SHAME MAKOSHORI ZIMBABWE’S biggest cable maker says it has been dealt a blow by delays to secure authorities’ nod to extend a contentious barter deal that potentially saves millions in United States dollars annually.
The Zimbabwe Stock Exchange (ZSE)-listed Cafca, said in regulatory filings Friday that it was further affected by a halt in exports to Malawi after struggling to secure an exchange control greenlight for payments.
Company secretary, Caroline Kangara did not disclose the full extent of writedowns suffered out of the drawbacks when she shared half-year financial statements for the year ended March 31, 2022.
But she said the Cafca board was confident the firm was on track to overturn subdued growth and fire up volumes.
Cafca’s deal with Zimbabwe Electricity Transmission and Distribution Company (ZETDC) involves swapping scrap copper from the power utility with its aluminium conductors. The deal gives Cafca an opportunity to cut costs in copper imports.
“Volumes for the half year were 1 199 tonnes, an increase of 2% over the prior year comparative of 1 175 tonnes,” Kangara said.
“Volumes were adversely affected by the delay in getting regulatory approval to extend our barter deal with the Zimbabwe Electricity Transmission and Distribution Company and exchange control delays in getting paid by our Malawi customers which affected further export sales. We are confident that we will pick up the volume shortfall against budget in the second six months of the year,” she said.
Cafca lifted inflation adjusted profit after tax to ZW$512,5 million (about US$1,9 million) during the review period, a significant rise from ZW$115,2 million (about US$445 700) previously.
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Revenues climbed to ZW$3,3 billion (US$12,7 million), compared to ZW$2,3 billion (about US$8,9 million) previously.
In 2017, the Competition and Tariff Commission (CTC) moved to investigate potential unfair trade practices between ZETDC and Cafca, four years after the transaction was inked.
“It is alleged that owing to the barter trade agreement no other company can supply ZETDC with aluminium conductors thereby restricting competition in the market for distribution of electricity conductors.
According to Section 28 of Zimbabwe’s Competition Act, the CTC is empowered to investigate issues of “restrictive practices,” it said at the time.
“Prima facie, the agreements between ZETDC and Cafca may constitute a restrictive practice in terms of the Act with the effect that it may restrict the entry of other aluminium conductors suppliers into the market of distribution of aluminium electricity conductors. The ZETDC-Cafca deal was initially supposed to expire in August 2015, but it was extended further as both parties were accruing significant benefits,” it added.
Reports at the time said as of 2014, ZETDC had saved around US$26,4 million while Cafca had significantly reduced its overheads by trimming imports.
Controversy over the transaction returned last year, when authorities at the power utility faced accusations of sidestepping tender procedures when the deal was inked.
But the Cafca board said it was worried by exchange rate volatilities in Zimbabwe, which have escalated since the beginning of this year, as foreign currency shortages deepened.
The crisis took a fresh trajectory last Saturday, when President Emmerson Mnangagwa, in an unprecedented move, personally announced crucial monetary policy changes to cool off market jitters as inflation and prices ran amok.
“Exchange rate volatility is a cause for concern, but the upside of which is increased economic activity as consumers invest to hedge their savings,” Kangara said.
“We are therefore forecasting an increase in volume in the second half of the year over the first half,” she added.