eBusiness Weekly
Kudzanai Sharara
The dramatic events that took place in 2017 coupled with the significant shift towards electronic based payment systems have made it very difficult for analysts and investors alike to really figure out how real and sustainable latest results from Delta Corporation and OK Zimbabwe are.
Is the growth in revenue driven by inflationary pressures or its real?
It’s a question that analysts have asked management at the two companies’ latest results and analysts’ briefings. The scepticism is to some extent justified, as one would ask what performance would have been like had we not experienced the events of last year in particular the price hikes of September 2017.
In September 2017, retailers increased prices of most goods citing increased demand after consumers went on panic buying following social media frenzied lies insinuating that the country was headed for shortages because of foreign currency shortages.
Since then prices of basic commodities have remained high while some were only adjusted downwards by small percentages. It is this price hike madness, which some analysts believe, led to the strong growth that we are seeing at most consumer facing companies such as Delta, Edgars and OK Zimbabwe among others.
Strong performance
Edgars’ recorded strong sales in the second half of financial year to January 8, 2018 resulting in sales of merchandise increasing by 25 percent. Managing Director Linda Masterson attributed this phenomenal growth to improvement in consumer confidence. While some would be quick to attribute the growth to inflationary pressures, real growth is however supported by the growth in units sold with Jet Stores reporting an 18,9 percent growth in units sold.
Units sold in the Edgars chain also increased by 11,8 percent to 1,942 again reflecting real growth.
Delta was to follow, with an impressive set of results that also saw some of its products lines, in particular, sorghum beer, also reaching record levels for the year to March 2018.
For the first time in five years, the beverages maker recorded very firm demand across the brand portfolio resulting in strong growth in lager beer volumes, up 27 percent.
The positive out-turn was also experienced in the sparkling beverages business where volumes went up by 14,7 percent. Volumes from sorghum beer reached an all-time high of 3,819 million litres.
While OK Zimbabwe did not provide actual numbers in terms of volumes, chief executive officer Alex Siyavora also attributed the strong performance to real growth.
He attributed the solid performance to volumes growth although other factors also played a part. As we report elsewhere in this publication, Siyavora said revenue growth was actually from volume growth “through products we processed from orders and through products processed out of the stores”.
Although the group had experienced an eight percent internal inflation rate as measured at the point of procurement, he said, not all of it was passed on to the consumer.
“The internal inflation is not necessarily the exit inflation because we measure at the point of procurement. So while we saw an average of eight percent at the point of procurement that has not always come into sales,” he said.
Given the growth in volumes, we can safely say that these three listed consumer facing businesses, among others not highlighted in this article, experienced real growth in the period under review. But the question that still need to be answered is what’s driving growth.
What’s driving growth?
While Zimbabwe’s increased economic momentum should now be widely recognized, its sources and likely staying power also need to be understood. Increased Government spending coupled with the Reserve Bank of Zimbabwe’s export incentive schemes among other activities have helped lift economic activity.
Increased Government financing through the overdraft at the central bank and the issuance of TBs and bonds, which reached $5,2 billion at the end of 2017 is a major source of liquidity in the market which has since filtered to the till points.
Whereas Government argues that the issuance of TBs has been developmental in nature and productive in as far as the final beneficiaries of the TBs were private sector firms that were owed by Government for various services rendered, the bottom line is that it will result in increased economic activity through demand by both companies and individuals.
According to the central bank’s 2018 Monetary Policy Statement realised in January, approximately $297 million worth of export incentives were extended to exporters and this again induces liquidity into the market.
This year has also started with increased government spending, with some civil servants getting salary increments, while the RBZ has also extended and increased its export incentives to cotton farmers 10 percent, tobacco 12,5 percent over and above proceeds for the crop delivered.
Although the RBZ says it is paying out these incentives to ramp up production in the economy, which will result in increased exports and job creation, the end result is increased spending power in the hands of economic players.
Another factor that has also driven growth could be the shift towards electronic and mobile transaction which has seen formal retailers gain market share from informal traders.
Ultimately, the growth we are witnessing is real and largely reflects increased economic activity than inflationary pressures.
