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Manufacturers face a daunting future

MANUFACTURERS, haunted by hyperinflation, face a daunting future of low productive capacity and expensive finance, financial results released so far have shown.

Latest financials show that companies in the manufacturing and retail sectors are yet to reach 50% productive capacity.
Capacity utilisation increased from an average 10% at the beginning of last year to 33% by September, according to a Confederation of Zimbabwe Industries survey but has remained stagnant at the same level with certain sectors scaling down operations.
Economist Emmanuel Chinyaukira said the financial results show that companies face capital raising challenges.
“There is need to get both financial capital and human capital,” Chinyaukira said. “We have a problem of confusing literacy and skill. What we have in Zimbabwe are high literacy rates but the skilled manpower fled the country.”
Chinyaukira added that focus should now be on ensuring that the economic environment is conducive for doing business.
A conducive environment is determined by good policies which instill investor confidence.
“We should also be aware that we are not living on our own,” Chinyaukira said. “As such, there are times when the performance of the local industry is dictated by, say prices outside Zimbabwe. However, the bottom line is that we have very expensive products with unskilled labour. Unskilled labour is in itself very expensive as it causes losses.”
Chinyaukira said companies could still offer very low prices and remain profitable citing the example of the telecommunications sector where sim cards were reduced to a minimum US$2 from US$60 this time last year.
Results from ART Holdings, CFI Holdings, Delta and Meikles have shown a convergence in terms of problems faced and the companies bemoaned the operating environment which has left them with few options but to get out.
Meikles for example, made a US$9 578 million loss during the 12 months to December last year, with the bulk of it coming from the stores and supermarkets at US$4 099 million. This loss was recorded by a company that raked in US$148 838 million revenue, showing how expensive it was to do business in Zimbabwe.
Tanganda, Meikles’ tea manufacturing entity, was the only exception, posting a modest US$0,68 million profit. Tanganda’s performance could easily be explained by its local dominance as its six brands account for 65-70% of the local market.
There is sweeter news from the beverage manufacturer as more than half of the tea produced is exported to South Africa and the United Kingdom.
Meikles was by the time of its results presentation last week weighing its options on a US$17 million borrowing, composed of an offshore portion of US$1,7 million attracting a 14% interest.
“The onshore loan (US$15,4) attracts interest at 22%, however with annualised arrangement fees the total cost comes to 44%,” Meikles CEO Brendan Beaumont said. “This debt may be replaced by other cheaper finance.”
Beaumont said their supermarkets needed US$21 million, with another US$11 million going into capital expenditure and US$10 million on working capital. This is likely to be a daunting task for the group given the liquidity position and the cost of borrowing.
ART Holdings also faced capacity utilisation problems with its
battery manufacturing arm suffering a loss.
ART, however, drew consolation from its tissue business which it reported to be profitable as demand for the product was firm. Working capital is also proving to be a problem for ART especially for its stationery business which faces competition from similar products from South Africa and Asia.
Delta, the biggest beverage manufacturer in the country, posted a US$39 684 million profit from US$330 802 million. For Delta, only 11 cents for every dollar produced by the beverage company remains in its coffers while the larger part is gobbled by taxes, labour and other costs.
Delta chairman Robbie Mupawose captured this low profit margin when he presented the company’s results, saying local agriculture products were expensive, “above the regional parity”.
CFI posted a US$1 076 million profit from US$38,2 million turnover, leaving their profit margin at 28 cents for each dollar produced.
CFI said its retail chains were very competitive and benefiting from the recent ban on the importation of genetically modified organism poultry as it meant more business for their subsidiary Crest Breeders which grows chickens.

 

Leonard Makombe

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