Eric Bloch: How did Business Survive?

AS the Zimbabwean economy commences its inevitably slow and lengthy recovery from the morass in which it has been wallowing for many years, more and more are expressing surprise and amazement that so many business entities have survived the intense economic afflictions of the last eleven years.


That surprise and amazement is not only an emotive reaction of Zimbabweans, but also from many further afield, and particularly so as global economic recession intensifies, bringing about the collapse of many financial, industrial and other entities in the US, the United Kingdom, and elsewhere.

More and more are pondering how it can be that world-renowned, monolithic entities such as General Motors, AIG, Royal Bank of Scotland, Northern Rock and numerous other giants of commerce, industry and finance can be teetering on the precipice of total collapse, and yet a vast majority of Zimbabwean businesses have withstood the ravages of years and years of hyperinflation, declining consumer demand, negative infrastructural service delivery, and innumerable other economic ills.

As a result, with ever greater frequency, international businessmen, financiers, journalists, politicians and many others are asking: “How did Zimbabwean business survive? How did Zimbabwean business withstand and counter the endless array of economic constraints that would have irremediably crippled and destroyed business elsewhere?”

One hard and tragic fact is that many Zimbabwean businesses did not survive. A large number of factories (and especially small ones) ceased operations, numerous retail shops closed, including very many operated by major national chain store businesses, a considerable number of service providers (including electricians, motor mechanics, accountants, lawyers, architects, engineers, and innumerable others) discontinued their undertakings, as did numerous entities in the tourism sector, including safari operators, lodges, restaurants, and diverse others.

But, nevertheless, a very great number of businesses, in virtually all economic sectors, have survived and, with Zimbabwe now on the threshold of a substantive economic recovery, are either poised to benefit from, and exploit, the recovery, or are seeking the resources necessary to enable them to do so.

It is their continuing existence, and evident intent to be contributants to, and beneficiaries of, the economic recovery that is prompting the questions as to how they survived, and how they withstood the almost endless buffeting of economic ills that beleaguered their operations for more than a decade.

The methodologies of survival were many, but undoubtedly the most predominantly applied survival tactic was a blatant disregard for certain laws, certain facets of breach of law being perceived as the only opportunities for withstanding the pronounced economic afflictions.

First and foremost was recourse to the currency parallel markets. Businesses with heavy reliance and dependency upon imports, and either not being adequately engaged in exports to provide required foreign exchange, or whose exports yielded an insufficiency of foreign exchange in consequence of the burdensome mandatory surrender thereof of the Reserve Bank, resorted endlessly to sourcing their foreign currency requirements in the illegal alternative markets.

And those businesses as able  to generate  foreign exchange  in excess of their own needs, but struggling to attain  viability  when exporting with inadequate profit  margins, due to high competitiveness  in export market pricing, would attain that viability by selling their foreign currency (net after Reserve Bank mandatory surrenders,  and servicing  own foreign  currency needs) within those unlawful “parallel” markets.

The other frequent disregard for law, motivated only in order to assure business survival, as against other motives such as profiteering, was insofar as price controls were concerned. With typical foolhardiness, government imposed untenable, business-crippling, price controls, its sole motivant for doing so being to placate an increasingly infuriated electorate which was beleaguered by intense inflation.

But most businesses contemptuously ignored the price controls, for observance thereof was assured business annihilation. With diminished sales volumes, and inflation-driven escalations in production and operational costs, rising daily or even more frequently, business had no alternative but to increase prices beyond permitted parameters, and did not have a sufficiency of time to seek price increase authorisation from the intensely bureaucratic price control authorities.

In fact, so intensely great was inflation that business ceased to price on the basis of cost recovery plus a margin, instead pricing based upon anticipated replacement costs, and profit margin thereon. It was not avarice and greed that drove businesses to ignore price controls, but desperation in order that their enterprises could survive.

Most businesses also had to address containment of operating costs in order to ensure the continuance of their businesses. To that end, they sought to reduce the size of labor forces, generally by allowing natural attrition, without replacement, to bring down the numbers employed. In other instances they offered many of their work forces opportunities of voluntary retrenchment, albeit this necessitated funding of retrenchment packages and termination gratuities but, by so doing, future recurrent operating costs were diminished.

A further oft-resorted to cost containment was resorting to lesser than usual maintenance of plant, machinery and equipment, although so doing lessened the value of those assets, and often impacted upon  quality of products, and upon productivity. However, business sought the benefit of immediate reduction of costs, in order to survive, despite knowing that doing so was an assured catalyst of future cost increases.

In other words, business was resorting to “crisis management” decisions of addressing immediate problems, irrespective of consequential exacerbation of future ones.    

Most also strove to survive by effecting reductions in overhead expenditures wheresoever it was considered possible to do so, including lesser expenditure upon personnel training and development, discontinuance of audit  of financial statements, cessation of insurance of assets against the  countless risks confronting enterprises, reduced support for charities and community service bodies, and so forth.

As inflation continued and intensified, so the capital resources of most businesses were progressively eroded more and more, often contracting to levels insufficient to meet the operational needs of the businesses.

Some resorted to borrowings   to counter this, but at considerable cost, as interest rates rose progressively, driven upwards by inflation, and such costs diminishing prospects of survival, unless other compensatory cost reductions could be effected. Others addressed their capitalisation needs by seeking investors willing to acquire a stake in the business, whilst yet others sought to reduce their capitalisation needs by discontinuing provision of credit to customers, lowering levels of stockholdings, and by disposals of assets.

More constructively, in some instances, businesses did not yield to the voluminous viability pressures upon them, and instead worked vigorously to resolve those pressures by seeking enhanced trade volumes, either by product diversification, or by marked diversification, or both.

They penetrated new export markets, often attaining only minimal profit margins, but benefiting from significantly increased volumes of production, or expanded their customer base, with like benefits, by aggressive marketing and advertising, or widening of their product range, or both.

The common trait of the businesses that survived, as against those that fell by the wayside, was a determination to survive, a resolve not to succumb to despondency and the widespread, heavily-prevailing “doom and gloom” prognostications of many, but instead to have a sufficiency of self-confidence to believe in survival, irrespective of numerous obstacles and hurdles to be traversed. And it is those that will reap the benefits of the economic recovery that lies ahead for Zimbabwe.

BY ERIC BLOCH

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