Nestlé’s operations in southern Africa have been affected by regional currency weaknesses, while the company also has to support dairy farmers ravaged by ongoing drought conditions in the region.
Zimbabwe is using a multiple currency basket hedged around a relatively stronger US dollar as legal tender. However, according to economists, government officials and business executives this is making the country uncompetitive as its major trading partners’ currencies are weaker.
“Overall businesses in Zimbabwe were more affected by the currency devaluation of neighbouring countries versus the strong US$, thus increasing parallel imports. In spite of this, sales continuously improved during the first quarter of the year,” said Ben Ndiaye, Nestlé manager for the Zimbabwe, Zambia and Malawi cluster.
Last week Delta Corporation, the Zimbabwean unit of SABMiller, said it was also suffering because of cheap imports from the region. Delta is now considering lower prices for its products in a bid to fight cut-price imports of both alcoholic and non-alcoholic beverages.
Regional countries such as Malawi and South Africa are suffering because of weaker currencies, while the Zambian kwacha has started to appreciate as the outlook for regional economic growth remains subdued.
Nestlé manufactures foodstuffs such as milk powder and other products. But owing to the drought conditions afflicting the region, the company has had to jump to the rescue of dairy farmers who supply its factories with milk.
“The small-scale farmers were assisted in sourcing 100 dairy cows in calf, given training in general animal husbandry and maize silage making. The contracted dairy farmers were also assisted financially to grow maize for silage,” Ndiaye said.
Despite the hurdles it is encountering in the region, Nestlé said it has invested recently in an increase in its production capacity. In the past four years, the company has invested as much as US$30m in production capacity for the Zimbabwe, Malawi and Zambia cluster.
Nestlé has also earmarked new products in these markets as it seeks to diversify its revenue streams and profit generating capacity. Efforts are being concentrated on growing the group’s volumes to absorb fixed cost in the light of persistently difficult economic conditions in markets such as Zimbabwe.
Although other companies are facing problems over compliance with Zimbabwe’s indigenisation laws that require foreign firms to give away majority shares into the hands of black Zimbabwean citizens, Nestlé is less concerned about this as it has submitted a revised compliance plan.
“We have thus submitted our revised indigenidation implementation plans in time and in compliance with Zimbabwe’s Indigenisation and Economic Empowerment Act and subsidiary legislation,” said the company.-fin24