Another bad year for industry

PHILLIMON MHLANGA

For many businesses in Zimbabwe, 2023 turned out to be a very bad year due to a number of headwinds such as crippling power crisis heaping pain on industry, declining economic conditions, high interest rates, and inconsistent government policies.

Along with severe liquidity constraints, foreign currency shortages, rising  operating costs, high inflation, volatility in local currency, a decline in industry capacity and a sharp decline in disposable income due to the depreciation of the Zimbabwe dollar against major currencies, local businesses are facing a number of challenges as the year draws to a close in just two weeks.

This year, a lot of businesses have shut down, adding to the corporate graveyard. The ones that are still in business have switched to a survival mode because of the obstacles they face and the state of the economy.

According to some companies listed on the Victoria Falls Stock Exchange and the Zimbabwe Stock Exchange, the dire situation is evident in their most recent financial results. The collection of findings is indicative of the unstable economic climate, which has caused some businesses to reduce operations while others are in danger of failing.

A very challenging operating environment is the reason behind the failure of companies’ restructuring efforts.

This week, a number of industry players told Business Times that the numerous fiscal and monetary policy actions that have been put into place recently have a significant effect on the operating environment, which has remained unstable and uncertain, making it challenging for companies to carry out their expansion strategies.

They argue that businesses will be negatively impacted by currency depreciation, rising inflation, and interest rates, noting that many businesses are finding it difficult to implement risk-reduction plans.

“Industry is in survival mode due to a number of challenges,” the Confederation of Zimbabwe Industries (CZI) said in its latest report.

According to the largest business lobby group in the country CZI said reducing foreign currency liabilities and restricting borrowing to support essential supply and demand requirements, improving efficiency and cutting costs to lessen inflationary pressures, optimizing the operating cycle by evaluating credit terms to be in line with new trends, and creating export initiatives in the area are all essential for survival.

The adverse movement in the foreign exchange rate is largely responsible for the increase in prices of goods and services. CZI stated that the difficult operating environment saw many companies facing a real risk of balance sheet contraction in this highly inflationary environment. Inflationary pressure remained a cause for concern and its effects have been felt across the economy as evidenced by the general increase in the cost of doing business.

According to the CEO Africa Roundtable, the macroeconomic environment is getting worse, which is lowering consumer disposable income and jeopardizing output.

According to a new CEO Africa Roundtable business confidence survey released two weeks ago, business executives expressed extreme pessimism regarding the prospects of the Zimbabwean economy, with business confidence falling to -40% in the third quarter (Q3) of this year.

Among many other issues, the decline in business sentiment was also brought on by currency volatility and the hemorrhage exchange rate.  Furthermore, margins have been squeezed as companies struggle to keep up with price inflation and customers tighten their purse strings. Because costly backup generators are required in the event of crippling power outages, costs have also gone up.

CEOs also mentioned that companies are finding it difficult to overcome issues brought on by erratic government regulations and expensive production costs.

 

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