Zim forex crisis poses quandary for SA firms
Since his rise to power nearly 14 months ago, Zimbabwean President Emmerson Mnangagwa has anchored his rule on the mantra "Zimbabwe is open for business".
But this is just half of the reality for the country's businesses; there are investment opportunities but there are also risks.
Mnangagwa has chosen to focus on the former. This week he travels to the World Economic Forum in Davos, Switzerland, to try to persuade the global business elite to invest in the country.
But foreign-owned companies are struggling to repatriate their earnings.
A persistent foreign-currency shortage, which shows no signs of easing, is the latest challenge. Estimates put Zimbabwe's foreign-currency reserves at only a two-week cover, far less than the World Bank's recommended three to four months cover.
Staring down the barrel of this gun are South African-owned companies and state-owned enterprises (SOEs) doing business in Zimbabwe.
Because they are invested across many economic sectors, South African companies have borne the brunt of the foreign-exchange crunch.
This has chipped away at the attraction for them of being able to generate earnings north of the Limpopo in dollars, a generally far stronger currency than the rand.
Dollar-rich only in theory
A portfolio manager at PSG Wealth, Adrian Cloete, said: "The US dollar attraction that Zimbabwe has for most South African businesses hasn't really been that big of an advantage, as you can't really repatriate all of those US dollars back to SA. Zimbabwe is experiencing shortages of US dollars in its economy in any event."
Neville Mandimika, RMB's Sub-Saharan Africa economist and sovereign fixed-income strategist, said the fractured foreign-exchange market would act as a constraint and had made doing business difficult.
"What investors will be waiting for is an outline of what the road to the Zimbabwe-dollar introduction looks like," he said.
"Is this a timeline that is conditional on certain fundamentals like sufficient foreign- exchange reserves being in place? Such questions will need to be answered before business takes a view of the investment case in Zimbabwe."
A tally done by Business Times this week showed that at least 15 major South African-linked companies with operations in Zimbabwe were struggling to repatriate funds.
These include Delta Beverages (40% owned by AB InBev), MultiChoice (owned by Naspers), Tongaat Hulett, PPC and Zimplats (owned by Impala Platinum).
Other firms such as Edcon, Pick n Pay, Sanlam, Tiger Brands, Nedbank and Alexander Forbes either have units in Zimbabwe or are invested in locally owned business.
To get around the burden of trying to unlock funds, some companies have reinvested earnings in expansion programmes or bought savings bonds with the central bank.
Last week, Delta Beverages said in a statement that AB InBev had "agreed to place over $120m, due to them in relation to unremitted dividends and fees", into the central bank's savings bonds.
Naspers, in its financials last year, red-flagged Zimbabwe as one of three countries that owed it a combined $131m. "Constrained liquidity in Angola and Zimbabwe persists because of limited availability of foreign currency," Naspers chair Koos Bekker and CEO Bob van Dijk said at the time.
PPC is struggling to extract $60m stuck in the country, and sugar giant Tongaat said in its recent financial results: "A process to remit a further dividend from Zimbabwe is currently under way."
A Nedbank Zimbabwe executive in Harare said that "over the last few years" the bank had not been able to send dividends to the parent company in SA.
Fastjet is owed nearly $2m in airline fees.
Eskom and SAA have not been spared. SAA is estimated to be owed about $60m in ticket fees. Eskom, which was at one time owed $40m, said Zimbabwe was making good on its arrears payment.
Robert Besseling, the director of business intelligence firm Exx Africa, said an exodus of South African companies from Zimbabwe was unlikely. He described them as "exceptionally resilient", noting they had survived even worse economic conditions in the past.
"South African companies operating in Zimbabwe will face pressure from the [South African] government to avoid their withdrawal en masse," he said. "Big South African retail, mining and logistics companies hold a strategic position in the Zimbabwean economy . Many South African businesses will retain their positions since they are committed to Zimbabwe for the long term.
"However, smaller South African firms are unlikely to be able to remain open and will shut their doors in the next few weeks and months," said Besseling.
Expect scaling down
Mandimika said it was likely that South African companies would scale down their operations if the foreign-exchange crisis continued. "During the hyper-inflation era we saw the likes of MultiChoice and PPC opt to stick it out, albeit at reduced operational scale," he said.
This week, protests over a 150% fuel price hike resulted in the closure of many businesses. The increase is likely to push up the cost of goods and services. Inflation rose to 42% last month from 31% and is inching closer to the 50% hyperinflation mark.
The real litmus test for South African companies, however, is probably the plan to introduce a new currency "within the next 12 months", recently announced by finance minister Mthuli Ncube.
Besseling said Ncube's plans to adopt a new currency regime were "premature".
"Zimbabwe is in no condition to adopt a new local currency at this stage . any new currency would face immediate collapse," he said.
Cloete said the introduction of a local currency would have its own challenges for South African businesses with interests in Zimbabwe.
"These businesses would have to deal with a relatively high inflation rate and a depreciating currency."
Cloete said an exporter like Impala, with its investments in Zimplats and Mimosa Mining, would benefit from a weakening exchange rate, but would have to control the inflationary impact on input costs.