Weakening Zim currency unsettles fragile industries

Zimbabwe Stock Exchange (ZSE)

SEVERAL firms listed on the Zimbabwe Stock Exchange (ZSE) this week cautioned against escalating currency volatilities and also warned stockholders that growth prospects had been jeopardised, and the future remained uncertain.

Zimbabwe's crisis, which deepened following the return of the local unit in 2019, has escalated, with its currency surrendering over 50% of its value during the first quarter, before crushing by a further 30% in April.

The interbank exchange rate rocketed by 68% from US$1:ZW$684 in December last year, to US$1:ZW$930 at the end of March.

On the widely used black market, the Zimbabwe dollar also suffered significant knocks, triggering a wave of price increments, which forced government to lift restrictions on imports of some basic commodities.

Most of the country’s foreign currency is now held by black market dealers, who have evolved into powerful players since the 2019 monetary policy shift.

In their analyses accompanying financial results for the first quarter ended March 31, 2023, ZSE-listed firms warned that in the absence of swift interventions, turbulences could worsen.

“Locally, currency instability, coupled with other macroeconomic risks, is posing a major threat to business viability and prospects,” FBC Holdings group company secretary Tichaona Mabeza said.

“Macroeconomic risks remain and business prospects are under threat due to ongoing global political conflicts and the possibility of an economic recession.

“Expectations are that the responsible authorities will continue reviewing measures to mitigate these risks and stimulate economic activities,” he added.

In the past year, the central bank has battled to defend the currency, scaling up its hawkish monetary policy stance and mop up operation to contain money supply growth and inflation.

But the measures have largely struggled to calm the jitters.

Vernon Lapham, chief executive officer at BridgeFort Capital Limited, said the crisis deepened during the period.

The firm has interests in medicine distributor, MedTech.

“The operating environment worsened in Q1 (first quarter) as compared to the previous quarter and remains difficult and unpredictable,” he said, warning of more headwinds as the dollar struggles.

“This movement is particularly painful for the formal sector, which is obliged to accept the Zimbabwe dollar, and is even worse for credit suppliers to supermarkets, such as MedTech Distribution.

“As the only ones, who are required to embrace it, the formal enterprises are the last line of defence for the Zimbabwe dollar, while the informal sector has rejected it,” Lapham noted.

Pearl Mutiti, company secretary at construction company, Masimba Holdings, said following a good start to 2023, the crisis had deepened, especially towards the end of the review period, reversing the inroads that companies had made.

“The use of multiple and ‘uncontrollable’ alternative market exchange rates in the economy has contributed to the deterioration of inflation levels, which has the potential of threatening the viability of long-term infrastructure developments,” Mutiti said in a commentary to the firm’s financial statements.

“The macroeconomic environment is forecast to remain constrained on the back of a contractionary fiscal policy and continued pricing distortions emanating from exchange rate disparities in the market. “We implore the authorities to urgently implement corrective measures to restore economic stability in the market,” she added.

First Mutual Properties company secretary Dulcie Kandwe said there continued to be limited development activity on the property market being affected by the depreciating local currency and limited access to financing, with the majority of developments being mainly in the industrial or retail warehousing sectors.

Related Topics