Former Finance minister Tendai Biti warned recently that businesses face a tough year in the absence of a liberalised exchange rate and an injection of liquidity onto the economy.
“It’s going to be a bloodbath for businesses in 2025,” he said.
To prevent further decline, Biti said the economy must be liquid.
There must be cheap money on the market to allow access to funding and ensure businesses survive, he said.
That the economy is underperforming is evident despite claims to the contrary by monetary and fiscal authorities.
At the heart of the struggles firms face is an overvalued local currency, a taxation regime that punishes the compliant and rising informalisation that threatens to choke formal players.
Inside a month, seven firms — Khayah Cement Limited and Beta Holdings and its five subsidiaries — have slipped into corporate rescue as they seek to restructure affairs and continue as solvent businesses.
More firms are billed to take a similar route to shield themselves from marauding creditors, safeguard stakeholders’ interests and enhance the likelihood of survival.
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Retrenchments or right-sizing loom as companies fight for survival.
Sugar producers Triangle and Hippo Valley are set to embark on a staff rationalisation exercise in response to a tough operating environment.
In a notice, Triangle said its inability to claim value added tax (Vat) on inputs after sugar was exempted from Vat and competition from low-cost duty-free imported sugar, had severely impacted its ability to sustain current levels of operation.
It said profit margins had since 2022 declined by more than half at a time when manpower costs have more than doubled as a proportion of revenue with debt levels rising to unsustainable levels.
In trading updates, firms noted that the growing informal exchange rate premium had caused pricing distortions on the formal market and this contributed to reduced inflows of foreign currency from trading and banking channels.
Banks last year offloaded hundreds as they aligned their operations to the new normal.
A tight liquidity crunch has left companies on the edge. Monetary authorities say a tight monetary policy thrust is necessary to defend the local currency, the Zimbabwe Gold, from sharp depreciation against the United States dollar, thereby containing inflation.
While this has stabilised the local unit, it has also brought unintended consequences.
In its Zimbabwe Economic Outlook & Equity Strategy Report, research firm Morgan & Co said the effects were beginning to bite.
“…This has limited the amount of loans issued by the banking sector and will subsequently affect the availability of bridging finance aimed at covering cashflow gaps between production and receipt of sale proceeds in the private sector,” it said.
“This is expected to acutely affect seasonal businesses with government contracts and will also have ripples into aggregate demand in 2025.”
Rising informalisation has left the retail sector in the intensive care unit.
Botswana-headquartered retailer Choppies recently exited Zimbabwe amid a deteriorating environment which has seen a surge in the informal sector leaving formal retailers to battle for crumbs.
Empty shelves are visible in some retail outlets while the sector has recorded a drop in footfall.
We need to tackle the headwinds facing the economy head-on as they have a bearing on government coffers. When the taxpayers sneeze, the economy catches a cold.
