HomeBusiness DigestCovid-19 restrictions cripple business

Covid-19 restrictions cripple business

Taurai Mangudhla

THE country’s business sector bore the brunt of Covid-19 restrictions in the first half of the year with figures from the financials of some of Zimbabwe’s biggest companies painting a grim picture of being hard hit, as evidenced by the steep decline in sales.

Government imposed a national lockdown on March 30 this year to contain the Covid-19 pandemic, which has claimed more than a million lives globally.

Although the government has said the restrictive measures that saw most businesses suspend operations were justified, it worsened the plight of most businesses operating in a deteriorating economic environment.

The country’s economy has been reeling under decades of mismanagement and deindustrialisation. Companies have bemoaned the consequent loss of production.

The tourism industry is arguably the hardest hit by Covid-19 restrictions, which grounded airlines worldwide. One of the major local players African Sun Limited (African Sun) was hard hit by the restrictions, reporting a measly 5% occupancy level in the second quarter of the year.

The Zimbabwe Stock Exchange (ZSE) listed hospitality group said the second quarter results reflect the challenges arising from the Covid-19 pandemic. The most significant impact on the hotelier’s volumes was in April and May, with the business recording unprecedented low occupancies of 0% and 2% respectively.

“The half year period under review reflects two distinct quarters. The first quarter performance was positive and recorded a 2-percentage point increase in occupancy from 38% to 40% compared to the same period last year,” African Sun chairperson Alex Makamure said in the company’s reviewed condensed financial statements for H1 2020.

Makamure said the advent of Covid-19 worsened the economic recession and rising inflationary pressures in an economy already reeling under a multiplicity of negative socio-economic factors.

Another ZSE listed hospitality player Rainbow Tourism Group (RTG) said the operating environment in the first half of 2020 was characterised by a volatile foreign exchange market, price distortions and rising inflation. This, the group said, was compounded by the pandemic.

Despite opening its doors to at least 1 000 people from quarantine groups, RTG’s occupancy for the period under review closed at 25% compared to 43% recorded during the first half (H1) 2019.

Milk processor Dairibord Zimbabwe Limited (Dairibord) said H1 was characterised by continued volatility and significant Covid-19 induced disruptions on business operations resulting in volume decline, increasing costs and modest profitability.

“While Dairibord operations were designated as essential services and continued operating throughout the Covid-19 lockdown, supply chains, market access and buying power were negatively impacted particularly in the months of April and May,” Dairibord said in its first half reviewed financial results statement
It noted that year-on-year inflation ended June at 737,3%, with foods and non-alcoholic beverages inflation at 1934,3%.

“Hyperinflation continued to increase costs, erode disposable incomes, reduce aggregate demand, constrain liquidity and put pressure on wage demands,” Dairibord said in its report.

It revealed that sales volumes for the six months at 27,3 million litres were 32% below prior year. Volumes slid by 19% and 46% in the first and second quarter, respectively as the impact of the Covid-19 induced restrictions took a toll on operations.

It has been the same story for cement producer Lafarge. The company started the year on a satisfactory note with first quarter volumes marginally exceeding the same prior comparable period by 1,4%.

“However, the onset of the Covid-19 lockdown caused a significant drop in the monthly volumes of April 2020 by 71,4% compared to the same month in the prior year,” Lafarge said in its H1 results statement.

“The volumes recovered in May and June 2020, leading to total volumes for the period closing at 14,1% lower than the same period last year. This performance is largely in line with market trends as there is an overall market decline of 13% compared to the same period last year,” Lafarge added.

Economist Persistence Gwanyanya said foreign currency shortages, inflation and Covid-19 are increasingly having diminishing effects on performance of companies in Zimbabwe. Going into the future, he said, a more stable operating environment is expected.

Gwanyaya said Zimbabwe was less affected by Covid-19 compared to western countries and regional states like South Africa, which experienced significant contraction in manufacturing.

“While we are very uncertain about the extent and impact of Covid-19, we don’t expect much more. Sadly we have no control over the pandemic, it’s exogenous,” Gwanyanya said.

He said while price instability was a major headache, particularly early into the year, significant progress has been made by tightening money supply and improving the foreign currency auction system.

“It is our hope that the Treasury and the Reserve Bank of Zimbabwe maintain traction on money supply growth. From what is on the ground, one can only hope the stability continues into 2021,” Gwanyanya added.

“The issue of stability which has been key over a number of years, in my view, is happening at an encouraging pace. Stability is a cornerstone and bedrock for any economic progress including financial performance of companies. If you achieve stability all other things fall in place, for example production and investment which also speak to employment and formalisation.”

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