Businesses decry harsh operating environment

07 Oct, 2022 - 00:10 0 Views
Businesses decry harsh operating environment

eBusiness Weekly

Business Writer

Zimbabwe Stock Exchange listed firms, reporting their financials for the half year to June 2022, have decried the operating environment describing the first half of the year as turbulent, fraught with challenges and highly uncertain.

Confirming what has dominated national discourse during the period under review, the firms said challenges that characterised the operating environment had increased business risks and caused significant pressure on relationships with suppliers of raw materials.

The first half of the year was characterised by elevated inflation and a fast depreciating local currency.

By the end of June 2022, annual inflation stood at 191,6 percent while officially the Zimbabwe dollar had depreciated from $108 per US$1 at the beginning of the year to $366,268 per greenback at the end of the period under review.

Some of the measures put in place to address the challenges seemed to worsen the situation as businesses “suffered shocks”.

In a statement accompanying its financials GB Holdings chairman Godfrey Nhemachena said while it is expected that in the long run these interventions will have a stabilising effect on the exchange and inflation rates obtaining in the economy, businesses had already “suffered immediate shocks in reduced working capital, debtor default and increased import costs”.

At Proplastics, chairman Gregory Sebborn (pictured right) said the general macroeconomic environment was turbulent during the period under review, characterized by foreign currency shortages, multiple exchange rates and the upward movement in prices.

“The settlement of foreign currency allocations from the Auction platform continued to lag and this caused significant pressure on the procurement of requisite raw materials for the business and on relationships with preferred suppliers of these raw materials,” said Sebborn.

He said the deteriorating exchange rate and high inflation had a significant impact on the financial performance of the business.

Despite recording a trading profit from normal operations, the Group reported a loss for the period as a result of having to account for significant exchange losses arising from the inability to pay foreign creditors timeously.

“In addition to these economic challenges, several policy pronouncements were made during the period whose effect, regrettably, was negative on the business and the economy at large.

“Borrowing rates were significantly increased towards the end of the period, impacting negatively on the cost of doing business,” said Sebborn.

In addition, Sebborn said the supply of electricity was unstable during the period, causing massive interruptions to production with the business having to shut the factory on several occasions.

“It is estimated that business lost approximately 19 days of production due to power supply interruptions during the period,” he said.

Given the above stated challenges, the business went into a value preservation mode and resultantly the financial performance was subdued.

At First Mutual Properties, chairman Elisha Moyo said global issues coupled with climate change had important implications for Zimbabwe’s operating environment,cost of doing business and hence strategy implementation as well as business viability.

Axia chairman Luke Ngwerume said the period under review “brought about concerns of instability as inflationary pressures were being felt on the back of the volatile exchange rate”.

He said since June 2022, the Zimbabwe economy witnessed shock therapy through the measures taken by fiscal and monetary authorities.

While admitting that the “desired effects have materialised”, the lack of clarity in the legislation relating to the currency of payment of certain taxes “creates uncertainties and poses business risks especially in an environment where there are material disparities in the exchange rates”.

“The increase in prices of key inputs due to the ongoing Russia/Ukraine war and the low 2021/22 agricultural output, pose risks to the economic outlook,” Ngwerume said.

Looking ahead, he said the operating environment remains challenging and both fiscal and monetary authorities face a huge task of continuously addressing macro-economic adversities on the back of an unfolding global recession.

He, however, said the firm remains “hopeful that progressive and consistent policies will be adopted and that they will be aimed at building confidence and promoting stability in the market”.

Sebborn echoed the same sentiment about the future saying although expectations are that the operating environment will “continue being fraught with challenges” the Group still expects demand for its products to improve thereby increasing the Group’s performance in the second half of the year.

“We expect this demand to be underpinned by both public and private sector-initiated projects,” he said.

“In addition, the power supply situation seems to have improved slightly from the beginning of the year.”

Moyo said although the business outlook remains highly uncertain the Company will continue to explore pragmatic strategies to grow the shareholder value including investing in high-yielding properties which will hedge the Company against inflation and exchange rate risks.

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