eBusiness Weekly
Michael Tome
BRIDGEFORT Capital Limited, formerly MedTech Holdings, says the unremitting devaluation of the local currency continues to expose its business, constraining the smooth flow of operations.
In the trading update for the first quarter to 31 March 2023, the firm said the situation was being exacerbated by low foreign currency allocations by the Reserve Bank of Zimbabwe (RBZ) auction market, a situation that was forcing the firm to hold on to local currency for future auction bidding purposes, thereby losing value.
Local currency’s value has immensely depreciated against the US dollar since the beginning of 2023, particularly on the parallel market, whose price has greatly been adopted by retailers and several service providers for benchmarking.
The firm which manufactures well-known petroleum jelly, glycerine, and hygiene products, sells the bulk of its merchandise to supermarkets meaning local currency remittances, and in many instances takes ample time to settle the payments which also adds on to the company’s devaluation threat.
According to Bridgefort, the operating environment has worsened in the first quarter of 2023 and remains difficult and unpredictable compared to the previous quarter.
In the quarter under review, interbank exchange rates moved to $930 per US$1 at the end of March 2023 from $684 at the end of 2022 reflecting a 68 percent increase.
In May 2023 alone, the local unit erased by over 40 percent of its average parallel market value as it slid from $2200 per US$1 in April to the current range of $3800 – $4000.
The RBZ’s average weighted rate on the other hand is now priced at $2577 to US$1 since Tuesday 30 May 2023.
Bridgefort indicated that formal retail USD sales have been decreasing of late which is having a negative impact on business and causing more dependency and pressure on the auction.
“The MedTech businesses are significantly exposed to the devaluation of the Zimbabwe dollar due to Zimbabwe dollar being held for auction bidding purposes, where allocations are typically a lot less than the foreign currency applied for.
“In addition, the bulk of sales is to supermarkets in local currency which take extended periods to pay, further exposing the businesses to devaluation risk. Borrowings are typically secured to mitigate this risk but with the high-interest rates the level of borrowings has been inadequate to hedge the ZWL exposure,” said Bridgefort Capital chief executive officer Vernon Lapham.
Adding that the company has lately been pursuing several deals but progress has been minimal mainly hindered by the preference for share trading in USD instead of local currency.
“The company remains focused on the conclusion of acquisitions that are in the works whilst considering a migration to the Victoria Falls Stock Exchange at the appropriate time,” he said.
The obtaining local currency devaluation and (steep) inflation trend prompted the treasury to make policy pronouncements at the beginning of May 2023 followed by another set of measures on 29 May 2023, as the government try to sort out the economic woes.
The new measures proffer economic support measures aimed at stabilising exchange rate, promote the demand and wider use of the domestic currency as well as encourage foreign currency deposits in the banking sector.
They entail transferring full responsibility of paying exporters for the foreign currency surrender portion to eliminate ungoverned money supply growth.
According to a local think tank, Zimbabwe Coalition on Debt and Development (ZIMCODD) the policy pronouncements are a positive step towards attaining stability if implemented properly and in a transparent manner.
“The policy stance is commendable as it signals the government’s confidence in its own currency and helps shore up demand for the Zimbabwean dollar. As demand increases, the Zimbabwean dollar will regain and sustain its value against the US dollar (USD). By increasing tax revenue collected in local currency, demand for Zimbabwe Dollar will be created as people liquidate USD holdings to pay their dues to the taxman.
“All things being equal, this measure should help save the Zimbabwean dollar which at the moment is on the verge of total collapse and market rejection,” said ZimCodd in its commentary on additional economic measures instituted by the treasury.
Bridgefort Capital which recently rebranded from MedTech Holdings Limited is a diversified group of companies engaged in the manufacturing, marketing, distribution of health, hygiene, beauty, and pharmaceutical products.
Up until recently, the group operated Zimbabwe Pharmaceuticals, a Bulawayo-based pharmaceutical manufacturer.
