What does the Finance minister’s briefcase hold?

By Admire Mavolwane

A WEEK from now the Minister of Finance as has become tradition, will be caught on camera holding a brief case emblazoned with the national coat of arms. This will be the occasion for the

presentation of the 2006 budget proposals and the 2005 fiscal and economic performance review. The economic scenario seems to be continuing on the downward path, albeit at an increased speed and the optimistic expressions that could be discerned on many faces after the last monetary policy statement are fast disappearing.


The last International Monetary Fund report emphasised, among other things, the need to exercise fiscal restraint. However, this looks unlikely given the fact that over the past couple of months we have seen the government taking on an increasing role in certain non-core activities. The collapse of urban councils, with Chitungwiza being the more prominent one as it was recently taken over by government, means that the need to spend in unlikely to be curtailed. The 50-member senate; Operation Taguta (if last week’s press reports are true); and the imperative to rescue Air Zimbabwe as well as most of the other parastatals, makes the minister’s job unenviable.

Furthermore, the revenue base seems to be shrinking, with even greater momentum if the numbers provided by the Minister during the mid term fiscal policy review and subsequent concerted efforts to tax every dollar are anything to go by. Real GDP continues to contract, conservatively estimated at 7,2% this year and, as expected, the government’s revenue base is also shrinking in tandem. Although spending patterns take time to adjust, the entrenched thinking within some sections that government can and must do everything as well as the apparent lack of political resolve to slow down on spending does not help efforts to live within our means or, at the very least, to adapt to the changing environment. One wonders what forms of taxes and levies the bureaucrats will come up with this time around.

As the business climate becomes less friendly and more strenuous the private sector, which in our view is the country’s most prized asset at the moment, continues to scheme and work tirelessly, trying to make sure that businesses not only survive but also grow in real terms. The performance of listed companies, the most visible barometer, bears testimony to the efforts of business executives and employees which sadly does not appear to be complemented by government.


With this week probably marking the end of the September reporting period, we look at the interim numbers from heavyweight Delta. Although below market expectations, the results were presented to the analysts with the aplomb and statesmanship that befits the status of the most highly capitalised counter.


The results although not spectacular, were of the solid state that is expected from the blue chip with group turnover growing by 286% to $3 trillion. Attributable earnings increased to $575 billion from $125 billion as a decline in volumes – in almost all the product lines bar plastics and package and non-carbonated soft drinks which increased by phenomenal 47% – were neutralized by aggressive price increases. The earnings per share of $575,2 came in under consensus estimates as few had factored in exchange losses on foreign creditors which took a $93 billion bite out of the $286 billion earned from finance income. Management admitted to being startled by the resilience of the sorghum beer volumes which lost only 3% in volumes despite pricing which now sees the popular Scud costing as much as its top-end lager cousins.


The group’s management team has over the years displayed strict adherence to adopted strategies, be it margin maintenance, volume growth or cash generation. There have been no vague, middle-of-the-road strategies. It appears that when management decides a course of action based on assumptions of a particular economic outlook, that route is stuck to religiously and ruthlessly, hence the sacrifice of volumes for margin preservation in this particular half.


At the analysts’ briefing management took the opportunity to expound the rationale behind the offer to Ariston shareholders which saw Delta controlling 54% of the former through both actual shares and proxies.

Members were reminded that foreign currency shortages had already severely compromised profitability in the first half with stock outs of crowns for lager beer and concentrates for carbonated soft drinks. Apart from bringing a ready-made high volume contract grower with significant agricultural expertise into the group’s direct influence, the acquisition of the agro-industrial concern secures about a sixth of Delta’s annual US$64 million foreign currency needs. It may not be enough to quench the thirst but it is a start which, if augmented by other supplies which would include own exports of maltings and bottles, places the group in good stead.


Management also gave a fairly comprehensive presentation which highlighted the investments and greenfield ventures that Delta has embarked on in order to ensure the survival of the core beverage business.

These include, the US$4,5 million glass manufacturing entity, Headend, plastics manufacturing (Megapak), Kwekwe Maltings including even its strategic 49% shareholding in Food and Industrial, which manufactures corn starch a key ingredient in lager brewing. The need to ensure grain security and foreign currency inflows meant that a key horticultural and foreign currency earning entity had to be brought into the fold.


A contrast could be made with Innscor, another market heavyweight which seems to be on an acquisition spree snapping up sometimes end of the spectrum companies and does not seem to be focused on its “core activity”. Many in the market have failed to define Innscor’s core activity, and hence have difficulties modelling it.


Echoing the sentiments from OK Zimbabwe, a former Delta subsidiary before being weaned off, management pointed out that whilst volumes appear to be holding at least for now, the first three months of next year could see a huge slump as economic conditions deteriorate further. The recently announced school fees hikes, and transport cost increases as well as shortages of fuel do not auger well for the partaking of the waters of wisdom.

Management however, have indicated that they are planning with such an eventuality in mind and strategies are already in place to preserve profitability when push comes to shove.