Crunch time for Zimbabwe firms

The main driver of demand deterioration is the re-introduction of the Zimbabwe dollar, according to several company leaders.

The bloodbath in the sales floors which has resulted in double-digit volume strain, they said, will continue for the remainder of this year due to Covid-19 pandemic, something which will further worsen considerable de-growth in sales in local companies.

This reflects, in many cases, a softer demand across markets largely driven by a weak consumer base. The long-suffering consumers are experiencing significant reductions in disposable income.

Zimbabwe is experiencing hyperinflation, which is ravaging the economy. With the authorities struggling to get the economy back on track, the surge in the prices of goods has helped push Zimbabwe’s annual inflation rate to 676% in March.

Depreciation pressures on the Zimbabwe dollar has not eased even after the government moved to ease the strain of the Zimbabwe dollar through policies, which many describe as toxic and inconsistent. The depreciation has resulted in prices of goods reaching all-time highs.

And the knock-on effects of the local currency’s weak performance have ravaged the already fragile economy. Prices are linked to the unstable exchange rate.

This week, one needed about ZWL$54 to buy a US$1 on the parallel market. On the interbank market, the US$1 was trading at ZWL$25, but it’s hardly available.

The country’s power utility ZESA, has also not been guaranteeing electricity supply to industry as almost, until recently, daily power cuts, which has been harming production resulting in volume reduction in local companies. Power cuts interrupted production processes.

The situation has been exacerbated by Covid-19 pandemic, which has already adversely impacted the national economy, and is likely to have Crunch time for Zim firms a significant negative impact on the already fragile companies’ performance. It will exacerbate the already difficult economic situation in Zimbabwe.

The new order has created new risks and uncertainties and rising economic disruptions.

Several local companies have since reduced operations in response to Covid-19, the current economic conditions and diminishing yields.

This comes as consumers are under financial pressure and now want to spend wisely which is now key when making lifestyle choices and taking on financial commitments.

In statements accompanying financial results, a number of companies are not expecting respite any time soon.

The country’s largest brewer, Delta Corporation lager beer volumes have declined 42% in the 12 months to March 30,2020 compared to the same period last year. Sorghum beer volumes declined by 25% during the year. Sparkling beverages volumes declined 17% during the year.

Beverages volumes at Schweppes Holdings declined by 24% for the quarter to March 30 due to low consumer demand.

Spirits and wine maker, African Distillers Limited registered a volume reduction of 35% on prior year. The company’s board chairman Pearson Govero said consumer trends have shown a shift from premium and mainstream segments to value products in reaction to the erosion of disposable incomes. Performance in the spirit segment was negatively impacted by the prevalence of counterfeits and illicit alcoholic beverages.

The outlook, Govero pointed out, is becoming bleaker.

“The future remains uncertain given the ongoing shortage of foreign currency, hyperinflation and poor agricultural season. This will impact negatively on volume and margin performance. The company
will continue to explore strategies designed to best serve the market and ensure business continuity,” Govero said.

The country’s largest milk producer, Dairibord Holdings sales volumes dropped 17% against an industry average decline of 23% for the manufacturing sector.

While the liquid milk category achieved a marginal growth of 0.2% due to the increase in local raw milk intake, the beverages category declined by 23%. The food category which accounts for 9% of the sales volumes declined by 39%, Dairibord Holdings chairman Josphat Sachikonye said.

Zimbabwe’s leading pork producer, Colcom Foods Limited, experienced a 17% decline in overall sales volumes. Things were not also well at National Foods as volumes were subdued. National Foods chairman Todd Moyo expects the situation to continue unabated.

“Given the difficult environment for consumers, our expectation is that volumes in general will remain subdued, with the exception of maize category,” Moyo said.

“The group will continue with its growth agenda in the snacks, biscuits, and cereals categories which are logical forward integration opportunities from the basic milling portfolio. Whilst demand in
these categories is currently muted, the work on broadening the offering in these categories will continue, developing the company’s repertoire for improved economic circumstances.”

Addington Chinake, the Innscor Africa chairman also painted a gloomy picture, adding that the conglomerate was seriously considering an alternative source of energy. “Electricity shortages are likely to persist at least for the medium term and accordingly we will investigate alternative sources of energy for our individual manufacturing sites.”

Truworths Limited chief executive officer, Bekithemba Ndebele said: “Affordability was an issue due to discretionary income lagging inflation. Product volumes and availability were constrained due to a shortage of foreign exchange and local liquidity which adversely affected the local supply base. Imported international brands volumes have come down.”

Source: Business Times