TRIANGLE Limited, a prominent player in Zimbabwe’s sugar production sector, has announced a phased workforce retrenchment strategy aimed at mitigating escalating operational costs and restoring profitability and long-term sustainability.
Since 2022, the company has experienced a dramatic 55% decline in profit margins, coupled with a staggering 133% increase in manpower costs as a percentage of revenue.
Additionally, debt levels have escalated to unsustainable heights, and the company has been unable to generate positive cash flows from its operations for the past three years, resulting in a constrained working capital position necessitating continual trade-offs between operational needs and financial capacity.
The company stated: “This 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 and the livelihoods of communities in the Lowveld region”.
Despite addressing the decline in sugar production, the cost of production remains significantly above regional benchmarks, rendering the current model unsustainable.
Key factors contributing to these challenges include escalating operational costs — particularly in fertilisers, fuel, maintenance, and imported goods/services — exacerbated by inflationary pressures and currency devaluation.
Notably, the government’s failure to address critical issues, such as the inability to reclaim VAT on inputs following the exemption of sugar from VAT, along with competition from low-cost, duty-free imported sugar, has severely undermined the company’s operational viability.
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Triangle Limited is a wholly-owned subsidiary of the Tongaat Hulett Group, a leading agro-processing firm in Southern Africa. Based in the south-east Lowveld of Zimbabwe, Triangle is the country's largest sugar producer, with a capacity to process over 3,5 million tonnes of sugarcane annually.
In addition to sugar, the company produces over 30 million litres of ethanol each year. Founded in 1919, Triangle initially started as a cattle ranching operation before diversifying into sugarcane cultivation and processing.
Impact of smuggling, border issues
The rampant smuggling of substandard, inexpensive sugar products has emerged as a critical factor necessitating workforce reductions. Smuggling has proliferated in Zimbabwe, exacerbated by ineffective customs enforcement.
Zimbabwe’s porous borders, particularly with South Africa and Zambia, facilitate not only the illegal importation of goods but also the movement of individuals, further complicating the economic landscape.
Government inaction on this issue has resulted in the decline of many formal businesses, including major retailers like OK Zimbabwe and Choppies, as well as industrial firms such as Hippo Valley and Zimplow Holdings Limited.
The influx of low-cost goods from countries with more favourable economic conditions and stable currencies allows these products to undercut local prices, thereby, suffocating domestic producers.
Most of these illicit operations are backyard industries that employ primarily family members, allowing them to maintain a lean operational structure without the burden of high rents and taxes.
In 2024, Zimplow reported an influx of low-quality Chinese trucks priced at approximately half of Zimplow's retail cost. Despite the inferior quality, the economic environment has led consumers to prioritise price over quality.
This trend is mirrored in the clothing sector, where a US$200 suit at Edgars can be purchased for US$30 in informal tuck-shops referred to as “runners”. Consequently, between 2024 and 2025, numerous companies exited the market due to unfavourable conditions, with remaining firms consolidating operations to operate on a leaner structure.
Govt policies, market volatility
The government’s intervention through various statutory instruments has inadvertently supported the influx of low-cost products.
In the sugar sector, the repeal of Statutory Instrument 80 of 2023, which permitted duty-free sugar imports, exacerbated market volatility. This policy change has resulted in a surge of imports, adversely affecting domestic sales and creating uncertainty for local producers like Hippo Valley and Triangle Limited.
The competitive landscape has become increasingly challenging, with over 16 brands of inexpensive imported sugar entering the market in 2024.
Although the policy was reversed in 2024, the detrimental impact remains palpable. Formal players in the economy are crucial for employment creation, with large-scale retailers employing up to 20 000 individuals nationwide — making them the second-largest employer after the government.
Hippo Valley, with a work-force of approximately 16 000, is the largest single employer in the private sector. The erosion of these companies not only jeopardises the employment structure but also diminishes government revenue through reduced tax collections.
The informal sector, however, is unable to fill this void, highlighting the inadequacy of a highly informal market. The government’s recent decision to incorporate the informal market into the tax base in its 2025 budget raises questions about the effectiveness of tax collection, particularly given the pervasive corruption among border officials.
Changes in VAT status
In early 2024, the Value Added Tax (VAT) status of essential commodities, including sugar, was altered through SI 10A of 2024 from “zero-rated” to “VAT exempt”.
This reclassification has significant implications for businesses. A zero-rated supply allows suppliers to reclaim input tax credits, whereas an exempt supply does not.
The transition from zero-rated to exempt status results in a loss of input tax credits, leading to increased operational costs and diminished market competitiveness.
The impact of this policy shift varies across industries, with farmers facing higher costs for inputs, food manufacturers experiencing increased ingredient and packaging costs, and healthcare providers grappling with elevated expenses for medical supplies.
The elimination of the 0% VAT rate on essential food items raises consumer prices, as businesses can no longer offset VAT costs through zero-rated sales.
In an exclusive interview with Hippo Valley’s managing director, Tendai Masawi, during the last quarter of 2024, we discussed the implications of this VAT policy on the sugar industry.
Regrettably, following the quarter's conclusion, the Interbank Money Transfer Tax (IMTT) increased from 1% to 2% on US dollar transactions, further straining the entire value chain.
The ZiG currency: A double-edged sword
The introduction of the ZiG currency, intended to stabilise the economy, has created a complex financial environment for Hippo Valley.
The widening gap between formal and parallel market exchange rates, reaching a premium of 74% within the first three months of 2024, has hindered companies, including Triangle, from securing the US dollar necessary for critical imports and local supplies.
This currency mismatch has generated cash flow challenges, complicating expense management and financial stability. Businesses are compelled to navigate a dual system, where the official exchange rate is inadequate for essential transactions while the parallel market rate is inflated for US dollar purchases.
The evidence indicates that government policies have systematically undermined the formal sector, threatening its viability. For the sector to remain robust and operational, corrective measures are essential.
While adaptation to market dynamics is necessary, the substantial operational frameworks and tax obligations of formal businesses differentiate them from informal traders, who operate with minimal overhead.
The implications of this trend are profound; the informal sector cannot adequately bridge the tax or employment gaps left by formal enterprises. Ultimately, excessive informalisation poses a significant threat to the economy, risking its long-term viability.
- Equity Axis is a financial media firm offering business intelligence, economic and equity research. The article was first published in its latest weekly newsletter, The Axis.
