FOR close to a decade local companies have suffered from a host of challenges that include hyperinflation, foreign currency shortages and erratic utility supplies.
In a bid to stay afloat, most companies ended up diversifying into non-core operations. Strategies adopted varied across the board with some companies acquiring exporting companies in order to access desperately needed foreign currency.
Others integrated vertically in a bid to manage supply costs and ensure continuous availability of raw materials. However, since dollarisation, the rationale for some of these synergies has since fallen away. All businesses are now generating US dollar income and hence it has become imperative to concentrate on core operations.
Some companies have since realised this as evidenced by corporate transactions that have taken place since dollarisation. Though this has dawned on most companies, they continue to hold on to the assets as they await buyers with the right price.
Innscor for example, its acquisition of Nicolitus was a move meant to boost its foreign currency supplies from the export revenue generated from crocodile skin sales. Last year, the group unbundled Nicolitus by way of a dividend in specie citing that all its businesses were now generating foreign currency in a dollarised environment.
Delta is also another example. During hyperinflation the company acquired a glass manufacturing company, Head end and horticultural concern Ariston. It made sense at the time as Delta needed to have easy access to bottles for its beverages. The brewing giant even mentioned that they had acquired Ariston so as to have access to its foreign currency earnings. Post dollarisation, the 40% stake in Ariston was immediately sold and so was the shareholding in Head end. According to the company, the pressing need for foreign currency was no longer there as the economy was now using foreign currency and was now able to import glass packaging. Proceeds from this disposal were used to acquire a 49% stake in Schweppes Zimbabwe as the group sought to dominate the beverages industry thereby gaining a competitive advantage.
Firms in the banking sector again bring out good examples of companies that are still trying to remodel their operations. Over the past two years various institutions that include Interfin, Tetrad and Banc ABC have upgraded their banking licenses so as to diversify income streams as deposits thinned out after dollarisation.
Whilst other companies realise this need for change others have stuck to their old business models. Take CFI as an example, the company has diversified interests that range from poultry production, and retailing. The company also has specialised units with interests in Irrigation Services (Dore & Pitt), milling (Victoria Foods) and Property (Maitlands). The exposure in property was necessary to preserve value during the Zimbabwe Dollar era whilst that at Victoria Foods was necessary to ensure adequate supplies for the poultry unit. Are all these investments still necessary now that we have dollarised? It is only recently that CFI leased out its town and country branches to Afrofoods but still the investments remains too diversified. It appears strategic for the company to dispose its properties and channel the proceeds towards revamping core operations.
A lot of companies are struggling partly due to their current business set-up which has not adjusted in line with dollarisation developments. Though lack of financing has been one of the factors which has been impacting negatively on company operations, companies such as Star Africa and Art that have secured funding continue to incur losses and are likely to return to shareholders for more capital.
There is therefore need to re-look business models so that firms return to profitability. Costs are being realised in real terms and it is not sustainable for companies to continue making losses. Firms again cannot continue to blame the influx of foreign products as the main reason dragging down their performance. Competence of management teams need reassessing to ensure they have the right skills to formulate appropriate strategic decisions.