ONE of the largest cooking-oil manufacturers, Surface Wilmar, which produces the Pure Drop brand and has a controlling stake in Olivine Industries, suspended its operations early this month citing foreign currency shortages. Government, through the Ministry of Finance and Economic Development, has more than 35% shareholding in Olivine. This comes at a time government has spent excessively on the procurement of petrol and diesel while neglecting other sectors of the economy which are now facing collapse due to a crippling shortage of foreign currency to import raw materials. Business reporter Melody Chikono (MC) spoke to Surface Wilmar CE Sylvester Mangani (SM), who is also Olivine CE, to understand the intensity of this forex issue. Find the excerpts below.
MC: What are the key issues that you feel need to be addressed for the viability of your business?
SM: The key issue is related to sustainable agriculture, which has ceased to exist in Zimbabwe. When we started the Surface Wilmar project in 2005, there was abundance of soyabeans and cotton seed to crush. However, with disproportionate prices of seed, fertiliser and other inputs, the cost to the farmer has increased, and farmers have become more dependent on artificial prices which are offered by the Grain Marketing Board. This model is neither sustainable for the government, nor for the farmer.
The government needs to supply inputs at subsidised prices, and also provide forex for importing pivots for irrigation systems. The plan should be for intensive farming, and concentrate on productivity of the farmer. We need to achieve good productivity numbers, which is the only way the crop can be produced at regional parity prices.
MC: You indicated that your Surface Wilmar plant has the capacity to process the entire country’s soyabeans production which is currently scarce. Approximately how much do you need to attain 100% capacity utilisation?
SM: For Surface Wilmar to achieve 100% capacity utilisation, we need 250 000 tonnes of soyabeans and cotton seed to crush.
MC: What is the long-term solution to the scarcity of raw material in the cooking oil production sector?
SM: Our plan submitted to government was a scheme, wherein we as users were ready to invest in centre pivots and provide inputs to the farmers, who agree to sign a joint venture with us for the next seven years. We would then engage experts and use satellite monitoring of the crop, and plough the land with our own resources.
On end of the lease period, we would leave the irrigation equipment on the farm, and the farmer will have working and profitable farm to work on.
We also suggested using the Zamco (Zimbabwe Asset management Corporation) land bank, which is not being used by the farmers, as they are not able to service their debts with the banks, and hence the takeover by Zamco. By this method, we would have achieved a sustainable farming model, growing two crops (wheat and soyabeans, in rotation). In seven years, we would have cleared the Zamco debt as well, while the land would have become useful and debt-free for the farmer.
The proposals were however shelved by the government, citing shortages of foreign currency for pivots, and other inputs, a position, which the government needs to consider. They need to provide forex priority for capital development purposes and not for current expenditures. The position of the government presently is fire-fighting and proving solution to present problems and not on the long-term goals.
The government also offered us some land at Binga, and to convert the forest land into usable land. However, as our international principals have strict environmental preservation policies which include a no-deforestation policy, we cannot venture into any project which would cause deforestation and destruction of natural habitats.
MC: Government has more than 35% shareholding in Olivine yet you suspended operations. Why?
SM: The government is fully aware of the fact that Olivine has not received any forex allocation since July 2018, and all our raw material suppliers have now stopped supplies, as we have not been able to service their bills.
There is no priority given to the manufacturing sector, hence the situation is very serious, as a lot of people would lose their jobs.
We wish to inform you that Olivine was a loss-making company in 2016, when we took over the management. In 2018, we proved our seriousness and commitment, by injecting long-term loans and proven management.
Olivine is one of the shining examples of public-private partnership, wherein the company made in excess of US$10 million net profit during 2018.
However, with the prevailing uncertainty and neglect of industrial sectors, we fear that our brands will start to lose value in the market.
As you are aware, we have shared with government our plan for expansion and retooling of various old and obsolete process lines in Olivine to localise manufacturing of products like industrial fats, ketchup and mayonnaise. This expansion project which requires a capex outlay of US$23,4 million was approved by the government, and accorded national project status. The company raised the required capital for the project, and requested government to allocate foreign currency of US$16,4 million to import the machinery from Germany.
The government failed to provide the foreign currency, hence a project which can earn over US$100 million through exports was shelved for failure to provide a once-off allocation of US$16,4 million.
MC: You also indicated that you have received significant support form Wilmar International and you are failing to repatriate millions of US dollars that you owe the parent company. Do you see any solution to this in the short-term and how do you see this impacting on further support?
SM: We have been trapped here as an investor, who firstly invested in plant and machinery, by providing long-term loans at lower interest rates. Now that investment has started paying back, however the company cannot service such loans, due to shortage of foreign currency in the country. Such loans stand in our books at US$12 million.
During elections, we were asked by the (Reserve Bank of Zimbabwe) governor (John Mangudya) for help to import crude oil worth US$5,6 million and we obliged by asking our suppliers to assist. The US$5,6 million was supposed to be paid immediately after elections. It is now seven months and nothing has been paid.
These are well-documented facts, and a confirmation letter from RBZ is available at our offices if you wish to check the facts.
This has now resulted in huge RTGS balances in our current accounts at banks, which we owe to our shareholders and suppliers, and cannot pay them. We also do not know the way forward.
MC: In your own opinion as a manufacturer, what does government need to do for ease of repatriation of funds?
SM: The government needs to set its priorities right. They should provide funds to productive sectors, wherein they are using the forex for recurring expenses. Investment in productive assets like machinery, agriculture implements, and irrigation equipment should be given priority. Importing cars, fuel and other resources will lead to increase in consumption, but not in production.
MC: What is your current capacity utilisation for both plants and what is your target for 2019?
SM: The answer to this question is very difficult in the present situation. Both our plants are closed and people have been sent on leave. We see a very gloomy picture of 2019, unless government understands the plight of the genuine and proven investors. The shutdown is obviously going to have a cascading effect on the investors, who were looking at Zimbabwe. Unless there is clarity on policies and Acts it is difficult for any industry to operate in Zimbabwe.
MC: What have been that challenges that you have been experiencing for both plants besides foreign currency?
SM: Apart from forex, and basic agricultural raw material like oilseed, we do not have any other challenges. We have an excellent workforce, highly knowledgeable staff and workers, who are dedicated to run the plants efficiently. If the oilseed production increases, then the demand for imports will significantly reduce.
MC: Now that you have suspended operations, what is the fate of your workers?
SM: Presently the workers are being asked to go on leave. However, if the situation does not improve, we have no choice than to start the retrenchment process. It will be sad for the management of the company, as it takes a long time to train and develop the skills that are required to operate such automated plants.
MC: What are the implications of the continued suspension of operations?
SM: The supplies have been erratic in 2018, and we did supply a substantial quantity in November and December 2018, when funds were provided from RBZ through Gemcorp funding.
However, after we exhausted the facility, things have come to a standstill. To make us operational again, it is more important that the accumulating foreign debts are addressed, while going forward a definite plan for payments of raw material is provided by the government. With shortages being experienced by the country, the trade is taking advantage by profiteering, which is beyond our control.
The government has preferred to allow the imports of finished products through suspension of Statutory Instrument 122, and we do not see how the imports of finished products will help the country when our manufacturing facilities are closed because of forex requirements.