Retailers like OK Zimbabwe are also struggling.Photo: Tawanda Karombo
Zimbabwean companies are grappling with severe economic challenges, including soaring inflation, a skewed exchange rate, and escalating operational costs, forcing some to retrench workers and others to reduce stock levels.
Among the hardest hit is Tongaat Hulett’s Zimbabwean subsidiary, Triangle, which announced job cuts after other cost-saving measures failed. Retailers like OK Zimbabwe are also struggling, with de-stocking becoming a growing concern as businesses navigate the country’s volatile economic landscape.
An uncertain monetary framework, characterised by run away inflation, a skewed exchange rate and pricing distortions, has left corporates in Zimbabwe battling for survival. Some of them have had to retrench while the retailers are de-stocking.
Zimbabwe is already battling a high unemployment rate that has driven droves of locals to seek greener pastures in South Africa and elsewhere on the region and internationally at a time the country’s economic challenges are mounting.
Tongaat Hulett’s Zimbabwean unit, Triangle, said this week that it was facing operational challenges that had forced it to retrench employees after cost cutting measures failed to yield a respite.
“The current economic environment in Zimbabwe has presented unprecedented challenges for Triangle Limited over the past [three] years. After careful deliberation and extensive evaluation of our operational and economic realities, we have made the extremely difficult decision to implement a phased retrenchment process,” Tendai Masawi, the managing director of Triangle, said in a note to employees this week.
He cited “escalating operational costs” particularly in areas such as fertiliser, fuel, maintenance costs and imported goods/services, “combined with inflationary pressures, currency losses, the inability to claim VAT on inputs after sugar was exempted from VAT, and competition from low cost duty-free imported sugar” as having severely impacted the company’s ability to sustain continued production.
Triangle, which housed Tongaat Hulett’s Zimbabwean interests that also include Hippo Valley, said it had seen profit margins decline significantly by 55%with manpower costs is spiking by 133% as a proportion of revenue, and debt levels rising to unsustainable levels.
Triangle had thus been unable to generate positive cash flows from its operating activities over the past three years as it had faced a “very constrained working capital” position.
“These financial realities underscore the urgent need for corrective action so that the business can generate sufficient cash flows to reduce debt and reinvest in its future. This (retrenchment) decision has been taken to protect the long-term sustainability of our organisation and ensure that Triangle Limited continues to play its vital role in Zimbabwe's economy,” the company said.
Tongaat Hulett Limited, is currently preparing to dispose of the Zimbabwe operations to the owners of the Vision Group for about R5.9 billion. The Zimbabwe operations for Tongaat Hulett were among a few stable divisions under the crisis ridden and troubled South African sugar and agro-processing unit that also had operations in Mozambique.
Retailers are equally affected, with OK Zimbabwe and other operators like Choppies reducing stock levels due to policies that mandate local currency transactions despite widespread use of foreign currencies.
De-stocking levels across most of OK Zimbabwe’s outlets have raised the alarm and concerns that the company is buckling under Zimbabwe’s policies that force retailers to trade in local currency against widespread use of foreign currencies in a country battling for currency stability.
In a statement, OK Zimbabwe acknowledged that it had faced stocking levels over the past few weeks. “The company faced intermittent product supply challenges during the festive period. The Company, as well as most of the formal retail sector, has been adversely impacted by a volatile operating environment,” said OK Zimbabwe.
Meanwhile, manufacturers like Mega Mart have appealed to government officials for structural reforms to expand the formal sector, which they argue would boost tax revenues and support economic recovery.
BUSINESS REPORT