AS hyperinflation continues to threaten the existence of the manufacturing industry in the country, some companies have remained resilient through adopting various strategies to remain operational in this volatile environment. One such company, Cafca, which is into cable manufacturing, says while it believes hyperinflation can be controlled with funding from external sources, the company has, in the interim, adopted strategies to mitigate threats posed by hyperinflation to its sustainability. Business reporter Melody Chikono (MC) last week spoke to Cafca managing director Robert Neil Webster (RW, pictured), who says Zimbabwe is better off using the South African rand than the United States dollar for the sustainability of the local industry. Below are excerpts of the interview:
MC: Give us an update on your operations on the year to date.
RW: We are seeing shortage of foreign currency, fuel and we are seeing shortage of electricity. Wherever there has been an intervention, it has ended up as a shortage. We’ve got a volatile environment and shortages and I have got a commitment from the ministry (of Industry and Commerce). They say we can give you protection provided you can produce for the whole country’s requirements, keep employment going up, (and also) your capacity and exports. So I am in this volatile environment and I’ve got commitments. I only make 16 items a week yet I sell 1 800 different line items. The only solution to alter that is to carry stocks. Because if you carry stocks it doesn’t matter if you have shortage or you have no foreign currency. What we are doing is to up the stock holdings.
This gives us the ability to meet all the requirements. It helps me to export, I’m taking my exports to the five locations we have in the region, two in Malawi, two in Mozambique and one in Zambia. This helps to sell if you have stocks on the ground.
Having stocks on the ground also helps me to supply the local market for the same reason and takes the risk away that maybe you could run out of raw materials. In that vein, we are sitting on 730 tonnes of finished goods stock and we sell about 140 tonnes a month. I’m sitting on five to six months of stocks. Therefore, it gives us the comfort of having to deal with all of these problems that I’ve just mentioned
On exports, I would say our minimum target per month is at 10% by volume not dollars, because dollars are not a good measurement at the moment. 2019 to date, we have done 11%, January we did 12%, so we are starting to reap the fruits of consignment stocks.
Where do we see ourselves in the half year? Our half year as of March, we will be up on last year in terms of volume. In this market that’s good.
How are we financing stock? If you have 730 tonnes of stocks in a hyperinflationary environment, it eats money. At the end of September I had ZW$40 million worth of stock but I now have ZW$80 million worth of stock. It still needs to be financed even in Zimbabwean dollars. You have to find the difference of ZW$40 million. We are using internal resources and we have borrowed the equivalent of about a US$1 million, so about ZW$20 million to ZW$25 million. We have increased our stocks to ZW$40 million. In a nutshell, that’s the company’s position at the moment.
MC: How are you financing your borrowings in this volatile environment?
RW: The stocks will always cover the borrowings. If I borrowed ZW$25 million and I’m sitting on ZW$85 million worth of stock, remember that’s a cost , and you are selling at, say, 30% profit, I’m probably sitting on ZW$120 million worth of sales to pay back ZW$25 million worth of borrowings. So until this hyperinflation stops, we will just continue doing what we are doing, increase the borrowings, increase the stocks, increase the exports until such a time we can go back to one or two months’ stock and use the dropping of the stocks to repay the borrowings.
MC: Do you have foreign borrowings at the moment?
RW: Nothing. Not one cent. We saw this coming last year and we said no more foreign borrowings at all, no legacy debts. Even the supplier credit that I get from South Africa, I do not use it. I prepay. You have seen what foreign borrowing has done to a number of companies in the country.
MC: How much have you benefited from the interbank forex market facility since it commenced?
RW: Nothing. We apply every day, but still nothing. We are not on the priority list. I guess there is not enough to the basics let alone us who do cables. We use our exports to buy raw materials and we use importers who have foreign currency to import on our behalf. They import and sell to use locally.
MC: Last year there has been talk of vandalism. Where has that left you?
RW: Yes. We are working closely with the minerals department of the CID [Criminal Investigations Department]. We have bought a lot of copper lately. Before we buy or move it we call them. They come in and inspect it, they satisfy themselves that they are not products of vandalism and it’s legitimate copper. We have a copper licence. It’s very tightly controlled in Zimbabwe.
MC: Outside the borders?
RW: Well, we know that copper is leaving this country and we don’t know how but lots of copper is leaving. We also don’t have numbers but we know because we go and compete with other people on the copper we put on a bid. When we lose it we try and locate that copper, it will be gone .That’s how we know it’s leaving the country.
MC: What is your outlook in this financial year?
RW: I have no reason to believe that the 140-tonne model that we are on is not sustainable for the rest of the year. The mines are still buying, people are still putting up houses. Although they are not getting power, and are not getting power they are putting solar which still needs cabling. I have no reason to believe we can’t sustain it for the rest of the year. Should we re-dollarise, then it should be good for business because I can see people start reinvesting.
MC: On re-dollarisation, you will realise that the economy has already dollarised though it’s not official. What’s your position?
RW: Because we are a public company and because there will be a liability of tax or breaking the law, we absolutely do not accept US dollars. However, at our sales office we have a ZB bureau de change. If a person comes in and wants to buy in US dollars, he takes his US dollars to ZB who then convert it to Zimdollars and pay us.
MC: If were to re-dollarise, what would be the prospects of pushing your business?
RW: I think it will be very good because we have to pay a premium to get our raw materials which makes it unaffordable for the majority of Zimbabweans when they want to invest. If you want to invest, say in buildings, machinery and so on, it’s very expensive.
MC: What could be your potential losses in terms of buying forex at a premium and other related costs?
RW: I would say it’s very difficult to measure because no one can say this is exactly the size of impact felt .There is this problem, but it’s difficult to quantify.
MC: What is your capacity utilisation at the moment?
RW: Historically, the company used to do 450 tonnes a month going back 25 to 30 years ago when Zesa had money. Then we dropped to 300 tonnes and we brought the numbers down to 200 tonnes but we got the numbers all the same. Now we are on 140 tonnes, but we still get the numbers. We are running at 140 tonnes against a capacity of 300 tonnes. To get back to 450 tonnes, we will have to get more people. If you ask what’s your capacity today, I would say it’s 300 tonnes, but we are running at 140 tonnes.
The people still have the skills, the reason we are keeping them is because we are making many line items and people are no longer buying 40 kilometres of this product they want two kilometres of this, 100 metres of this and so on and I have to cater for that. Those people are gainfully employed, giving us the ability not to be less efficient. We still have capacity to go back to 300 tonnes. We are slightly below 50%.
MC: Some companies are heavily borrowed. What is your position?
RW: Our situation in terms of liquidity is we have good reputation in the market. They know that there is no risk to selling to us. We take no risk either by selling to anyone on credit. All of my sales are cash up front. We don’t struggle to borrow and we don’t lend to anybody.
MC: If you were to change anything in this environment for the viability of your business, what would that be?
RW: I would want them to change to go to the (South African) rand. Why the rand? The rand is a softer currency than the use of US dollar which people are using as a store of value. Because none of us trust the financial system, we use the US dollar. We have no savings because it doesn’t make sense to leave your money in the bank. It doesn’t accrue any interest. If you do not have savings, the county does not develop. That is the reason why the US dollar didn’t work because it’s used to store value rather than as a currency. Getting lines of credit should be easier in South Africa than internationally. The Zimbabwean dollar experience is not working. Everyone knows it was premature to introduce the Zimdollar, all 13-and-a-half million people know it’s so why do we keep knocking heads to get it?
MC: How easy is it for you to get external lines credit lines?
RW: We don’t go for foreign lines because we do not want the foreign exposure. We only do local. Any benefit we get on my export is for my account. It is not used to pay a foreign liability. I have said no to foreign liability.