Tight liquidity management bites businesses
THE country’s tight liquidity management is adversely hurting aggregate demand as well as the availability of productive working capital for firms, according to seed producer Seed Co Limited.
Authorities maintained a tight monetary policy in the first half of the year, instituting liquidity management tools such as the liberalisation of the exchange rate, tighter monetary policy, issuance of gold coins and introduction of gold-backed digital tokens to tame inflation.
The economy experienced a spike in annual inflation in June, hitting 175,75% from 86,54% a month earlier jolting the government to act. Treasury also responded by directing that companies pay half of their quarterly tax obligations in the local currency.
This has resulted in an acute shortage of the Zimdollars on the market.
In a trading update for the first quarter ended June 30, 2023, the leading producer and marketer of certified crop seeds in Zimbabwe said the shortage of the local currency was disrupting production.
“Liquidity challenges in the market are expected to continue as authorities try to anchor the local currency. Tight liquidity management is, however, negatively affecting the availability of productive working capital for businesses as well as aggregate demand,” group company secretary Tineyi Chatiza said.
He said the group was “striving” and confident of its efforts to ensure it “is sufficiently funded and stocked” to meet demand for food crop seeds in the winter and summer planting seasons.
In the period under review, total seed sales volumes experienced a 10% growth compared to the same period in the previous year. Sales of wheat seed constituted 85% of the overall volume, a pattern consistent with the period under review.
“The volume growth was, primarily, propelled by a 7% and 19% surge in the sales of wheat and barley seeds, respectively. These increases are attributable to enhanced dam water levels and improved electricity availability for irrigation purposes,” Chatiza said.
“Typically, the initial quarter usually serves as a phase of cost accumulation in anticipation of the primary crop, maize, seed sales season in the latter part of the fiscal year.”
Revenue for the quarter grew by 648% and 305% when compared to the same period in the prior year in historical and inflation-adjusted terms, respectively. This growth is consistent with the sharp depreciation of the exchange rate and the consequent inflationary effects, the company said.
In contrast to the previous year, the operating profit showed a positive swing of 10 times and 19 times when compared to the previous period’s inflation-adjusted loss and historical profit, respectively.
Chatiza said the improved profitability outturn was attributable to the recovery of profit margins and the alignment of the exchange rate with open market forces.
“It is, therefore, important to note that the comparability of financial performance has been significantly distorted by the substantial fluctuations in exchange rates and the shift in the base of inflation statistics from solely the local currency to a computation involving blended currencies,” he said.
Chatiza said the firm was expecting a more stable socio-economic environment soon after the elections, which is more conducive for business and general economic activity to thrive.
“Despite these circumstances, the group is well-equipped for the upcoming sales season, both domestically in Zimbabwe and within the broader region,” the executive said.
He said the group’s production and processing plans had been planned to accumulate an ideal mix of seed stock varieties to cater to preliminary El Niño forecast scenarios of below normal to normal rainfall.-newsday
