LISTED firms say tight monetary policies introduced at the beginning of the third quarter of 2022 significantly dampened consumption and investment levels in the period under review.
This week saw a flurry of trading updates from listed firms, with the majority reporting a massive decline in sales volume as aggregate demand suffered from a hawkish monetary policy stance.
In July this year the Reserve Bank of Zimbabwe (RBZ) hiked the bank policy rate to 200 percent from 80 percent and introduced gold coins as part of measures to curb bloating inflationary challenges.
This according to listed firms led to liquidity crunch across value chains and saw aggregate demand tumbling.
Edgars Stores Limited chief executive officer Tjeludo Ndlovu summed it all up and said the liquidity crunch had resulted in customers cutting on purchases in local currency, negatively affecting sales growth.
Third quarter unit sales for the Edgars Group were down 26 percent from prior year, Ndlovu said in a trading update for the 13 weeks ended October 9, 2022.
In the Edgars Chain — Q3 unit sales of 186,179 were down 23 percent on prior year same period and also down 37 percent on Q2 largely on account of reduced aggregate demand following a sharp increase in minimum lending rates (MLR) announced in early July. In the Jet Chain — unit sales of 283,877 were down 27 percent on prior year.
At Carousel Manufacturing unit sales for the quarter were down 24 percent on prior year and Ndlovu said the sales reduction was due to weaker aggregate demand from the retail chains in response to the reduced appetite for credit.
Dairibord also suffered a seven percent drop in volumes for the third quarter compared to the comparative period in 2021.
According to acting company secretary Maurice Karimupfumbi notable declines were recorded in July and August only to resurge in September where volumes grew by six percent ahead of the prior comparable period.
He said performance was compounded by exchange rate disparities which manifested in course of the period which Dairibord alludes “impacted competiveness, subduing demand in the formal trade as consumers shifted to the informal trade”.
Reduced spending resulting from the measures instituted by the Government to stabilise the exchange rate and tame resurgent inflation saw Zimpapers recording subdued advertising volumes in its digital and publishing divisions. Advertising volume for the third quarter to end of September declined by 28 percent compared with the previous quarter.
“The 28 percent volume decline was mainly caused by the Government’s economic interventions of increasing the cost of borrowing and freezing payments to its contractors to tame inflation and run-away exchange rates,” Zimpapers chief executive Pikirayi Deketeke said.
“These worthwhile interventions had a negative effect on the overall demand for the division’s products as disposable income shrank. A number of advertisers were affected by these measures as they adopted a well-and-see approach.”
Another listed entity Proplastics said the monetary policy shifts, mainly the 200 percent on locally denominated borrowings, saw negative effects in the business stemming from significant increase in borrowings and finance costs.
Among challenges met by Proplastics in the quarter was the late settlement of allocated foreign currency amounts from the auction, a position that prompted the company to grow pricing preference in foreign currency.
As it stands, Proplastics cash sales ratio is now skewed in favour of the United States dollar and the firm is currently relying on local USD sales and export proceeds in sustaining all import requirements.
On its part, Delta Corporation, which reported its half year to September 2022 results on Wednesday this week, said “the recent curtailment of local currency liquidity has resulted in softening of demand for goods and services in some formal channels”.
It was however not doom and gloom as other firms recorded volumes growth during the period under review.
In its quarterly update, Simbisa Holdings acknowledged that the emergence from Covid 19 restrictions saw the firm performing extraordinarily and it continues to ride the wave of economic recovery from the effects of the pandemic.
Group chief executive officer Basil Dionisio said the moderation in trading restrictions, enabled local operations to grow by 46, 3 percent in customer counts ahead of the previous year compounded by effective promotional activities it conducted over the course of the period.
Financial services player CBZ Holdings noted that the economy has progressively mended from the effects of the pandemic and this has led to the renewal of economic and business activity on a large scale which has in turn allowed the group to increase its transactional volumes resulting in a firm balance sheet.
ZB Group company secretary Tinashe Masiiwa said even though the economy registered a significant contraction at the height Covid-19 pandemic it showed greater signs of recuperation during the third quarter of 2022, citing the tourism sector as the major beneficiary of this development.
Meanwhile some firms are still seeing a bleak outlook with Edgar’s Ndlovu expecting the operating environment “to remain challenging and complex in the face of difficult choices on economic policy, rising global inflation and high local inflation.”
Deketeke said going forward, demand will remain constrained as the liquidity crunch is likely going to continue.
“As such, the third quarter performance would be in line with the third quarter.”
While Delta expects the operating environment to remain “complex and challenging particularly as the nation approaches the general elections in 2023,” it also hopes “the stability of the exchange rate and the corresponding reduction in month-on-month inflation recorded since July 2022, will sustain in the short-term.
The Group remains focused on exploiting the firm aggregate demand which is largely driven by mining activities, diaspora remittances and infrastructure developments and the increased social activities, according to chairman Sternford Moyo.
Proplastics’ chairman Gregory Sebborn however said albeit complications in the trading environment his entity’s operations remain alive to obtaining trials and would continue to devise different initiatives to enhance the firm’s profitability and revenue generation.
With regards to the central bank’s 200 percent increase in bank lending rate CBZ acknowledged the move had a positive impact on the monetary and fiscal restraint in Zimbabwe which became growingly evident during the third quarter of 2022.
ZB shared similar sentiment and said it was optimistic that the obtaining tight monetary policy and use of gold coins supported by effective monitoring of activity in the financial sector by the authorities would go a long way towards promoting stability of the economy. – Business Weekly
