Bloodbath as more Zimbabwean firms go under
Companies seek help from courts, but hope economy will pick up after July elections
About 65 companies operating in Zimbabwe have gone insolvent in the past six months, with "a sharp increase" in the number of firms going under.
This is amid a push by Harare's new rulers to attract investment under the "Zimbabwe is open for business" policy.
President Emmerson Mnangagwa leaves today on a state visit to China where he is expected to court businesses to invest in his cash-starved country.
According to the roll at the High Court in Harare this week, companies being placed either under judicial management or in liquidation represent all sectors of the economy, including agriculture, manufacturing, insurance and finance.
The applications by the companies involved were filed with the court between October and March.
Brian Mataruka, the head of insolvency and business rescues at Harare law firm Gill, Godlonton and Gerrans, said this week that there had been a sharp increase in companies going into liquidation or judicial management."The reasons range from operational challenges and forex shortages to a strained economy and bad corporate governance," he said.
"The developments since November [when Robert Mugabe was overthrown] have shown that a number of companies are trying to remain afloat to bridge the gap to elections because there is optimism that the economy will improve after elections, irrespective of the outcome."
He added that the "positive atmosphere" had led to distressed companies opting for business rescue plans such as schemes of arrangement, court-approved agreements between companies and shareholders or creditors.
"The next few months will certainly be definitive as to how the economy and industry will proceed," he said.
The unity government under Mugabe and former prime minister Morgan Tsvangirai led to a boom, with economic growth averaging an estimated 7%, as confidence returned to the economy. It was further boosted by the abandonment of the local currency in favour of the US dollar.
Last month Mnangagwa released a list of 1,687 companies that he accused of illegally taking money and assets out of Zimbabwe.
The companies on the list are involved in mining, agriculture, manufacturing and cross-border freight, and are alleged to have "externalised" funds amounting to $362-million. Mnangagwa has threatened to take legal action against the offenders.
But legal experts said the government faced hurdles in any crackdown against those implicated.Tendai Biti, a lawyer and former finance minister, said "externalisation" was when a person took money which was not their domestic currency out of the country. However, since the US dollar had been legal tender in Zimbabwe since 2009, it was the equivalent of the local trading unit in the absence of Zimbabwe's own currency.
"So if they try and arrest people, lawyers will have parties in town because of the lack of that clarity," he said.
Mnangagwa is also likely to face tough questions from Beijing over the list, which named hundreds of Chinese individuals.
One of China's top diplomats in Harare, Zhao Baogang, has said the list was "not credible".
He said: "It is not just the Chinese who are not happy with the list. Local business people have complained that their names were put on that list without being consulted, that they never violated any law.
"Many people are arguing that the list is a violation of the law."
Kipson Gundani, CEO of Africa Round Table, said despite the challenges faced by local firms, there had been an improvement lately in the business climate in the country. He said several new plants opened, including a $40-million (about R470-million) cooking-oil and soap factory and a company making LED bulbs.
Big investments are expected to flow into the country after July's elections, according to financial observers.