Operating environment remains complex for firms

Listed companies say the operating environment in Zimbabwe is undeniably complex; hence, the Government should take decisive steps to effectively address the increasing risks of company closures and retrenchments.

While the closures and retrenchments have been across the economic sectors including the financial services sector, they have been more pronounced in the retail sector, where major formal retail chains such as OK Zimbabwe, Choppies and wholesalers N Richards have closed shops and retrenched thousands of workers.

The trading environment has been largely marked by constrained liquidity with moderate movements in exchange rates and inflation.

In addition to constrained power supply, the economy is dominated by short-term working capital, which is not ideal for companies’ long-term planning.

Nampak Zimbabwe, in a trading update, said the business faced increasing challenges with power supply, especially at the Ruwa plant, which limited its ability to fully meet customer demand.

But in an effort to mitigate this, the company successfully installed additional generator capacity at the Ruwa plant, which it said will make a positive difference.

“We expect that the Government will take decisive steps to effectively address the increasing risks of company closures and retrenchments. The group will continue to focus on cost containment measures to protect margins and drive profitability across all operating units,” the company said.

Nampak continues to trade under a cautionary notice regarding the pending disposal of Nampak Southern Africa Holdings Limited’s shareholding in the Group to TSL Limited for US$25 million.

OK Zimbabwe said consultations with both fiscal and monetary authorities have led to a relaxation of the very strict policing of applicable in-store exchange rates.

The group welcomed the recently announced Monetary Policy Statement (MPS) measures which removed a number of limitations and introduced some level of flexibility within the foreign exchange market.

“However, there is a need for absolute clarity on the roadmap towards a fully market-determined exchange rate system. Such a liberalised system will go a long way in restoring the competitiveness of the formal retail sector,” it said in a trading update.

The company said acute local currency liquidity shortages restricted access to the much-needed funding to cover working capital cycles across the formal retail sector.

The company said power outages worsened during the trading period, resulting in disruptions in business operations and increases in operating costs as the business relied more on alternative sources of power.

“To mitigate against rising operating costs, the group resolved to close four branches in Glen Norah, Kuwadzana 5, Chitungwiza Town Centre, and Robson Manyika Street, all in Harare.”

The business said review and consideration of the future of branches saddled with the stifling impact of unsustainable operating cost structures and costly licensing requirements is in progress.

Despite the challenges, the company said it has begun restocking the operating units with support from supplier partners as well as financial institutions that continue to assist with short-term funding structures.

In addition, the business said new alternative procurement models have been developed, which include, but are not limited to, a structured stock supply arrangement with a third party for supplier assurance purposes as the business works to restore critical supply relationships with both local and foreign suppliers.

This comes as the group experienced episodes of stockouts during the quarter to December 31, 2024 and continued in the first two months of this year.

Financial economist, Malone Gwadu, told Business Weekly that cost containment, innovation and adaptability to current market and economic realities remain critical cornerstones for any company’s resilience and medium – to long-term growth and sustainability.

“Traditional business models may not be watertight enough to withstand modern-day market trends of cutthroat competition. Revenue – enhancing strategies such as diversifying and backward integration to capture previous costs as revenue are also another survival strategy for companies to look into,” he said.

He said banks are now opening microfinance units to capture another niche market in the market, and some companies, like Padenga, are diversifying away from crocodile skin export to gold mining.

“This has worked very well and defended their headline incomes. These are but a few examples of the need for market agility and adaptability, which the market requires,” said Gwadu.

ART Corporation chief executive, Milton Macheka, said the economic environment is expected to remain complex and challenging with constrained liquidity, but proposed regulatory interventions are expected to improve trading in the formal sector.

“The measures taken to reduce risk and improve cash generation will see the group through the difficulties that have come with scaling back and restructuring of operations.

“The support extended by our financiers and the expected disposal of underutilised assets will enable the business to meet its obligations and fund key sustaining capex and trading initiatives,” he said, commenting in the company’s trading update.

The group’s overall sales volumes for the quarter to December 31, 2024, declined by 13 percent compared to the prior year, and revenue was 11 percent below the prior year as the business sought to adapt to the changing operating environment.

Stockbrokers, an equities research firm, IH Securities, said in the trailing four months, monetary authorities have managed to maintain a tight leash on liquidity, supporting ZiG stability.

It said at face value, it appears that a contractionary monetary environment will persist with authorities aiming for a month-on-month inflation rate of below 3 percent in 2025 and a terminal annual inflation rate of between 20 percent and 30 percent.

“In our view, ZSE performance will continue to be largely decoupled from fundamentals and instead mirror liquidity cycles in the market.

“New regulations on surrender requirements will likely provide headwinds for export-facing companies such as miners, with the sector requiring intensive re-investment for business continuity,” IH said.

The firm noted that whilst 2025 will likely be another year of navigating through regulatory and monetary uncertainty, the tight liquidity environment has depressed valuations in real terms on the ZSE, presenting opportunistic buying opportunities.

However, the Government has reiterated its commitment to sustaining ease of doing business reforms, which it believes plays an important role in creating an environment conducive to entrepreneurship and investment and allows the country to attract both domestic and foreign investors.

According to Finance, Economic Development, and Investment Promotion Minister Professor Mthuli Ncube, sustaining ease of doing business also creates a favourable climate for innovation and development of new businesses.

Experts believe constant engagement between businesses, the Government, and local authorities is critical to improving the country’s business environment.

Economies are ranked on their ease of doing business and a high ease of doing business ranking means the regulatory environment is more conducive for businesses to thrive without many hindrances.

According to the Zimbabwe National Chamber of Commerce (ZNCC), one of its primary areas of engagement with the central and local governments has been the cost and ease of doing business.

The business chamber said areas that require objective review include the tax regime, operating license application and renewal processes and fees, the plethora of statutory instruments (SI), and the establishment of policy consistency.-ebsinessweekl