eBusiness Weekly
Business Writer
VOLATILE exchange rate and inflation pressures that have characterised this January are throwing hopes of a progressive 2024 manufacturing sector performance in a quandary.
According to analysts, this is expected to be compounded by expensive capital, relentless power outages, and the El Nino effect that has minimised the cultivated land and crop performance in the current summer season.
Zimbabwe’s dollar continues with its losing streak as inflation has yet again begun to show its ugly head in the economy.
Foreign exchange rates are spiraling out of control on the parallel market as the local unit slid to a range of $14 000 – $15 000 against the US$1 as of yesterday, while the official exchange rate is hovering around $9499 to the greenback.
Analysts are concerned and they have implored the relevant authorities to step forward and reign in the rampant exchange rate movements and disparities before it is too late.
Inflation often leads to an increase in raw materials, energy and labour prices whose ripple effect raises production costs for manufacturing companies as they fork out more for inputs.
This subsequently leads to a reduction of competitiveness and lower profit margins.
Retailers in particular continue to be in a fix as they are not able to price above the government-prescribed margins.
Industrialists, on the other hand, anticipant of a rough operating environment in 2024 owing to the prevailing El Nino phenomenon that is projected to jeopardise the outcome of the current summer cropping season.
El Niño poses significant effects on agriculture, which is a significant source of raw materials to many downstream industries particularly the fast-moving consumer goods (FMCG) and the livestock feed production segment.
This climate phenomenon is known to reduce crop quality and yield as its characteristics which include drought, flooding, temperature fluctuations and pest/disease outbreaks all contribute to reduced agricultural productivity and irrigation water shortages.
El Niño effects are widespread as they also affect livestock and fisheries owing to drought conditions which lead to scarcity of grazing lands, reduced fodder availability and water scarcity for livestock.
The crop situation is, however, in a healthy position on the back of almost countrywide downpours experienced between mid-December 2023 and January 2024.
Not to be left out is the potential threat of frequent power outages or high cost of energy (from diesel generators) given the current state of water levels at Lake Kariba.
Kariba South Hydropower Station is one of the country’s major sources of electricity and its behaviour has been sluggish lately.
Hopes are, however, pinned on the recently refurbished Hwange Thermal Power Station’s units 7 and 8 which have brought a modicum of stability to the country’s electricity supply situation.
Also, the lack of cheap and long-term capital from local financiers is expected to continue choking operations sustenance for many companies as they require lengthy periods to realise returns.
The funding restraints have predominantly been due to a finance sector that does not have flexible conditions when granting loans, let alone long-term finance schemes.
Long-term financing provides businesses with a more stable debt management instrument than short-term loans.
They also allow borrowers to have more security when budgeting for costs and expenses as the period of financing is fairly long.
United Nations Industrial Development Organisation (UNIDO) country representative, Tichaona Mushayandebvu, said Zimbabwe needs to come up with a mechanism to ensure the manufacturers get patient industrial capital to optimise production in the various segments of the economy.
“Having industrial capital is one of the sticking points and a mammoth task. You need patient capital if you really want to industrialise in 2024 going forward, you cannot do so using commercial banking facilities or short-term money, you need serious industrial capital, which has a long-term horizon of eight – 10 years,” said Mushayandebvu while addressing industrialists last week.
According to Equity Axis a financial research firm, while some positive signs suggest the industry may be poised for growth in the long run, the year 2024 is pro)jected to see a slow-down 2024, partly affected by power outages, inflation, exchange rate pressures and the El Nino effect.
