Old Mutual considers USD reporting as economy fast dollarises

Diversified financial services group, Old Mutual Zimbabwe, says it may at some point adopt and prepare its financial statements in US dollars as the economy is now circa over 80 percent dollarised.

Zimbabwe’s statistical agency, Zimstat, estimates that over 80 percent of transactions in the economy are currently conducted in foreign currency, mainly the US dollar.

Already, some Zimbabwe Stock Exchange (ZSE)-listed companies, such as Proplastics and Mashonaland Holdings, have presented their financials in US dollars, as ZWL reporting remains subject to exchange rate disparities.

The ZSE last November allowed listed counters to have an option to report in USD, indicating that the market needs financials that make sense and are appropriate for the current environment and investors.

“On USD reporting, maybe guided by what we see in the environment and the business we generate in USD,” chief executive Samuel Matsekete said during a recent analyst briefing.

He said the group’s businesses, general insurance and microfinance, are already using US dollars as their functional currency because of the contribution of US dollars to their revenue.

For the period to December 31, 2023, the general insurance business had a strong underwriting performance, which doubled its performance year on year from a 3 percent underwriting result to 6 percent in 2023.

“New business is also quite strong in the general insurance business, contributing 18 percent to total business, up from 15 percent,” he said.

The government has since extended the use of the multicurrency until 2030, as the USD has become the dominant currency for most transactions.

However, Matsekete said high inflation that has eroded the value of the Zim Dollar, makes the task of preserving value a difficult one but also one that demands that businesses continue to be innovative in terms of how they deploy assets used in their investments.

“The rise in US dollar transactions is a double-edged sword. It gives us the opportunity, or perhaps it gives us a playing field where you will see easier predictability in terms of your revenues and your costs, which helps control the leaders that drive real value.

“But when it happens, it has the effect of disintermediating formal transactions and people prefer to use more cash, which then affects the role that financial services providers are supposed to fulfil.

“So again, that means we have to work at it, innovating the ways to follow the money and be relevant to those economic agents but also the markets where cash transactions are being relied on,” he said.

Brokerage firm, Imara Asset Management Zimbabwe, recently said using US dollars for company earnings will give investors “a much clearer picture of true profitability.

Delta, the country’s biggest beverage company, said at its half-year financial presentation that it may switch to USD results in its full-year report as the USD transactions were now over 80 percent of its revenue.

In its recent update, Proplastics said that after monitoring the determinants of the functional currency over the last three years, the board resolved that the functional currency had changed to USD with effect from October 1, 2022.

As a result, functional currency change was implemented on January 1, 2023; hence, the 2023 results were presented in USD.

“Prior-year finances have also been converted to the new functional currency,” said group chairman Gregory Sebborn.

Dairibord said its foreign currency revenue accounted for 84 percent of its total revenue for year to December 31, 2023 compared to 58 percent in 2022.-ebusinessweekly