eBusiness Weekly
Nelson Gahadza
Numerous Zimbabwe Stock Exchange (ZSE) listed companies are worried about increasing foreign currency shortages and exchange rate distortions that largely reign supreme unabated.
The companies in different trading updates, said despite the difficult and challenging trading environment, they have remained resilient, but underlying issues require attention.
ART Corporation (ART) said the retooling of the group’s manufacturing units will enable it to capture opportunities in the region and sustain performance.
“However, the Group is wary of the risks that its export drive faces if the exchange rate distortions remain unabated,” said the company.
ART added that the depreciation of the ZWL by 25 percent against the US dollar had an adverse impact on inflation and margins given the price in-elasticity in most market segments.
The gap between the official and parallel market rates has been widening with the Zimbabwe dollar trading at $220 to the US dollar on black market.
The deteriorating exchange rate has largely resulted in erosion of consumer earnings, which in turn negatively affect businesses. As a result, the business is passing on to the consumer the full impact of cost increases on declining disposable incomes.
National Tyre Services (NTS) said operations were constrained by the harsh economic climate given the negative effects of Covid-19 pandemic, surge in inflation and inadequate foreign currency to import tyres.
“Power supply outages impacted production in our retreading factories, negatively affecting standard customer turnaround time.”
Meikles Limited said on the inflation front; there was a reversal of the sustained disinflation trend witnessed during the first half of its financial year.
It said the environment has been characterised by elevated inflation driven primarily by the depreciation of the exchange rate.
“The rising inflation led to escalations in operating costs, putting pressure on profit margins,” the group said.
Seed Co Limited on its part said the economic front has largely been characterised by the continued widening of the gap between the official and parallel exchange rates presenting pricing and value-preservation challenges to the company.
“In addition, high interest rates, under the monetary policy regime aimed at containing local money supply, made the trading environment extremely difficult,” the company noted.
OK Zimbabwe said the persistent shortages of foreign currency in the broader macroeconomic environment continued to create inflationary headwinds that resulted in a six percent average month-on-month.
The supermarket retail chain said debilitating power shortages from national utility ZESA became unpredictable and unbearably long as alternative power sources remained expensive, inadequate and increased operating costs for business.
Brick manufacturer, Willdale, said the depreciating Zimdollar, which moved from $87,67 to the US dollar as of last year to an average $118 and rising inflation continued to cause uncertainty in the business environment.
Packaging company, Nampak, said the continued lack of foreign exchange at affordable rates, shortage of raw materials and the worldwide logistics bottlenecks continue to curtail the ability to supply customers with the entire product they need when it is required.
Meanwhile, the companies are hoping that the foreign currency auction platform will grow further to cater for the industry’s needs.
Several of them will continue to focus on cost management to mitigate the adverse impact of rising inflation to profit margins.
Others are of the view that Government efforts in fighting inflation through a restrictive monetary policy and focus on fiscal sustainability are expected to continue steering the economy from inflationary headwinds.
The Confederation of Zimbabwe Retailers (CZR) President, Denford Mutashu, said the detrimental effect is price and inflation instability that will drive faster erosion of incomes.
“There is a need to continuously work towards convergence and contain money supply in the general economy.
“It is critical to address the high level of informalisation if we ought to win the fight,” he said.
Freelance economic analyst Victor Bhoroma said inflation still remains way above the regional average and the de-dollarisation plan failed right from the start.
He said this has an effect of reducing disposable incomes for labour and consumers while for businesses, high levels of inflation and depreciation of the local currency poses instability and uncertainty concerns across all business operations.
