Businesses navigate choppy waters in 2024

Zimbabwe’s operating environment has remained largely the same over the years, and industry and businesses have continued to find ways to manoeuvre the difficult space to foster growth and make further investments.

In 2024, several issues continued to be flagged by businesses as factors increasing the cost of doing business in Zimbabwe, including monetary and exchange rate distortions, inflation, limited access to finance, unreliable power supply, corruption, and unreliable infrastructure.

Throughout the year, Zimbabwe’s businesses were constantly tweaking operational models with a major focus on costs as part of contingency strategies to keep their companies afloat in a volatile operating environment.

According to the Zimbabwe National Chamber of Commerce (ZNCC) 2024 annual state of industry and commerce survey report, the year under review was generally economically difficult; capacity utilisation in most sectors decreased when compared to the previous year, 2023.

The report noted that in some sectors, it remained unchanged, and in most service sectors and agriculture, capacity utilisation declined, while in the mining and quarrying sector, it marginally increased, particularly for enterprises in gold and ferrochrome production.

ZNCC said the respondents were citing exchange rate distortions, low demand, and power outages as the main reasons weighing down capacity utilisation.

“For some firms, lack of access to foreign currency or accessing foreign currency at the exorbitant exchange rate on the black market has resulted in lower capacity utilisation. The other reasons weighing down capacity utilisation are the cost of capital and the non-optimal fiscal framework,” reads the report.

As companies struggled to secure adequate working capital and relied on expensive short-term borrowings, the risk of cutting back on production, retrenchments, and closures increasingly became a reality.

According to ZNCC, the central bank should curtail money supply growth to stabilise the exchange rate and prices, as excessive liquidity fuels inflation and exchange rate instability.

It noted that there is also a need to enhance the flexibility of the exchange rate to reduce the impact of the parallel market while stabilising the currency through well-targeted foreign exchange market interventions.

Dairibord Holdings chief executive officer Mercy Ndoro told Business Weekly the year 2024 was tough, marked by a myriad of challenges, chief among them policy inconsistencies that affected business performance.

She said the inconsistencies created uncertainties in the market that hindered the industry’s ability to enter into long-term commitments.

“Government should enhance transparency of government’s intended moves, steadfastness in policy stance, and change of critical policies after wide consultations with all affected stakeholders,” she said.

Ndoro said economic challenges such as liquidity crisis, inflation, and currency volatility also compounded the situation for companies.

She said the Government should address macroeconomic challenges for currency stability, control inflation, and maintain fiscal discipline.

In addition to that, Ndoro highlighted that the high tax burden, such as the introduction of a sugar tax, disallowed VAT claims on milks and other basic commodities, and the IMTT increase on USD transactions, placed a higher tax burden on industry.

She said the Government must consider, at the very least, designating sugar tax and IMTT as allowable deductions for tax purposes.

Business has over the year grappled with the high cost of and power supply deficit, which has crippled industry.

Ndoro said to facilitate the transition to more sustainable energy sources, Governmental subsidies for industrial entities are recommended.

“Furthermore, a concerted effort to rehabilitate critical infrastructure within ZETDC and ZPC is imperative to augment energy generation and transmission capacities,” she said.

Most of the challenges resulted in high costs of production. Ndoro said there should be improvements in infrastructure for consistent and reliable power supply, efficient transport networks, and enhanced access to finance with lower interest rates and financial inclusion for SMEs.

She said in 2025, the business will continue with its growth agenda with particular emphasis on enhancing processing capacity through capital investments aimed at expanding market reach and augmenting sales volumes.

Ndoro said the company will also increase commitment to innovation, dedicating significant resources to research and development, with the objective of growing a robust and diversified product portfolio.

“Market expansion with a deliberate, concerted effort on export growth while rigorous cost management strategies will be implemented across the business to optimise operational costs,” she said.

Economist Victor Bhoroma told Business Weekly that Zimbabwe’s economy remained resilient and competitive in some sectors in 2024, and there are a number of businesses in some economic sectors that have remained attractive for investment.

“When you look at high levels of inflation and distortions in currency, we can conclude that the economy is very resilient. Corporates have found ways of how to manoeuvre the economic instability to foster growth and to continue investing,” he said.

Bhoroma noted that since 2009, there should have been serious action in terms of investment in energy, which has been among the major impediments for companies during the year.

“Using generators, the cost is unimaginable,” he said.

According to ZNCC, the Government should enhance the flexibility of the exchange rate to reduce the impact of the parallel market while stabilising the currency through well-targeted foreign exchange market interventions.

“Continuously build foreign exchange reserves to cover at least six months of imports, and efficiently manage the current foreign exchange reserve stock through well-targeted foreign exchange market interventions to avoid depletion.,” reads the report.

ZNCC said given the current foreign exchange reserve stock, coupled with factors such as high inflation, high public debt to GDP ratio, and widespread informality, the full adoption of the ZWG and a return to a mono-currency system (ZWG) is not advisable in the short to medium term.

In order to give industrial support, the Government should move away from blanket incentives to sector-specific tax incentives that target firms creating additional employment to cater to each economic player’s needs to boost the rural industrialisation agenda and attract and retain foreign direct investment.

Malone Gwadu, a financial economist, said particularly the manufacturing sector in Zimbabwe is in need of serious retooling to modernise their equipment in order to be competitive.

“Outdated technologies currently in our market increase the cost structure and, by derivation, business costs, which are in US dollars; hence, retooling is quite key in arresting costs that render our local produce uncompetitive,” he said.

Gwadu said the electricity situation is unfortunately here to stay for a while until the necessary interventions are finished, such as the Hwange power plants.

“Alternative sources may need to be considered, especially solar energy. We have abundant solar power, which we are not utilising beyond household level even for our industries,” he said.

Last month, Finance, Economic Development, and Investment Promotion Minister Professor Mthuli Ncube announced several proposed interventions that will shape industry and business operations next year.

However, businesses are calling on the Government to consider reviewing some of the proposed measures, which they believe will erode competitiveness and drive the cost of production high.

The Confederation of Zimbabwe Industries (CZI) expressed concern over the reduction of the degree of export orientation from 100 percent to 80 percent for manufacturing companies under Special Economic Zones (SEZ), as it will be difficult to penetrate the export market due to high costs of production.

“The proposal is that the degree of export orientation be further reviewed down,” reads the report.

CZI is also of the view that the 25 percent tax on rental income is too high, as there are other costs to be met by rental income collections, like renovations, maintenance costs, and others.

The industry representative body said the Government should ensure that the tax is applied on net rental income as opposed to gross revenue from rentals.-ebsinessweekl