and there was limited international logistics movement.
According to the World Trade Organisation, global trade is expected to plummet by 37% and this is likely to result in slow progress of Zimbabwe’s efforts to increase exports.
ZimTrade projects Zimbabwe’s total exports receipts to fall by 5% this year to US$3.99bn due to Covid-19 lockdown restrictions.
Last year, Zimbabwe’s total exports were US$4.2bn. In a trading update published this week, Turnall’s volumes for the quarter to September 30 2020 soared 81% from the previous quarter on the back of the easing of restrictions.
The previous quarter resulted in restrictions in the movement of people and materials.
The performance also comes at a time when the company is operating in a stable environment due to the stability of the foreign exchange rate after the introduction of the foreign currency auction system by the Reserve Bank of Zimbabwe.
Turnall board chairman Bothwell Nyajeka said the prices for goods and services have relatively remained stable and this has enabled the business sector to improve the planning process.
“The group’s sales volumes for the quarter were 11% above comparable period last year and 81% above the previous Covid-19 impacted quarter.
Cumulative sales volumes for the nine months were 3% above the comparable period last year,” Nyajeka said.
The group’s exports were 3% of sales volumes for the period with exports negatively affected by the Covid-19 pandemic and resultant transit restrictions.
He said production volumes for the period were 31% above the comparable period last year.
Cumulative production volumes were 3% below the volumes for the comparable period previous year.
In the outlook, Turnall is expecting a higher seasonal demand to continue in the fourth quarter as customers’ roof their properties before the onset of the rains.