Nine companies went into liquidation between September and October while 12 were placed under judicial management in the same period, joining dozens of other casualties that have gone that route as the overall business climate in Zimbabwe continues to plummet, dampening hopes of sustainable recovery.
Latest official figures show that nearly 1 000 businesses collapsed over the last three years alone.
According to the Master of the High Court’s roll, scores of companies are every month applying for judicial management, liquidation and voluntary closure as provided for by the Companies Act. The Act provides that a company may be placed under judicial management if it is unable to clear its debts or when it is likely to collapse.
The Master of the High Court’s roll for September and October shows that some of the companies which were being wound up from across all economic sectors included Zimbao Mining Ventures, Infinity Asset Management, Rusape Service Station, Central African Shipping Agencies, cloth retailer Saybrook (Pvt) Ltd, and United Methodist Publications and Stationers Foundations.
Those that were placed under judicial management included ambulance service provider Mars Zimbabwe (Pvt) Ltd, road construction company Gulliver Consolidated, multi-industrial concern Phoenix Consolidated Industries, KM Financial Holdings, Model Knitwear, retailer Gutsai Holdings and several holding companies such as Apex Holdings, Shaefur Investments, Labdeck Investments and Folaway Investments.
Sources in the legal fraternity said a number of the companies placed under judicial management have failed to revive operations, which is the objective of judicial management.
This comes against a background of closure of more than 700 firms in Harare and close to 100 companies in Bulawayo as reported in this newspaper. A July 2013 National Social Security Authority Harare Regional Employer Closures and Registrations Report for the period July 2011 to July 2013 shows 711 companies in Harare closed down, rendering 8 336 individuals jobless.
Major companies that have retrenched staff include platinum miners Zimplats and Unki, Bindura Nickel, Spar supermarkets, Dairibord, Cairns, Olivine Industries and PG Industries.
Economist John Robertson said the liquidation of companies prevents every level of development in the country, prevents GDP growth and increases the level of unemployment.
“The country will be more dependent on imports and people will move to other countries as before in search of jobs. We should ask: Why do we make things more difficult for ourselves? Why do we put up barriers for potential investors? Why don’t we protect the interests of investors and put into consideration the needs of investors and increase our FDI (Foreign Direct Investment),” he asked.
Zimbabwe has one of the most uncompetitive business environments and is ranked by the World Bank among the worst in terms of ease of doing business. The country also remains unattractive to international financing, largely due to a huge external debt estimated at about US$7 billion. This has resulted in the unavailability of long-term cheap financing with the available short-term loans being expensive.
The government, through the Distressed Industries and Marginalised Fund failed to resuscitate the collapsing industries in Bulawayo as the US$40 million purse was insufficient, considering that close to US$1 billion is required urgently to address challenges facing companies nationwide.
In July former Finance minister Tendai Biti was forced to revise downwards the country’s economic growth projection from 5 to 3,4%, citing continued decline in production and an unstable political climate created by the elections.
Tapiwa Chizana, a Partner at Deloitte & Touche who is involved in business rescue and judicial management, recently wrote that companies were being forced to scale down operations or shut down because of the difficult economic environment which had seen some firms seeking remedies to resuscitate their operations and avoid liquidation.
“Most distressed companies are over-staffed and suspending employees’ contracts, though unpleasant, may be one of the ways to relieve the company of its debt burden and remove excess or underperforming employees. Such employees can be re-employed as and when the company’s fortunes are restored,” suggested Chizana.
He said judicial management was a better alternative to liquidation, because the latter option does not preserve jobs and is often not beneficial to creditors.
In a frantic bid to revive the faltering economy, the Zanu PF government adopted the Zimbabwe Agenda for Sustainable Socio-Economic Transformation (Zim Asset) which projects the economy will record 3,4% growth this year while further positive growth of 6,1% is estimated for 2014.
The government’s economic plan pins its hopes on four major clusters: food security and nutrition; social services and poverty reduction; infrastructure and utilities; and value addition and beneficiation.
It also focuses on growth of the small and medium enterprises.
According to the economic plan, focus will be put on debt clearance, implementation of projects such as the Chisumbanje ethanol and NewZim Steel projects, diamond cutting and processing, in addition to strengthening SMEs and agro-processing. Enhancing tax and non-tax revenue collection will also play a crucial role as government desperately tries to breathe life into the economy.