First half not refreshing for Interfresh

By Admire Mavolwane

THE first three days of the week proved to be very informative for the investing community with the announcement of the mid-term fiscal policy review (FPR), the second quarter monetary po

licy statement (MPS) as well as the unveiling of the half year results by a leading and listed export agriculture group Interfresh.


The announcements from the acting Minister of Finance and Economic Development and the governor of the Reserve Bank provided the public with a glimpse of how the economy is fairing this year, at least as seen by the fiscal and monetary authorities. Both statements, while containing reservations, expressed cautious optimism. On the other hand, the results from Interfresh gave an insight into the pains of economic turnaround that have been endured by the corporate world during the same period.


The FPR confirmed that a tight expenditure control stance would be continued. Revenue and expenditure estimates indicate a budget deficit this year of 5,6% of estimated gross domestic product compared with an original budget figure of 7,5%. Supplementary estimates will be avoided although new individual tax brackets from September will release about $750 billion into the hands of taxpayers, and is expected to stimulate aggregate demand.


The MPS promised that monetary expansion would be aligned with real economic activity to ensure that progress towards macro-economic stability achieved so far, as exemplified by the 228 percentage point fall from January to June in the year-on-year increase in the CPI, was maintained.


Economic activity and a rise in employment would be promoted through concessionary lending to the productive sector which by mid year amounted to $1,7 trillion, some 85% going to agriculture and manufacturing. Real GDP was expected to decline by 5% this year, a considerable improvement from the 9% fall in 2003 and the economy should return to positive growth in 2005. The MPS contained extensive proposals for the promotion of economic activity, exports, and stability in interest and exchange rates.


Many exporters, who had hoped for the scrapping off of the 25% surrender to the RBZ of proceeds at $824, should obviously be somewhat disappointed. The sliding scale as currently restructured although, however, inadequate it is probably better than nothing. The gold mining community, however, should be smiling given the fact that the new support price of $85 000/gramme, to be paid by the Reserve Bank, is equivalent to US$472,11 per troy ounce at the new diaspora rate, which in essence means a subsidy of US$82 per ounce, using the current international spot price of approximately US$390/ounce. What more can one ask for!


Our kinsmen in the diaspora were also catered for with the rate at which their remittances are converted to local dollars increased to $5 600 per US$1, or the auction rate, whichever is higher. A housing scheme is also on the cards, and an investment program is being worked on. Also with effect from August, a currency bond, “specifically for non-resident Zimbabweans”, with a tenor of one year with a coupon rate of a mouth watering six percentage points above the LIBOR rate paid half-yearly, will be available.


Interfresh became the first corporate to release its results which could well be a taste of things to come from exporters in particular, in the upcoming reporting season. The group did on July 19 publish a cautionary statement forewarning the market that the results would be below expectations. Some of the reasons cited were “subdued local demand for fast moving consumer goods, an unrealistic and unviable exchange rate, a decline in volumes of citrus and fresh produce, and increased costs on imported agricultural inputs procured at the full auction rate, versus a blend rate achieved for export earnings”.


Turnover grew by a disappointing 235% to $79,2 billion. This was attributed to the exchange rate issues as per the cautionary statement, as well as a down-turn in volumes in most of the business units. Mazoe Citrus Estates’s citrus exports at 165 000 cartons were 10% lower, juice production at 500 000 kilogrammes was also 40% down compared with last year. Citrus exports from independent producers and pack houses marketed through Interspan experienced a marginal 8% decrease, whereas Citrifresh Exports volumes came off by 24% as a result of lack of critical mass and various quality problems from the main suppliers, the “resettled farmers”. Going against the grain was the newly restructured Flower Business division which recorded a 73% increase in exports. So far 27 million stems have been exported, with hypericum accounting for 15% while roses and intermediates weighed in with 43% and 42%, respectively.


Operating margins came under pressure but, stringent costs controls, which included the above mentioned restructuring and consolidation of the flower businesses, restricted the decline by just three percentage points to 14%. Notwithstanding all this operating profits grew by a diluted 170% to $10,9 billion.


A 1 836% surge in net financing costs to $3 billion and a nine-fold increase in the taxation provision to $1,9 billion, the latter as a result of the exhaustion of tax credits enjoyed in previous years, further watered down the growth of the bottom line which came out at $5,4 billion, up only 78% on last year, and well below the inflation figure for June of 395%.


* Due to circumstances beyond our conrol we are unable to publish weekly indices. We regret the inconvenience to valued readers.

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