Power outages muzzle competitiveness in Zimbabwe’s retail and consumer sector

Source: Power outages muzzle competitiveness in Zimbabwe’s retail and consumer sector

Truworths suspended Zimbabwe dollar credit sales in July due to the high interest rates. Photo: File

Truworths suspended Zimbabwe dollar credit sales in July due to the high interest rates. Photo: File

Power outages are muzzling competitiveness in Zimbabwe’s retail and consumer sector, forcing down margins and prompting operators to foray into acquisitions to preserve value.

Zimbabwe has continued to suffer power outages – worsened by low water levels at the Kariba Dam used by Zimbabwe and Zambia for hydro-electricity generation – that are hobbling businesses, including retailers such as OK Zimbabwe and Pick n Pay.

However, “incessant power blackouts” have been “driving up the cost of doing business and given no tangible short-term solutions at national level, we expect margins to continue to be under pressure” for the Zimbabwean grocer, analysts at IH Securities said.

Additionally, OK Zimbabwe is facing difficulties in product pricing due to run-away inflation and unfavourable trading terms from suppliers. “Some manufacturers prioritised supply into channels offering hard currency straining supply for formal retailers.”

Another retailer in Zimbabwe, Truworths, said this week that a thriving informal sector was eroding competitive advantages for formal retailers. The credit apparel seller was also being impacted by the erosion of disposable incomes as Zimbabwe’s economy struggles.

“High unemployment levels and low disposable incomes due to inflation had a negative impact on volumes sold, with customers resorting to buying product in the unregulated informal market at prices which the business could not compete against,” Truworths Zimbabwe CEO Bekhithemba Ndebele said.

He described the Zimbabwe economic environment for retailers as “uncertain,” and singled out the unsustainability of the central bank regulated 200% interest rate as well as tight local currency liquidity.

Truworths suspended Zimdollar credit sales in July due to the high interest rates. The company has now adopted a strategy where “US Dollar credit is considered on a selective basis where there is assurance that the US Dollar earnings are guaranteed” to manage its credit books.

“With the suspension of Zimdollar credit and limited USD credit, volumes will inevitably come down and there will have to be focus on productive cost rationalisation and working capital management,” Ndebele explained.

Fitch Solutions is holding “a downbeat outlook” for the consumer sector in Zimbabwe in 2023. While analysts at the firm are forecasting “real household spending to remain at a positive” level, they say triple-digit inflation, severe currency instability and soaring interest rates will impact both businesses and consumers.

“Our country risk team forecasts the ramp-up in government spending in the run-up to 2023 elections will provide some tailwinds for growth, while an uptick in remittance inflows will provide some relief to a strained consumer base,” said Fitch Solutions.

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