IF one of the main reasons for financial reporting is to give stakeholders a fair assessment of the economic and operational performance of the business, then perhaps this is high time companies consider reporting in United States dollars (USD).
To make any meaningful decisions, the numbers should be representative of the operations and comparable to either peer numbers or previous numbers.
According to official numbers, the majority of transactions in the country are now concluded in foreign currency, and even the bulk of deposits in the banking sector are in the hard currency, 88% as at June 2023.
Given this background, I would be persuaded to believe that US dollar reporting makes sense, not only for companies but even for other national financial numbers like the budget, fiscal collections and gross domestic product (GDP) estimates.
In all honesty, a lot of economic agents, including financial analysts have stopped bothering themselves with the gibberish Zimbabwe dollar (ZWL) numbers, not because they have anything against the currency but because it is just difficult to make any sense out of them.
To put things into context, when the year started, the official exchange rate was ZW$705 per US$1, right now as I am writing this article that number is ZW$5 738 and could be a different number by the time you read the article.
If you are from around here, you know that the official figure is not even the transactional number, but yet reporting is done on the basis of converting using the official exchange rate.
This leaves financial numbers vulnerable to all sorts of manipulation, both intentionally and unintentionally. Any casual reader would likely fall into a trap of believing that a company is growing given the double digit and even triple digit growth rates in either top or bottom line being reported in Zimdollar terms.
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In this hyperinflationary environment, you will notice that some of the earnings have absolutely nothing to do with the operations of the business but the fair value adjustments on non-monetary assets.
Listed companies in Zimbabwe are given a 90-day latitude between the end of their financial year and the latest time they can report their numbers.
This year, a number of companies including OK Zimbabwe and starafricacorporation asked for additional time after that deadline as they attended to different issues. By the time the numbers, even in inflation adjusted terms are reported, they will no longer be in sync with reality, and this has resulted in qualified opinion by most auditors.
You often hear analysts at briefings asking management about what percentage of their business is in local currency versus otherwise. Albeit most of them admitting that the larger portion of their operations are denominated in US dollar, they prefer to consider Zimdollar as their functional and reporting currency.
Although a whole debate can be held, especially with accountants on which one should be the functional and reporting currency, we can all agree that even the inside management of these companies do not use the local currency numbers to plan or make other long-term decisions, lest they will be fired.
Delta Corporation, one of the biggest firm in the country and the biggest listed company on the Zimbabwe Stock Exchange (ZSE), hinted on changing its functional currency.
In the statement by its chairperson accompanying the half year results, the blue-chip beverages manufacturer heighted that “…and have concluded that it will be necessary to change the Group’s functional currency of the F24 financial statements to US dollars”.
The misconception in the market that if you are listed on the ZSE, you have to report in Zimdollar will soon be corrected.
In fact, Tigere Real Estate Investment Trust (REIT) set the bar high when they started reporting their half year numbers in US dollar albeit being listed on the ZSE.
Although the counter might have been relatively small to make a bold statement to other issuers, I have no doubt it has inspired others to reconsider their reporting style.
Now that Delta is considering it, I believe it is a matter of time before most companies join the bandwagon and also considering that the multi-currency regime still has seven more years.
It would be unfortunate to have companies only present more representative numbers. We hope to see even the authorities taking it upon them selves to present the 2024 budget in hard currency.
Just to be clear that it is not a fixation on the greenback, but a dire need to get numbers that present the situation on the ground.
We are reliably informed that the Zimbabwe gold-backed digital token (ZiG) will also aim at assisting with the volatility on the Zimdollar front, and by all means if it happens that the ZiG live to its expectation, why not report in it in the coming years.
However, it has to prove first that it is a stable instrument over a fair amount of time, at least three years in my opinion.
In conclusion, US dollar reporting is not going to be an easy pill to swallow. There will be less sugar-coating and manicuring of numbers, if it is a loss it is a loss and I am sure that will not sit well with other issuers but I think the process is necessary and has to start now.
- Hozheri is an investment analyst with an interest in sharing opinions on capital markets performance, the economy and international trade, among other areas. He holds a B. Com in Finance and is progressing well with the CFA programme. — 0784 707 653 and Rufaro Hozheri is his username for all social media platforms.
