Zim firms reel under currency volatility

ZIMBABWEAN companies are reeling under high currency volatility, resulting in unsustainably increased operational costs, the Zimbabwe Independent has established.

Melody Chikono

The country last year dumped the multi-currency system and declared the Zimbabwean dollar as the sole legal tender through Statutory Instrument 142 of 2019. This meant companies had to adjust in line with the new government policy.

A look at the financial results of companies for the year ended December 31 2019 shows that inflationary pressures caused by currency transition have had a negative impact on consumer demand as well as companies’ liquidity.

Atlas Mara member ABC Holdings Limited’s group operating expenses decreased 5,4%, largely attributed to the effects of currency translation on Zimbabwean costs.
Having posted a US$25,3 million loss, ABC Holdings says the transition has had an impact on its total assets which contracted to US$1,7 billion from US$1,9 billion in the prior year as the group’s operating expenses decreased by 5,4% to US$168,5 million for the year ended December 31, 2019 compared to US$178,1 million for the year ended December 31, 2018.

“The decrease was largely due to the effects of currency translation on Zimbabwe costs as well as the effect of the strategic cost management initiatives across the group. Total assets contracted from US$1,9 billion at December 31, 2018 to US$1,7 billion at December 31, 2019 due to the IFRS 5 impairment loss recognised on subsidiaries held for sale, as well as the impact of Zimbabwe currency translation on the statement of financial position,” ABC Holdings said.
For assurance company Fidelity Life Ltd, the policy change to a mono-currency and subsequent depreciation of the Zimdollar had a negative impact on the group’s inflation-adjusted expenses which closed the year at ZW$423,1 million, growing by 33% from ZW$317, 7 million the previous year.

“The significant re-rating of investment properties in line with the depreciation of the Zimdollar was the largest contributor to the increase in insurance and investment contract liabilities which increased to ZW$123,8 million in 2019 from the ZW$43,1 million in 2018,” Fidelity Life said.

“Further, the heavy depreciation of the Zimbabwe dollar against the United States dollar led to the provision on the South View water pipeline increasing to ZW$100,1 million from ZW$ 44,3 million in 2018.”

Food processor Dairibord Holdings Limited, in its financial statements, bemoaned the increased cost and unavailability of foreign currency, power, fuel, water, raw and packaging materials, which resulted in an increase in operating costs.

Inflationary pressures have had an adverse impact on consumer demand and liquidity with finance costs having gone up to ZW$6,822 from ZW $3,148 in 2018.
Miner RioZim Limited said it has also been reeling under the exorbitant price of purchases in the Zimbabwean dollar after the discontinuation of the multi-currency system and the introduction of the local currency.

This, according to RioZim, resulted in unmanageable escalation in the cost of local inputs.“The acute shortage of foreign currency meant that certain purchases had to be made in Zimbabwean dollars at exorbitant prices. With the current foreign currency shortfalls bedevilling the company due to inadequate foreign currency retention of only 55%, and the uncertainties on the BIOX (Biological Oxidation Plant) funding, the Group’s ability to fund its capital development and exploration activities at each mine is significantly in doubt,” RioZim said.

“In this regard, management prudently excluded the undeveloped resources in the estimation of the Life of Mines as at year end as these require funding for them to be brought to mineable reserves.”

Overall, the macro-economic environment for 2019 was challenging, given the continued foreign currency shortages, the impact of fiscal reforms as well as exogenous shocks in the form of the El-Niño-induced drought and the destruction caused by Cyclone Idai.

This also compromised economic activities including electricity generation, with extended effects on almost all economic sectors, pushing the economy to contract by an estimated 6,5%, according to government figures.The International Monetary Fund estimates that the economy will contract by 8,3%.