Zim’s listed companies battle currency woes, droug...

Zim’s listed companies battle currency woes, droughts, and a struggling economy

Nyashadzashe Ndoro

Zimbabwe’s once-vibrant stock market is facing a harsh reality as listed companies grapple with a multitude of challenges, painting a grim picture of the country’s current economic climate. From currency volatility and inflation to an El Niño-induced drought, these companies are caught in a perfect storm, threatening their profitability and sustainability.

At the forefront of these struggles are agricultural companies, bearing the brunt of the devastating drought. Tanganda Tea, a prominent player in the industry, has become a symbol of the difficulties faced by the sector. The company, known for its high-quality tea, has reported significant losses due to the lack of rainfall, highlighting the vulnerability of Zimbabwe’s agricultural sector to climate change.

“The drought has severely impacted our production and profitability,” lamented a spokesperson for Tanganda Tea. “We are facing a double whammy: reduced yields due to water scarcity and rising input costs, making it difficult to maintain our operations.”

OK Zimbabwe, one of the country’s largest retail companies, in its trading update for the third quarter ended December 31, cited the currency crisis in Zimbabwe as a major setback.

“The depreciation of the local currency against foreign currencies continued in the quarter under review. Consequently, persistent price changes adversely impacted on consumer demand and supply dynamics.

“Compliance with laws and regulations governing currency resulted in high in-store prices and loss of competitiveness, especially against unregulated markets. The Group continued to engage amicably with regulatory authorities to enhance macroeconomic stability and support the sustainable growth of formal retail business,” the company said.

The woes of agricultural companies extend beyond the drought. Inconsistent government policies, currency fluctuations, and skyrocketing inflation further exacerbate their difficulties. The recent decision by the Reserve Bank of Zimbabwe to introduce a new local currency, coupled with the weakening of the Zimbabwe Dollar against major currencies, has created uncertainty and disrupted business planning.

“Planning for the future becomes an almost impossible task when the value of the currency you operate in is constantly changing,” shared the CEO of a listed agribusiness company, who preferred to remain anonymous.

“We are struggling to access foreign currency for essential imports, such as fertilisers and pesticides, and this is directly impacting our productivity.”

The challenges faced by agricultural companies are mirrored across other sectors of the Zimbabwean economy. Listed manufacturing companies are battling with limited access to raw materials, outdated machinery, and power outages, hindering their ability to meet production targets. Retail companies are grappling with dwindling consumer spending power due to inflation, leading to stagnant or declining sales.

The Zimbabwe Stock Exchange has reflected this overall market sentiment, with the benchmark industrial index experiencing a significant decline in recent months. Investor confidence has been shaken, and foreign direct investment has slowed down considerably.

“The current economic situation is creating a lot of uncertainty for investors,” stated a financial analyst based in Harare.

“Companies are struggling to generate profits, and the future outlook remains unclear. This is leading investors to adopt a wait-and-see approach, further impacting the overall market performance.”

Brickmaker, Willdale Limited, cited economic factors and electricity shortages.

“The major economic factors remained volatile with the inflation rate increasing steadily from a month-on-month rate of 1% in September to 4.7% in December. The Zimbabwe dollar shed 12% against the United States dollar in the same period putting pressure on costs and margins. Significant activity was witnessed in the construction industry. Increased load-shedding was experienced, affecting throughput and efficiencies,” the company noted.

Despite the bleak picture, there are glimmers of hope. Some companies are exploring alternative solutions and innovative strategies to navigate the challenging environment. These include exploring alternative sources of raw materials, adopting energy-efficient technologies, and focusing on export markets to generate foreign currency.

Hippo Valley Estates Limited, in its trading update for the third quarter ended December 31, said it would capitalise on dams as alternative sources of water.

“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.

The government has also acknowledged the difficulties faced by businesses and has pledged to implement policies aimed at stimulating economic growth and stabilising the currency. However, the effectiveness of these measures and the timeframe for their impact seemingly remain to be seen.