Firms invest in capacity as USD revenues increase

Nelson Gahadza SEVERAL businesses have lined up different capital expenditure programmes to enhance capacity on the back of increased foreign currency revenues, as 85 percent of sales are now, on average, in US dollars. As the economy has largely dollarised, most companies have since adopted the US dollar as their functional currency, with some Zimbabwe […]

May 19, 2024 - 09:43
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Firms invest in capacity as USD revenues increase

Nelson Gahadza

SEVERAL businesses have lined up different capital expenditure programmes to enhance capacity on the back of increased foreign currency revenues, as 85 percent of sales are now, on average, in US dollars.

As the economy has largely dollarised, most companies have since adopted the US dollar as their functional currency, with some Zimbabwe Stock Exchange (ZSE)-listed counters already reporting their financials in US dollar terms.

The businesses used to largely depend on banks and other financiers for their foreign currency requirements; however, most of the financial facilities are now short-term and unsustainable to many businesses.

Zimbabwe National Chamber of Commerce chief executive officer Mr Christopher Mugaga said while businesses are generating their own US dollars, it is now up to banks to design products relevant to a dollarised market.

“Businesses are, on average, generating maybe 85 percent of their sales in US dollars. In other words, business is literally using US dollars.

“So, the message to banks is obviously to somehow design products that will be relevant to a market that is already holding onto US dollars, and that is what has been happening for most of the banks,” he said in an interview.

“For a company, there is no wisdom to borrow at a high interest rate when it can generate its own foreign currency.

“In other words, if a company just decides to do a capital expenditure, it can actually manage from its own funds, but we are not saying you are not necessarily going to need to borrow because not all companies are so fast. “You might be generating US dollars but still not have enough to earn,” Mr Mugaga added.

Zimre Holdings group chief executive officer Mr Stanley Kudenga said the group’s revenues are now 84 percent in USD terms and is going to deploy revenue internally generated to enhance capacity for its regional units, while locally capacitating its property portfolio.

“In Mozambique, we lost business mainly because of our balance sheet, but we were quick to respond and put in US$2 million. We have injected US$9,5 million in our Eagle Real Estate Investment Trust to carry out several property development projects,” he said. Edgars Stores Limited said increased foreign currency sales in the economy will assist the business in accessing forex through domestic sales to cover import requirements, which will assist with improved stock availability in its shops.

The company, in its financials for the 52 weeks ended January 7, 2024, said it will continue to remodel the business to capitalise on opportunities in the market, while at the same time expanding its geographic footprint.

“In particular, management will focus on retooling Carousel to underpin increased production and improve operational efficiencies in order to better support the retail chain,” it said.

The group’s manufacturing entity plans to increase its production capacity and output in 2024 on the back of better fabric restocking, expansion capital expenditure in cutting room solutions, and the general retooling of the factory.

Mr Eddie Cross, an economist, said, because of the lack of bank financing, most firms are investing using their own resources.

“The economy is largely dollarised, and the informal sector operates almost completely in USD. The bulk of sales are in USD, and this means most companies can fund their own needs for imported goods and services from their Nostro accounts,” he said.

The Reserve Bank of Zimbabwe foreign currency exchange market, launched in June 2020, was a major source of foreign currency for companies until it became an interbank foreign exchange market under a willing buyer, willing seller trading arrangement.

Roofing tile manufacturer Turnall Holdings, which has since adopted the USD as its functional currency, said it will expedite the setting up of a new sheeting plant in Harare, with the civil works having commenced.

“The new plant is expected to be installed in the latter part of the 2024 financial year, with plans to commission it in Quarter 1, 2025,” the company said.

Proplastics, a leading plastic pipe manufacturer specialising in the production of polyvinyl chloride (PVC), high-density polyethylene (HDPE), low-density polyethylene (LDPE) pipes, and related fittings, said the business recorded a breakeven position in profitability for the quarter to March 2024.

“The revenue inflow was predominantly in United States dollars,” said group chairman Gregory Serbon in a trading update.

Production volumes grew by 8 percent compared to the previous period, thereby closing on backorders and restocking fast-moving products.

The company is currently engaged in a solar project in order to minimise the effects of power disruptions. The project is expected to be commissioned by the end of July 2024.

Economist Dr Prosper Chitambara said even for most firms, in terms of salaries, they are now paying at least 70 percent in USD, with the balance in the local currency.

“The companies no longer have to rely more on the banking sector in terms of meeting their foreign exchange requirements. They can now do that internally using their own generated revenues,” he said.

He added that this presents an opportunity for companies to invest in capacity enhancement, with some having already started doing so.

The Government, through the Reserve Bank of Zimbabwe, is, however, working on a de-dollarisation roadmap on the back of the gold-backed Zimbabwe Gold (ZiG) currency that has of late been driving rising demand for consumer goods in the market.

Dollarisation largely negatively affects local industry as it encourages the importation of goods and services.

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David Lee Munemo David Lee Munemo is a rising Zimbabwean journalist with a passion for making complex news discoveries accessible to the public. Driven by a belief in the importance of information communication, David's work tackles a variety of news fields, from groundbreaking entertainment research to the latest political news.