PAN African seed producer Seed Co Group has earmarked US$13 million in capital expenditure to boost seed production in countries outside Zimbabwe, in a bid to increase foreign currency revenue, businessdigest can report.
The group, comprising Seed Co Limited (local operations) and Seed Co International (international markets), operates in 35 African countries, with direct presence in 13 nations. Group chief executive officer Morgan Nzwere revealed that the US$13 million investment will be shared between both operations to enhance production capacity and expand the company's footprint in the region.
“So, the major Capex (capital expenditure) project that we are doing is the plant that we are building in Tanzania, a seed processing plant for about US$5 million,” Nzwere told businessdigest in an interview.
“And then the rest is recurring expenditure, you know like replacement of motor vehicles and stuff like that.
“So, I would say as a ballpark, we are probably looking at spending about US$10 million as a group, but a lot of it is going into East Africa, and for Seedco Limited, it is probably about US$3 million.”
He said the funds were expected to come from internal sourcing. The Seed Co Group chief highlighted that after the completion of its artificial seed drying plant, it would now produce to its full capacity.
Keep Reading
- Seed Co muscled out of Pfumvudza
- The hits and misses of 2022 (I)
- Seed Co VFEX ambition back on track
- Cricket reaps benefits of fan engagement initiatives
“We did invest in that big dryer a few years ago, which we are very happy has started producing to its maximum capacity of about 5 000 metric tonnes,” Nzwere said.
“We have to look at renewing our processing lines here, some of them are 20 years old, so it's something that we are looking into, but not this year, maybe next year.”
Seed Co is turning to foreign markets to boost its foreign currency revenue, as it struggles to access local funding from financial institutions.
The company is owed US$13,3 million by the government of Zimbabwe for seed deliveries, which has left it in a liquidity crisis. As such, to shore up its capital position, Seed Co is focusing on foreign operations to increase external revenue. The company expects improved volume sales in the coming farming season, driven by anticipated favourable weather conditions.
Additionally, part of its planned capital expenditure will go towards introducing new drought-resistant seed varieties, a strategic move to mitigate the impact of climate change.
“All the varieties that we try and come up with have what we call a drought escape mechanism. So, it always enables the farmers to get a little bit better than most other varieties," Nzwere said.
“Focus for management moving forward will be on increasing the contribution of exports and US$-denominated sales while ensuring competitive pricing and effective cost management.
"The group has reiterated its commitment to research and development to drive its competitive advantage as the need for climate responsive products increases.”
Inter Horizon Securities (IH) said the Seed Co Group’s high exposure to government contracts continued to pose risk of payment delays given authorities’ prevailing tight leash on liquidity.
“The funding gaps created by these delays may force the group to borrow and incur increased finance costs, impacting on the bottom line,” IH Securities added.
“Moreover, as the bulk of Seed Co’s earnings are non-cash, we believe the group’s return to profitability in real terms will be arduous.”