Firms remain bullish about future growth
Several equities firms are confident that the Government will continue to employ aggressive measures and maintain policy consistency in order to eliminate threats of resurgent market disparities negatively impacting businesses.
The general macro-economic environment has lately been characterised by growing threats of resurgent inflation increase and renewed exchange rate volatility, exacerbated by the negative impact of global economic dynamics.
Zimbabwe’s annual consumer price inflation surged for the sixth straight month to 66,1 percent in February of 2022. That was the highest inflation rate since June 2021, even though the central bank raised in October its main lending rate to 60 percent in an attempt to tame the rise and stabilise the Zimbabwe dollar.
Despite the threats of inflation and exchange rate volatility, companies reported improved business as the trading environment remained largely positive due to firm consumer demand and a rebound of international commodity markets.
Innscor Africa, in a trading update to 31 December 2021, said the dynamics of the local operating environment remained relatively complex and challenging despite the buoyant trading activity experienced during the period.
“In addition to local inflation and exchange rate volatility, global markets are undergoing an inflationary cycle, and combined with current events in Eastern Europe, this could potentially translate to cost-push inflation within certain imported raw material components,” Mr Addington Chinake, the group’s chairman said.
He said the group’s strong trading oriented focus, combined with improved capacity utilisation and a diversified product portfolio, delivered strong volume growth across all business units over the comparative period.
“Notwithstanding the positive trading performance, Covid-19 related trading restrictions continued to impact the group’s formal retail trading channels during the first quarter, albeit to a lesser extent than previously.
“The pandemic’s impact on global supply chains and the resultant bottlenecks across major supply
hubs continue to be a challenge, resulting in elevated transportation costs and delays in shipment of raw materials, spares and other capital items,” he highlighted.
Axia Corporation noted that the widening of the gap between the official auction and parallel market exchange rates presented pricing and value-preservation challenges to the businesses.
The company said the result of this growing level of arbitrage and market distortions have negative effects on the entire economy.
“The indexed cost base and high interest rates had a significant impact on the Group’s financial results, but management will continue to adapt business units’ operating models to manage business growth and sustainability,” said Axia.
The company indicated that while the trading environment was characterised by increased inflation threats and unstable exchange rates, the easing of Covid-19 lockdown restrictions improved business activity across the region before the onset of the fourth wave in December 2021.
“Improved business activity resulted in the group businesses recording volume growth except for the distribution businesses in Zimbabwe and Zambia.
“In Zimbabwe, the consumer disposable income benefited from increased economic activity driven by infrastructure spending, improved mining activity and better agriculture output,” Axia said.
It noted that the increased use of foreign currency in the local market enables businesses to generate foreign currency which will help the group to undertake critical capital investments.
The group reported a 70 percent growth in revenue to$15,2 billion during the period compared tothe prior comparative period and the revenue growth filtered into gross margin which increased by 93 percent in the prior period.
At National Foods, volume performance improved as new categories were introduced into the portfolio, coupled with more efficient operating structures and increased capacity utilisation.
However, the company said despite inflationary pressures contributing to slower consumer demand in the latter part of the period, overall volumes closed 15 percent ahead of the comparative period.
The flour milling division recorded a 3 percent volume improvement over the comparative period. The company noted that the new mill installation in Bulawayo will commence in April, and remains on track for commissioning towards the end of 2022.
Meanwhile, despite the headwinds, Finance and Economic Development Minister Mthuli Ncube has maintained that the economy remains solid and on track to achieve a projected growth rate of 5,5 percent.
The economy is expected to be anchored by agriculture, increased mining and firming commodity prices and normal to above normal rainfall. However, the current agricultural season has been marked by a false start in most areas and developments in Eastern Europe have since pushed up the price of oil and other commodities like wheat and maize.
In the 2022 national budget, the finance minister said this year’s economic growth target would also be underpinned by subdued Covid 19 pandemic; relatively stable exchange rate and declining inflation
According to the Old Mutual Investment Group Zimbabwe latest monthly report, Zimbabwe’s high inflation expectations are likely to further drive demand for the US dollar at the expense of the local unit, thereby increasing the level of dollarisation.-The Herald
