eBusiness Weekly
Nelson Gahadza
Formal businesses in Zimbabwe are under severe stress due to legacy issues that continue to haunt the economy, chief among them high inflation, foreign exchange inefficiencies and disparities, economists have said.
Selected listed companies that recently published half-year financials are in distress, largely due to a difficult operating environment.
But the government has maintained that the operational environment has improved and will continue to institute measures that will drive economic growth.
Economists who spoke to Business Weekly said operating a business in Zimbabwe has its unique challenges, which are both economic and political.
“An unstable economic environment makes it very difficult to plan, execute and get the anticipated results. The issues of high operating costs and uncompetitive pricing are key problems that need attention,” said economist Vince Musewe.
He added that a divisive political approach increases business risk; hence, there is a need for a collaborative approach to come up with win-win solutions to the benefit of the economy.
Dairibord Holdings, in its half-year financials to June 2023, said the rapid depreciation of the local currency between May and June 2023 resulted in significant foreign exchange losses arising from foreign currency-denominated obligations.
Resultantly, the group realised a foreign exchange loss of $27,49 billion, which impacted the operating performance and $42,55 billion, which increased the finance costs.
The company posted a loss for the year of $4.65 billion owing to high exchange rate losses. Another economist, Victor Bhoroma, said the distress being witnessed across various blue-chip companies in the formal sector is a result of over two years of high inflation, foreign exchange inefficiencies, disparities, misallocation and multi-tier pricing.
“This has led to foreign exchange losses and cash flow challenges. Inflation has also affected consumer demand and prospects for the short term. All these aspects are policy-induced with the central bank at the core of the economic instability,” he said.
His sentiments were echoed by Eddie Cross, an economist, who said businesses are under severe stress due to many causes, such as the use of the US dollar, which undermines competitiveness and increases costs.
“The pressure from cheap imports stimulated by the effective dollarisation of the economy led to increased smuggling and money laundering. In addition, they struggle to compete with the informal traders who pay no taxes and have low overhead and costs,” he said.
Zimbabwe’s largest diversified group, Innscor Africa, said in its recent financials that the short- to medium-term outlook remains uncertain, especially in the formal trade, exacerbated by difficult economic conditions.
It said these challenges are expected to persist for the foreseeable future, but the group remains resilient in its efforts to sustain volume growth and maximise capacity utilisation, particularly across the group’s new investment areas.
Proplastics Limited said although it expects the operating environment to remain challenging, the company expects the future to be clearer with the 2023 elections having been concluded.
Dr Prosper Chitambara, an economist, said the environment has been a challenge this year in particular.
“The economy has been battling chronic inflation and this has affected many businesses. The challenges are emanating from a challenging business environment; even though the government is trying to address it, it still remains a challenge,” he said.
He noted that the high cost of finance is a major challenge, whether borrowing money in USD terms or in Zim Dollar terms, and this is negatively impacting businesses.
“In a normal environment, they would require working capital from the banks. But the cost is now prohibitive due to high interest rates, and this eats into their profitability,” said Dr Chitambara.
Major retail players from diverse sections of the economy, like food, clothing, textiles, and footwear, are feeling pressure on volumes, resulting in reduced margins and profitability.
Metro Peech recently folded operations, while entities like Choppies are apparently struggling, as witnessed by the recent closure of the Harare Street branch in the capital due to rental issues.
Choppies, in its recent financials, said Zimbabwean consumers have significantly shifted to shopping at smaller stores from formal retailers because smaller outlets are able to operate with lower overhead costs.
