Businesses urged to suspend post-paid services to preserve value in highly inflationary environment

Zimbabwe’s businesses have been urged to suspend post-paid credit facilities that they bill in local currency, or start charging in United States dollars, if they are to avoid incurring losses in the current hyper-inflationary environment.

Zimbabwe is experiencing hyperinflation, with the prices of goods and services increasing by 256.9% between July 2022 and July last year, according to the national statistical agency (Zimstat), putting immense pressure on consumers and businesses, and on the economy at large.

Zimbabwe National Chamber of Commerce (ZNCC) president Mike Kamungeremu said the resurgence of inflationary pressures necessitates that businesses reduce their exposure on credit sales and focus on cash sales.

“Given the rapid depreciation of our local currency which we witnessed over the past months, it is very difficult for businesses to offer any services or products on credit because all the value will be eroded by inflation,” he said.

“A number of our members are still compelled to offer post-paid services and products due to contracts that were entered into when the operating environment was stable, and in most of those cases, they end up going back to request top-up payments from customers to recover lost value.

“Where this option is not available, they have been forced to live with the losses or even elect to have the contracts cancelled citing impossibility of performance,” he said.

To hedge against inflation, several state-owned enterprises such as Zesa Holdings, Zimbabwe National Roads Administration and local councils have started pegging their rates to the US$.

In July, the Reserve Bank of Zimbabwe gave Zesa exchange control approval to bill exporters and partial exporters in foreign currency, as part of broad measures to enhance the utility’s operational capacity.

Kamungeremu noted that most companies were now signing new contracts that require post payment in US$, with the payments being done at the prevailing official rate.

“The issue of the official rate lagging behind is however another issue that also then leads to loss-making on these contracts, particularly where businesses incur costs that are pegged at the parallel market rate to service these contracts,” he added.

Economist Victor Bhoroma concurred with the ZNCC boss and added that the government should allow businesses to charge their products and services in US$ for the companies to remain operational and preserve shareholder value and avoid job losses.

“The best strategy for companies that provide post-paid services, or any business in particular, is to change their business models and ensure that they get a significant portion of their income in hard currency to hedge against exchange-related losses,” he said.

Bhoroma noted that some companies that were offering post-paid services, including fixed network service provider TelOne, were now migrating to prepaid services.

Another economist Vince Musewe indicated that it was now meaningless for companies to continue offering credit services under the current operating environment.

“Currently, inflation causes price instability and makes it difficult for businesses to plan ahead or recover their costs.

“Typically, salaries suffer most, leading to job losses and high unemployment levels. Business should therefore be allowed to charge in US dollars,” he said.

The latest development comes at a time when companies in the telecommunications sector – including NetOne, Econet Wireless and Telecel – are struggling to maintain post-paid services due to the twin challenges of a fast-depreciating domestic currency and rising inflation.-newsday