Retail giant OK Zimbabwe has voiced concerns over delays in implementing the central bank’s recommendation to lift the 10% currency rate restriction for formal merchants.
The Reserve Bank of Zimbabwe’s monetary policy committee recommended in October this year that the 10% trading margin above the interbank exchange rate be removed to allow for a further liberalisation of the forex market.
By removing the 10% cap on trading, it would allow retailers to price their goods in accordance with inflation.
This will help them attract consumers, who had shunned them for informal markets, which are more liberalised.
In its half year financial results for the period ended September 30, 2023 OK Zimbabwe chairman Herbert Nkala said the group was awaiting the regulatory approval to remove the 10% cap.
“We welcome the monetary policy committee recommendation to remove the 10% margin cap on the instore exchange rate and the removal of IMTT (intermediated mobile transfer tax) on card transactions for our customers,” Nkala said.
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“These measures will go a long way to remove the price distortions brought about by the uneven exchange rate disparities and this should result in lower prices for the consumers.
“However, we await the regulatory provisions that will give legal effect to the recommendations.”
This comes as the period under review was characterised by macroeconomic problems, rapid exchange rate and local currency depreciation, which fueled the significant loss of volumes in the formal retail.
On the contrary, the informal sector enjoyed more exchange rate flexibility during the same period.
“The continued mandatory use of the official exchange rate with a capped margin of 10% for formal retail caused significant loss of volumes to the informal sector which enjoyed more exchange rate flexibility,” Nkala said.
“Consequently, the group experienced weakening consumer demand during the first half, operating at volumes that were below expectation resulting in a volume decline of 22,6% compared to the same period last year.
“Suppliers resorted to shortened trading terms as they sought to hedge against exchange rate movement-induced losses which resulted in high incidences of stock-outs.”
These challenges led to a near 158% increase in costs and expenses to $200,22 billion for the period under review from a 2022 comparative of $77,64 billion.
“The cost of doing business continued to increase to unsustainable levels,” Nkala said.
“The operating costs increased, mainly driven by utilities and backup power expenses, transport and delivery, maintenance expenses and labour costs.”
However, despite the macroeconomic problems, revenue for the half year grew by 60,38% to $727,9 billion.
This allowed the firm to ultimately post a 52,32% increase in profit after tax to $21,22 billion in the period under review.
Further, the firm saw a minor dip on its liquidity to $0,87 to every Zimbabwe dollar of short-term debt, a minor drop from the 2022 comparative of $0,90, as OK managed to utilise credit facilities and expand operations.
“The group utilised credit facilities to fund its strategic growth initiatives in accordance with its medium-to-short-term growth plans and this resulted in the net finance changes increasing by 63,86%,” Nkala said.
“Capital expenditure for the half year grew to $16,8 billion (2022: $7,4 billion).
“Most of the capital expenditure was channelled towards the new Bon Marché Marondera store and a number of new Alowell Pharmacy outlets that are now fully operational instore at selected branches.”
He said that management had put in place a comprehensive business and volume recovery plan whose short and medium term objectives were to restore the business to sustainable growth and profitability.
“The group has implemented cost optimisation initiatives across the operations, streamlining processes, renegotiating supplier contracts and implementing efficiency measures to reduce overheads,” Nkala added.
Total assets were $600,65 billion as at the end of the period under review, a 41% increase from the March 31’s $427,5 billion.