Foreign currency shortage a threat to Zim industry

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THE shortage of foreign currency continues hampering the viability and threatening the survival of many companies in Zimbabwe.

Packaging company Nampak Zimbabwe Limited has not been spared the currency crisis. The firm’s major shareholder, Nampak Holdings Limited—a South African entity which had been offering technical and logistical backing, has now cut off financial support.

This has been caused by non-payment of credit and loan accounts to Nampak Holdings by Nampak Zimbabwe. Financial support can only resume when the local company is able to make inroads towards the repayment of outstanding liabilities.

Business Reporters Melody Chikono and Cloudina Matola (ZI) spoke to Nampak Zimbabwe chairperson Kumbirai Katsande (KK) for an insight into the company’s operations.
Find excerpts below:

ZI: You have not been spared the foreign currency shortage. How has it affected your operations?

KK: Forex shortages are generally across the market. The only difference is that Nampak affects other industries on supplying packaging but the Reserve Bank has been very helpful.
We have been receiving support, but clearly that is not enough because we require a significant amount of foreign currency and there is not enough foreign currency in Zimbabwe.
This is on the basis that we are not just producing for the market consumers but we are also producing for other companies, so you can imagine all the companies in town. Most of the products on the supermarket shelves from drinks to solid packaged foods are done by Nampak. It has a footprint everywhere, whether it’s the lid or whatever with a label, so I think that has been recognised.

ZI: How much foreign currency do you require?

KK: I can’t give you the specific figures, I think management will have to do that but like what the MD said, in spite of those difficulties we are running ahead of last year. What it means is that if we had the foreign exchange that we require, we would be doing so much better.

ZI: How have you performed on the export market?

KK: Our export market has been growing. We have made a lot of impact in the Democratic Republic of Congo, Zambia, Malawi and of late we are also trying to develop Mozambique. But, as you know, that takes time. Our appetite for foreign currency for the whole group is quite big so we will not rest until we are able to cover our requirements.

ZI: What challenges have you been facing in terms of exporting?

KK: There are always logistical issues in terms of the borders. That is where you have a lot of delays on clearing trucks going out which then create problems when you want to contract truckers, especially to the DRC, because the turnaround time in certain instances can be 10 to 14 days so transporters do not want their truckers to be held up for that long.

ZI: What is your current capacity utilisation?

KK: We are sitting at around 60% but we have an opportunity to increase that. Obviously there are certain things that we are still working on, internal issues to make sure that we are more profitable on the exports, as you know it’s a cut-throat market where you are competing with the best in the world.

ZI: If you have to increase your exports, what are you looking at?

KK: We still have pricing issues obviously in terms of the exchange rates. This 1:1 (official US dollar-bond note exchange rate) also makes your exports not very competitive because when you realise the revenue, you are realising at the rate of 1:1. So we hope the pending liberalisation of the foreign exchange market will make our markets even more competitive.

ZI: What is the level of demand on the Zimbabwean market?

KK: Demand is there, we can’t cope with local demand. I think the elephant in the room has been raw material availability through the foreign exchange market which is drying up but demand is firm and is there. We are failing to meet demand.

ZI: In terms of your raw material requirements, how much forex do you need?

KK: For our operation we are looking at US$3 million a month for raw materials. We are no generating enough forex ourselves. We only generate about 15% of our import cover.

ZI: What is your 2019 outlook?

KK: There is very little to suggest an improved socio-economic environment for 2019. We continue to struggle with access to foreign exchange to purchase raw material imports and, despite assurances around the intention to ensure bilateral investment protection and promotion agreements (Bippas) are honoured, we are still not making any meaningful headway in obtaining control over our estates. Our major shareholder, Nampak Holdings Limited, has and continues, to be very supportive within their limits. They continue to provide technical and logistical support. Due to the non-payment of our creditor and loan accounts with Nampak Holdings, they had no choice but to limit further external financial support until such time as we make inroads into the repayment of the outstanding liabilities. We have engaged the relevant authorities over this issue and, while we have made significant progress in resolving the problem, as yet there has been no flows of funds. Management continues to focus on prudent cost control, which is becoming more challenging as inflationary pressures mount. Overall, we continue to look for areas where we can rationalise and improve the business, with a focus on continued cost control, growing our exports and preservation of shareholder value.

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