Industry revels in sustained recovery

Source: Industry revels in sustained recovery | Sunday Mail (Top Stories)

Sunday Mail Reporters

Continued stability of the local currency and increased foreign currency allocations from the auction system, which was launched on June 23 this year, has pushed capacity in some local industries to more than 60 percent, as recovery and growth becomes entrenched.

Despite headwinds caused by the coronavirus, which has disrupted global supply chains and affected economic activity, some local companies have managed to capitalise by covering the market that used to be supplied by foreign firms.

The Government’s major infrastructural projects, which have been underpinned by investment in dam and road construction and other civil works, have significantly lifted performance of the construction sector.

However, it is the decision to engage local contractors that has become impactful.

In its latest trading update, Masimba Construction (formerly Murray and Roberts) said its order book is being boosted by Government projects.

“The volume of works, encompassing roads, mining and housing infrastructure, increased significantly in the quarter under review. A number of works, including the Skyline to Chimanimani road, were completed in the period while the rest are progressing well.”

In addition to being one of the five contractors that are rehabilitating the Harare-Beitbridge road, Masimba Construction is involved in constructing some of the roads damaged by Cyclone Idai in Manicaland province.

As activity in the construction sector has picked up, demand for cement has increased significantly.

PPC recently reported that cement sales volumes had risen by 40 percent in the July to September period, spurred by “large infrastructural projects in Zimbabwe”.

It is the same trend for Lafarge Cement Zimbabwe.

“The business recorded solid gross profit margins exceeding the set target. This performance is a result of intense focus on cost rationalisation. The foreign currency exchange rate ushered in pricing stability as the market continues to see wider usage of the US dollar, especially in the formal market. Foreign currency receipts grew substantially in the quarter. Consequently, the company was able to meet its foreign currency obligations. The business remains profitable,” said the company in its third-quarter trading update.

The recovery has spread to consumer-facing businesses, where demand is recovering.

Delta Corporation — the country’s biggest beverages manufacturer — said if the ongoing stability is sustained, this would be “welcome for the post-Covid-19 recovery of the economy”.

“The relaxation of regulations allowing use of foreign currency for domestic transactions and the introduction of the foreign currency auction system has to date stabilised both the exchange rate and inflation,” said the company’s chairperson, Mr Canaan Dube, in a statement accompanying the company’s recent financial results.

The same trend is being experienced by other players in the sector.

Schweppes Holdings Africa Ltd group managing director Mr Charles Msipa said “prices of goods and services have been more stable since July 2020”.

“The introduction of the foreign currency auction system has enabled us as well as our raw material suppliers in our value chain to access foreign exchange to secure imported raw material in a transparent and compliant manner. It has reduced volatility in exchange rates as a result of which inflation is moderating and prices of goods and services have been more stable since July 2020 compared to first half 2020,” he said.

“We are able to price our products with confidence that we can replace imported raw material. All these factors have been critical enablers for our business recovery from a difficult April-June quarter to an improved July-September quarter in terms of stock levels and sales volumes.”

Consumer spending has increased for non-food items, with TV Sales & Home, which retails household goods, registering a 48 percent growth in sales volumes in the three months to September compared to the same period a year ago.

Confederation of Zimbabwe Industries (CZI) statistics indicate that spending on non-food items rose from 26 percent in August to 46 percent in September and October.

Forex availability

Most foreign currency needs from businesses have been met from the auction system, which was launched on June 23 this year.

Reserve Bank of Zimbabwe (RBZ) injected US$112 million for the month of October alone, and US$58,8 million has been allocated from the two auctions that have been held so far this month.

Industry contends it needs US$100 every month to import raw materials.

Tuesday’s US$31,8 million allocation is the highest since the auction began.

Overall, US$437 million has been distributed to the market over the past 21 auctions, with most of the allocations going towards procurement of raw materials for industry.

While auction now accounts for 80 percent of local foreign currency needs, banks have, however, also begun trading with businesses, raising expectations of consistent and sustained supplies to industry.

The greenshoots of recovery were revealed in a recent study by the Ministry of Industry and Commerce, which covered sectors such as food, drink, tobacco, leather and leather products, textiles and clothing, electricals, chemicals and packaging.

In Bulawayo, capacity in some of the companies had risen to as much as 60 percent.

In Midlands province, Bata Zimbabwe, Dendairy, Jinan and Sino Zimbabwe acknowledged the impact of the auction system and stability.

Fertiliser manufacturer Sables is on course, producing 7 000 tonnes of ammonium nitrate after accessing US$2,9 million from the auction.

Industry and Commerce Minister Dr Sekai Nzenza said: “Overall, the manufacturing sector is on a strong rebound, anchored by a stabilising macroeconomic environment brought about by a stable exchange rate, supportive and predictable Government policies, political will and leadership, and synergy between Government and the private sector as evidenced by Government’s policy for a private sector-led growth.”

Positive results in the manufacturing sector, she added, stemmed from the successful implementation of the Zimbabwe Industrial Development Programme (2019 -2023) and deliberate efforts to increase production and enhance competitiveness, value addition and beneficiation of agricultural produce and minerals.

Companies that have benefited from the disruption of global supply chains include Southerton-based Twine and Cordage, which has increased its exports of tobacco twines, butcher twines and shop twines, mutton cloth, shade netting and braided ropes to Canada, Malawi Mozambique, South Africa, Tanzania, Uganda and Zambia.

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