• Mon. Apr 15th, 2024

Navigating Uncertainty: Zimbabwean Companies’ First Quarter Dilemma

ByETimes

Feb 20, 2024

By Stephen Chandisareva

Business sentiment in Zimbabwe has been characterised as “cautious optimism” for 2024, with most companies prioritising cost management in the current fiscal year.
El Nino Looms:
Hippo is confident that El Nino will not affect Zimbabwe sugar production, as major supply sources will provide enough cover for the industry.
“Notwithstanding El Nino episodes experienced in the third quarter characterised by dry spells, the major water supply dams are envisaged to provide sufficient cover for the industry’s irrigation regimes for approximately two seasons, with Tugwi-Mukosi at 85.95% and Mutirikwi Dam at 94.61% as at 31 December 2023,” the company said in its trading update for the third quarter ended 31 December 2023.
“The company’s strategic focus remains on improving yields and ensuring plant reliability, maximising capacity utilisation and achieving sustainable operating cost efficiencies in the medium to long term.”
Hippo’s short-term priorities include optimising quality and safety performance, rearranging the route to market, introducing creative work streams to control costs and effectively finishing the off-crop programme, which is well under way to guarantee an effective and dependable milling campaign in the 2024–2025 season.
Zimbabwe and its neighbours saw a spike in demand for small grains and legumes into the last quarter of 2023 owing to delayed rains.
“This demand for small grains holds significant potential to clawback annual sales volume performance not only in Zimbabwe but also in neighbouring countries,” SeedCo Limited said in its trading update for the third quarter ended 31 December 2023.
“Regionally, record sales in East Africa and certain parts of Southern Africa were registered, which is anticipated to mitigate the overall impact of decreased trading in some Southern African markets that were adversely affected by El-Nino conditions.”
Effective use of irrigation water, optimisation of water distribution, crop rotation, rehabilitation and modernization of the existing irrigation systems, and soil reclamation are examples of measures that should be taken to mitigate the harmful effects of drought.
Zimbabwe has the potential to harness 47.3 billion cubic meters but only 10.5 billion cubic meters (22%) have been developed, yet the country continues to experience water shortages for urban, industrial and agricultural use.
The southern African nation has approximately 10 000 dams of varying sizes.
“The group will mitigate the impact of low rainfall through heavy reliance on its irrigation systems,” Ariston said in a trading update for the first quarter ended 31 December 2023.
“The operating environment is expected to continue to be challenging. Focus will remain on cost containment measures, improvement of product quality and production processes.”
Power Cuts and Currency Woes:
Brickmaker Willdale says the poor electricity supply has hampered operations, especially in the extrusion and firing of structured kilns, resulting in reduced output.
“We will continue to engage ZESA to improve electricity supply to the operations,” the company said in its trading update for quarter ended 31 December 2023.
In its trading update for the third quarter ended 31 December 2023, OK Zimbabwe revealed that “persistent price changes adversely impacted consumer demand and supply dynamics”.
This comes as the market is characterised by the continued depreciation of the local currency against the US dollar. Also, formal business is mandated to use the official exchange rate with a 10% limited margin, which resulted in a large loss of volume for the informal sector, which had greater exchange rate freedom.
The International Monetary Fund (IMF) has joined local industrialists in calling for ditching the use of the official exchange rate with a capped margin of 10% for formal retailers, as it is affecting the going concern of several companies.
“Looking ahead, the group remains optimistic about its future prospects and recognises the need to adapt to the changing operating environment.
“The business is focusing on delivering value to its customers by enhancing the customer experience, executing fair pricing, improving market presence, and optimising operational efficiencies for long term sustainability,” OK Zimbabwe said in its outlook.
Zimbabwe’s resource mobilisation tactics currently prioritise the ordinary citizen because of low domestic output, continued foreign isolation and limited credit availability.
Delta stated that the policies enacted in the budget for 2024 will significantly affect the industry and the market as a whole.
“The beverages sector will be affected by the sugar tax and the restrictions arising from policies impacting the route to market,” the company said in a trading update for the third quarter ended 31 December 2023.
“Aggregate demand may be impacted by the high inflation and reduced foreign currency inflows arising from lower mineral prices and the anticipated reduction in agricultural output resulting from the forecasted below normal rainfall.”
Conversely, NTS welcomed the government tax measures, saying they would level the playing field.
“The company is optimistic that the new regulations on tax introduced by the government to enforce compliance will minimise unfair competition in the market,” the company said in a trading update for the third quarter ended 31 December 2023.
“NTS is focused on full business recovery premised on remodelling the business and continued implementation of a raft of cost-cutting measures introduced during the year.”
ART expects the operating environment to remain volatile.
“The Group will continue to implement difficult short-term measures to safeguard profitability and liquidity to enable the business to withstand an extended period of uncertainty,” the company said in a trading update for the first quarter to 31 December 2023.
For Tanganda, “the operating environment is expected to remain volatile and complex due to continued inflationary pressures, currency instability, escalation of costs and reduced consumer disposable incomes”.
“Business welcomed the extension of the multi-currency regime to 2030 as this is expected to facilitate some stability within the economy.”
Mining Blues:
Anxiety is mounting over the threat of softening mineral prices.
“Analysts expect nickel prices to remain subdued in the last quarter of FY2024 and to settle at an average of US$17,000 per tonne during the calendar year 2024,” BNC said in a trading update for the nine months and third quarter ended 31 December 2023.
“Global nickel prices are expected to remain under pressure during the calendar year 2024 due to the surplus in the nickel market coupled with weak demand.”
A Fragile Balance:
As the trading updates rolled in, other companies echoed similar sentiments. The optimism that had once fueled Zimbabwe’s economic dreams now flickered like a candle in the wind.
The country’s ambitious revenue targets seemed elusive against this backdrop of uncertainty.
Outside, street vendors peddled bananas—a humble reminder of resilience. “Buy your bananas!” they called. “Sweet and ripe, just like our hopes.”
In the corridors of power, executives grappled with tough decisions. Should they trim staff? Delay expansion plans? Seek refuge in offshore accounts? The ZSE index wavered, reflecting their inner turmoil.
And so, Zimbabwean companies tiptoed through the minefield of Q1, their balance sheets fragile, their hearts resolute. In this land of contrasts, where banana vendors shared sidewalks with stockbrokers, survival was an art form and caution was their brushstroke.

By ETimes

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