eBusiness Weekly
Nelson Gahadza
Leading retail group, Ok Zimbabwe, says interest rates at 200 percent have made borrowing costs excessive resulting in liquidity pressures across the entire supply chain.
While the company affirms that its stores are reasonably stocked, it continues to experience temporary supply gaps on some key volume drivers.
OK Zimbabwe is a leading retail group in Zimbabwe with a product range that extends from groceries and houseware products to clothing and textiles.
The Reserve Bank of Zimbabwe (RBZ) hiked interest rates from 80 percent to 200 percent in a bid to block cheaper speculative borrowing that had adverse effects on exchange rates.
The developments came after investigations by the central bank’s Financial Intelligence Unit (FIU) revealed that some corporates were manipulating the loans systems resulting in double dipping by getting multiple loans for similar purposes across the banks.
The central bank in its recent Monetary Policy Statement (MPS), maintained the current Bank policy rate of 200 percent, the deposit interest rates on savings and time deposits at 40 percent and 80 percent per annum respectively, but indicated these will be reviewed in line with inflation developments.
Ok Zimbabwe in its update for the period to June 30, 2022 said that the interest rates that were with effect from July 1, 2022, also affected on debt arrangements entered into before that date.
“This has made borrowing costs excessive resulting in liquidity pressures across the entire supply chain,” said the retail chain.
A value chain is a set of activities that a company performs in order to deliver a product to customers.
All the stages involved in moving a product from its manufacturing to distribution, including design, manufacturing, distribution, and marketing, make up a value chain.
Ok Zimbabwe noted that inflation
headwinds are expected to dominate the trading environment in the short term, with the market desperately in need of a foreign exchange pricing system that is market determined and stable.
It noted that despite market wide liquidity challenges, the business remains on sound footing and has in place measures to cover not only all working capital needs, but also planned capital expenditure in line with its growth strategy.
From a banking perspective, Nedbank Zimbabwe recently said that the increase in interest rates by the RBZ initially impacted current facilities on the Bank’s books.
It said that the big impact is on reduced credit uptake which means though current books are repriced, there will be no much growth in ZWL lending, which is why Banks have focused more on USD lending.
Zimbabwe’s only cable manufacturer, Cafca Limited, in a recent update said that the interest rates above 200 percent will materially reduce profits even though the interest bill will still be at least four times covered by profit.
According to the Confederation of Zimbabwe Industries (CZI), the general policy thrust, which was also reflected in the 2022 Midterm budget review, is that the growth in broad money is driven by increases in lending, including both to the private sector and Government.
However, it said that while lending is indeed one of the main drivers of growth, it is also the lifeblood of industrial development.
“The interest rate of 200 percent is already having negative effects on industry, as they are struggling to profitably borrow.
“This also underlines the difficulties that policy makers have in trying to strike a balance between the need to control money supply without curtailing growth,” CZI said in an update.
