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‘Companies entangled in debt’

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THE Confederation of Zimbabwe Industries says many companies were defaulting on loan repayments due to the economic meltdown obtaining in the country.

THE Confederation of Zimbabwe Industries (CZI) says many companies were defaulting on loan repayments due to the economic meltdown obtaining in the country.

Report by Victoria Mtomba

CZI president Kumbirayi Katsande said as a result the companies were entangled in debts.

His utterances came in the wake of recent failure by the suspended Zimbabwe Stock Exchange entity Gulliver to service its loan with a local bank.

Gulliver had its head office auctioned last Friday in order to settle money owing to ZB Bank.

“We are going to see more of that as the economy is in a downturn,” Katsande said. “Some of it has been happening silently.”

A local technology company Valley Technologies is also set to lose some of its assets including base stations to settle funds owed to Afrasia Kingdom Bank. Economist John Robertson said the defaults by companies showed the scarcity of money in the economy and the lack of confidence by investors.

“The delay by two years in the holding of elections and referendum has left most potential investors very relaxed on indigenisation. We need to look for sources from outside. The investors are threatened by the Indigenisation law. Bank liquidity has remained very weak,” Robertson said.

Capacity utilisation of companies in the country is around 44% and most companies have closed down due to capital constraints. Close to 85 companies closed shop last year and the few that were operating were struggling to survive.

Since the adoption of the multiple currency system in 2009 most companies have found it difficult to recapitalise their operations.

Another analyst based in Harare said the default reflected the economic challenges the country was facing. The economist said the economy was slowly moving out of recovery mode and was moving towards actual growth.

“Most companies borrow against projections of high economic growth (basing on recovery growth rates), but currently the economy is slowing down and so is business activity and companies may not be able to service loans. When companies are facing challenges, normally the immediate indication is default on loans as other measures such as retrenchment or downsizing are costly and or take time to implement,” the analyst said.