Zim economy heads south

via Zim economy heads south – DailyNews Live 30 September 2014 by John Kachembere

HARARE – Zimbabwe’s economy continues to weaken in the absence of strong government policies as evidenced by earnings results released this month by listed stocks as all companies showed signs of stress.

Economic experts say the Zanu PF-led government’s failure to halt economic decline is seriously hampering local companies’ efforts to increase production.

The southern African country’s economy, characterised by high unemployment and massive company closures, has failed to find traction since President Robert Mugabe defeated rival Morgan Tsvangirai in a 2013 vote marked by allegations of irregularities.

Mugabe’s victory ended an uneasy power-sharing deal with the opposition, but foreign investors have been deterred by concerns about corruption and controversial government policies to force foreign-owned and white-owned businesses to cede 51 percent of their shares to black Zimbabweans.

Finance minister Patrick Chinamasa has acknowledged that the economy is struggling, cutting growth forecasts for 2014 by half to 3,1 percent. However, the World Bank forecasts two percent growth.

A report by equities research firm Lynton Edwards Stockbrokers (Les) revealed that the recently published financial results of the Zimbabwe Stock Exchange-listed companies reflect a deteriorating economy, characterised by a prevailing liquidity crunch, which has severely affected disposable incomes.

“While Edgars managed to grow sales of merchandise by 8,48 percent for the half year to July 2014, the debtors book grew by a massive 19,47 percent, reflecting that the quality of sales the group is making is deteriorating,” read part of the report.

In the period under review, the number of active customers also declined to 71,3 percent down from 72,5 percent, and this again points to a constrained consumer.

“The situation could have been worse had Edgars not increased their credit terms to 12 months from six months, a move that lessened the instalment burden. In our view, the retail sector is an important economic barometer as it is directly linked to the consumer’s pocket.

As a result, Edgars’ performance shows that the economy is under strain with consumers struggling to purchase, let alone, service their debts,” said Les.

Cement maker Lafarge Cement also released its half year to June 30, 2014 results which reflected a slowdown in economic activities.

The volume of cement sales was 12 percent lower than the same period last year arising from the low demand in the Company’s traditional markets.

According to market experts, the fall in sales volumes and revenue comes despite the fact that Zimbabwe has a massive housing backlog of over 1,2 million, as well as a pressing need for overall infrastructural rehabilitation and development.

“The Zimbabwean government has not been able to undertake any meaningful infrastructural development as 70 percent of its revenue goes towards paying salaries for government workers,” said Les.

Another set of result released by property counter Zimre Property Investments (ZPI) also reflected a struggling economy, with voids for the half year period to June 30, 2014 jumping to 20 percent from 10,92 percent as at  December 3, 2013.

Office rent per square metre also came down to $5,90 down from $7 but this did help much as tenants still struggled to pay, with rent collection levels coming down to 86 percent from 95 percent prior year comparative.

Over the last few years ZPI resorted to land development projects as a way of diversifying its revenue streams. Performance in that business area has, however, been affected by the prevailing liquidity crunch, with the company recording a 32 percent fall in projects sales.

Project income for the period amounted to $1,06 million, down from $1,55 million in the previous year.

The equities report by Les noted that while such projects were a good way of diversifying income, the customer base for low cost housing stands continues to decline, as more companies retrench their workforce.

“Banks which have been providing salary-based loans have also reduced lending towards unsecured loans as the level of non-performing loans continues to increase” said Les.

Brick making company Radar Holding Limited saw its volumes for the year ended June 30, 2014 fall by nine percent from prior year, due to reduced construction activity in the Matabeleland region.

Consequently, turnover declined by 11 percent to $8,23 million as a result of a nine percent drop in sales volumes, as well as a reduction in average prices realised for the year. Gross profit margins were down to 30 percent compared from 31 percent in the prior year, reflective of the tough trading conditions.

The group achieved a profit before tax of $335,793, up from a loss of $1,9 million in the prior year.

Finance costs were reduced by 11 percent to $1 million as a result of improved cash holdings over the year.

Ongoing debt restructuring efforts resulted in $1,2 million being restructured from short to long term debt.