HomeBusiness DigestForex auction system skewed - Zhanda

Forex auction system skewed – Zhanda

Ngoni Chanakira

MURRAY & Roberts (Zimbabwe) Ltd (M&R) says it has been forced to invest more in exports to hedge against hyperinflation, escalating operating costs and the subdued foreign exchange ma

rket currently prevailing in Zimbabwe.

The group posted an inflation-adjusted profit of $3,3 billion.

M&R are a prominent industrial group with three operating segments – agro-industrial, contracting including properties and manufacturing.

The company’s operations form a portfolio allowing the group to undertake turnkey contracting activities within the region – especially in South Africa. M&R have continued to cater for the local construction industry with a more defined focus on the medium and small-scale sector.

However their diversification into horticulture – Bonnezim – has given them an export hedge.

Chairman Paddy Zhanda says as long as the pricing of foreign currency is “one-sided” exports will not be viable.

Zhanda, a Zanu PF politician, also chairs NMB Holdings Ltd, currently in trouble with the Reserve Bank of Zimbabwe (RBZ) on allegations of externalising foreign currency.

“The year 2004 has started on a very difficult note with deposit rates subdued and borrowing rates extremely high,” Zhanda said in his report for the half year ended December 31.

“By mid-January this had subsided but the volatility continues. It is our hope that stability on the market will aid management to plan and forecast. The auction system of foreign currency trading recently introduced should see more currency being available on the market.”

In January the RBZ introduced a foreign currency auction system that has met with mixed reaction from the market – especially exporters and importers.

While others are praising the auction system saying it will boost exports, others are questioning its operations claiming that it is retarding growth and will make imports costly.

Customs rates are being charged using the prevailing auction rate, which is currently hovering between $4 100 and $4 300.

Already Cafca, Zimplow and Interfresh Holdings Ltd have expressed their dissatisfaction with the new RBZ system introduced after consultations with the Confederation of Zimbabwe Industries (CZI).

“However as long as the pricing of such foreign currency is one-sided exports will not be viable,” Zhanda said. “A viable auction system is one that lends itself to supply and demand forces while allowing sellers to withdraw the currency if the price on offer is unsatisfactory. It is our hope therefore that this apparent disregard for exporters will be addressed by the monetary authorities.”

Zhanda said group turnover had increased by 485% to $56,5 billion.

Earnings before interest was up 492% to $17 billion while earnings per share shot up by 639% to 6 019 cents. Earnings after tax to turnover ratio also increased by 12%.

Zhanda said the contracting sector was hardest hit by inflationary pressures.

“It is however gratifying to note that the contracting divisions have substantial orders on their books and tender activity is satisfactory,” he said. “The key to the cluster’s success lies in the maintenance of a low cost base as the margins in this sector continue to deteriorate with inflation. The properties division had a good first half, taking advantage of opportunities that existed in the sector before the monetary policy and generated substantial cash resources for the group through sale of upmarket properties.”

The chairman said the manufacturing divisions performed strongly this first half and contributed substantially to the group’s cashflows.

“The export sales have remained good and management are keen to maintain these markets,” he said. “Huge investments have had to be made however in stocking in a bid to beat inflation. This had an impact in cash generation and cashflow. The stock will be sold on the market at competitive prices without undue discounting.”

Zhanda said on the agro-industrial field new markets continued to be explored to increase the product range. “Inroads have been made in the South African market in this regard and it is hoped that these efforts will bear fruit in the next financial year,” he said. He said the level of operational risk had continued to deteriorate.

“The monetary policy announced in December 2003 by the Reserve Bank of Zimbabwe in particular has ushered in new requiremenets and the group’s exporting businesses have to contend with a new framework,” Zhanda said.

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