ZIMBABWE’S economy continues to nosedive six months into the new year, with strong headwinds ahead.
Financial Matters Shingai Moyo
The current economic crisis has deepened. And prospects of recovery, let alone growth, remain remote. El Nino-induced drought has reduced agricultural output and government has once again resorted to imports. Economic activity is severely constrained by tight liquidity resulting from limited exports and lower commodity prices, as well as few lines of credit and diaspora inflows. Production is hit hard by liquidity constraints and high utility costs, hence company closures and job losses. Inflation remains in negative territory as the US dollar — the country’s main currency — and lower commodity prices persist. Zimbabwe also remains in a debt trap, with very low international reserves.
Companies’ performances, a yardstick of the health of the economy, have been dismal. Looking at the March 2016 reporting season, it showed subdued corporate and economic performance as indicated by Delta, Econet, Mash Holdings, Art and Steward Bank financial results. The top line is increasingly under pressure from various factors such as increased competition, regulatory changes and subdued demand. As a result most corporates are now progressively focusing on cost-containment as a way of sustaining earnings and preserving shareholder value.
For instance, Econet recorded a 12% decline in its operating costs to US$420 million for the full-year to February 2016, through cost-optimisation, including staff rationalisation and elimination of inefficiencies. The same was also witnessed on Steward Bank’s financials, while Mash Holdings noted that cost-cutting measures will remain a short to medium-term priority. Just recently, Rainbow Tourism Group closed its leased Beitbridge Hotel as it was no longer sustainable. Econet was ahead in terms of cost-cutting across the board as it ordered its suppliers, foreign and local, to cut costs by 15% and further reduced its employees’ salaries by 20%. In this environment of weak earnings and subdued demand, cost-containment is critical for survival, sustainability and protection of shareholder value. In the banking sector, most financial institutions have automated their operations and adopted innovations such as paperless banking to cut costs. Banks such as ZB, CBZ and Steward are aggressive in terms of this agency banking model. This is a model where an approved third party acts on behalf of the bank to carry out designated banking transactions. This significantly reduces costs as the agent will act on behalf of the bank at a lower cost as compared to having a full-fledged banking hall. Banks such as BancABC closed some of their non-performing branches to contain costs. Agency banking represents a significant opportunity to reduce transaction costs.
Although cost-containment has been noticed in the banking sector, the benefits have not cascaded to the final consumer which is the banking public as compared to other sectors. In the telecoms, for example, there has been a noted reduction in both voice, short message services and data usage costs.
A 20% cut in salaries by Econet has enabled the mobile giant to pass through those benefits to the final consumer.
The same should apply to the banking sector. Cash shortages have necessitated the use of plastic money.
Transactions being done through RTGS, point-of-sale (POS), mobile and internet banking have tremendously increased, but bank charges have remained high.
An individual who used to withdraw US$10 000 in a single transaction in banking hall used to be charged US$5. Right now with some banks having set limits as low as US$50, that same individual has to visit the bank 200 times while being charged the same US$5 on every transaction resulting in a total cost of US$1 000 in bank charges. This is really daylight robbery by banks.
As the general public increasingly transacts using cards, banks should find ways to lower their costs such that an individual can freely transact as little as US$1 using a card without any hustles. Currently, it does not make any economic sense to use a debit card to buy a loaf of bread as one would be charged as much as US$2 for a US$1 transaction. Banks must be innovative, not rob customers.
Moyo is an economic and financial consultant. He writes in his personal capacity.