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Agonising year for business

Kuda Chikwanda

EVERY manager had a terrible 2007 but none could have been so stressed as the one who ran National Foods, one of Zimbabwe’s biggest food processors.

It was probably one of the most agonising years for Natfoods which had to struggle with price controls on virtually every product it produces. The government made sure that everything that National Foods produces, from salt to stock feeds, was controlled. As the year closes Natfoods’s management can at least heave a sigh of relief for having managed to keep the company open during the trying times.

The listed company was almost crippled during the disastrous July price blitz as the vast majority of its commodities are controlled products. Even though government later backtracked, the damage had been done and Natfoods was left counting its losses.

When another listed giant Innscor Africa took over about 50% equity in the conglomerate, it was widely agreed that Natfoods had to change the structure it adopted in 2003 to survive.

The second major restructuring in four years took place as the company sought to rationalise its structure, decentralise and make it a leaner and more efficient entity.

The exercise lasted 90 days and saw the company devolve from six units into 10 Strategic Business Units (SBUs).

These new units will each have their own board of directors. They will be allowed to operate their own books of accounts as opposed to the 2003 structure in which decision-making and finances were centralised.

“The goal was to increase efficiency, unlock value and ultimately turnaround the company,” Natfoods spokesman, Golden Chekenyere said.

“We aimed to create more focus and empower the leaders appointed, and also give them autonomy to run the SBUs and have them totally committed to their SBUs. They will have the freedom to run those units, their own bank accounts and cheque books.”

Innscor assumed management control from South African food giant Tiger Brands, which became the second largest shareholder after Innscor with 26,08%.

The new divisions are Oil and Malt, Stockfeeds, Milling, Natpack, Retail, Pre-packs, Natfoods Distributors, Retail, Properties, Transport and the Botswana Milling.

“We took that decision on September 6 and gave ourselves three months to turnaround the company and I think we will sing a different tune, that of success in 2008,” Chekenyere said. Natfoods is not the only company that struggled this year.

Beneath Chekenyere’s optimism one can still detect uncertainty.

This is the same uncertainty gripping all industrialists in Zimbabwe.

The year 2007 has been extremely challenging for the business community. Zimbabwe National Chamber of Commerce (ZNCC) president Marah Hativagone said: “2007 is definitely a year we would all love to forget”.

Since the start of the year, inflation maintained its upward spiral starting off the year at just over a 1 000% and with the last known figures recorded at 14 840%.

Compounding the problem has been the Central Statistical Office (CSO) which has been under orders to sit on inflation figures for most of the year. CSO only managed to announce inflation for six months in 2007.

Financial planning and reporting thus became a challenge in Zimbabwe’s hyper-inflationary environment without inflation figures. Banking institutions appealed to the Reserve Bank of Zimbabwe (RBZ), which released inflation figures in April after a two-month embargo.

Hardly two months later as dwindling energy supplies further crippled the struggling economy, government came up with the infamous directive that forced all companies to revert to prices prevailing as of June 18.

Shops failed to re-stock as the business community could not buy at a higher price from suppliers to sell to consumers at below cost.

Food and commodity shortages set and several companies shut their doors to the public. Large retail companies like OK Zimbabwe and TM incurred huge losses while their executives were arrested for overcharging. Some are still facing trial.

In just two weeks, OK lost about $38 billion while TM lost between $35 billion and $40 billion.

Natfoods lost $18 billion on salt it imported from Botswana — charges which the company strenuously denied despite admitting that they had indeed incurred serious losses on many of its product lines.

National Tyre Services (NTS) suspended a lucrative contract to supply tyres for another listed entity, Delta. Markro Mega Centre was hit hard when police officers forced it to reduce its prices to ridiculous levels.

Bakers were forced to incur losses of between $15 000 and $20 000 a loaf while Schweppes said they had made massive losses since the government June 18 decree.

Bigger companies announced that they were “restructuring” but a closer look showed that they were actually down-sizing. Smaller companies simply went bankrupt.

Companies were forced to embark on strategies to ensure their survival. Some of these strategies have been nothing short of just beating authorities at their own game.

The importation of luxury goods has been one of the ways that have helped businesses survive. Imported goods are not subject to price laws.

Expensive commodities have now flooded shops and because of the rapidly depreciating Zimbabwean dollar, these commodities have been considerably more expensive than locally manufactured ones.

This has prompted threats of a new price blitz and heightened uncertainty in the business sector.

Efforts by the Reserve Bank of Zimbabwe (RBZ) to intervene and salvage something out of the crisis have largely been unhelpful.

The central bank introduced the Basic Commodities Supply-Side Intervention (Bacossi) facility in September to offer cheap funding to affected business and allow them to return to full productivity.

However, much of the money accessed under Bacossi has found its way onto the stock market where it has fed a bull run. This is because the Zimbabwe Stock Exchange (ZSE) has been offering good returns above inflation in the wake of the RBZ’s refusal to offer better interest rates.

“Much of that money has not found its way to Small and Medium enterprises. So while some companies have accessed it, not all companies along the production chain managed to get it, and that explains why some companies are not producing,” Hativagone said.

Over $10 trillion was injected in Bacossi together with US$13,2 million.

But one thing remains certain — without concrete measures to right the situation, companies are set to endure another agonising year in 2008, while Natfoods may be forced, yet again, to embark on another restructuring exercise.

Businesses will need to find new strategies for next year. Its promising to be no better than 2007.

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