Michael Tome and Latiphah Mapfumo
PIPING products manufacturer, Proplastics, expects to see significant growth in US dollar denominated sales, which would see the company reducing dependence on the Reserve Bank of Zimbabwe’s auction system for its forex requirements.
The central bank’s weekly auction has been credited with helping growth in production for many key sectors with more that US$3 billion having been disbursed for key imports like raw materials, equipment and machinery since the platform was established in June 2020.
Chairman Gregory Sebborn, in the statement accompanying the 2022 half-year financials, said the growth in foreign currency sales was driven by increased preference to buy in hard currency.
The local market has been witnessing growth in use of US dollars as the country faces liquidity constraints on the back of money supply tightening measures by authorities, including bank lending rates hike, value for money audits and the introduction of gold coins to the local market, which has absorbed some of the excess liquidity.
The measures have however been lauded as they became an almost instant economic antidote, stabilising foreign currency exchange rates, particularly on the parallel market, which had run amok.
“The operating environment is showing that customers are preferring to settle their transactions in United States dollars. In the same vein, participation on the Auction platform will be reduced with most of the foreign obligations being settled through internal resources.
“This, coupled with the liquidity constraints following the introduction of gold coins and the tightening of money supply, is likely to see the group trading less in Zimbabwe dollars, thus signaling a change in functional currency to the United States dollars,” said Mr Sebborn.
Mr Sebborn, however, noted that a significant portion of the firm’s revenue in the period under review was recorded at the auction.
He hinted that it remains optimistic of growth in demand on the back of potential growth that might stem from public and private sector-initiated projects.
“Although we expect the operating environment to continue being fraught with challenges, we still expect demand for the group’s products to improve thereby increasing the group’s performance in the second half of the year,” he said.
Proplastics chief executive Kuda Chigiya a few months ago said the company met its first-half target of US dollar sales, indicating that its volumes sold in foreign currency in the period grew to 76 percent of total income as the firm continued to craft measures to prop up foreign exchange generation.
“We have reached 76 percent foreign exchange in our sold volumes in the half year to June but we aim for a better ratio, since this business requires 100 percent of its raw materials imported into the country.” he said.
Revenue in the period under review, grew 21 percent to $3, 1 billion in inflation adjusted terms from $2, 6 billion in the same period last year attributable to price adjustments considering local and global economic trends.
Volumes declined two percent compared to similar periods in 2021 while exports contributed eight percent to total revenue in the course of the period.