Many firms fail to reopen

Financial Gazette - Paul Nyakazeya

8 January 2014

A NUMBER of companies will fail to re-open this year due to a cocktail of challenges which include high utility bills, high interest rates, lack of competitiveness and shortage of working capital, compounding the unemployment situation the country is currently grappling with.

Industry sources confided in the Financial Gazette that most companies were pinning their hopes on the 2014 National Budget announced mid December but lost hope after Finance Minister Patrick Chinamasa’s financial plan fell short of expectations. The worst affected are companies overwhelmed by cheap imports followed by highly geared enterprises which are at the mercy of marauding creditors.

Across industries, companies have also come face-to-face with faltering consumer demand in the wake of poor disposable incomes and rising unemployment.

The country’s largest industrial representative body, the Confederation of Zimbabwe Industries (CZI), this week said while there has been no study to ascertain the number of companies that might fail to re-open, its market intelligence was indicating that several firms will not come back from the traditional annual shutdown.

Charles Msipa, president of CZI, said they have gathered that many companies have indicated that they are not sure if they would open this year.

“It is not easy to say the exact number as lately many companies have been closing shop quietly; others do it formally by applying for liquidation. Others have been applying for retrenchments. It will not be easy for companies that will open this year but (their future) entirely depend on the domestic market due to the liquidity challenges,” Msipa said.

He said by December many companies were struggling to remain afloat and were strong candidates for judicial management and liquidation.

“Nothing much has changed between December and now and such companies are still not stable and are in need of significant capital injections and viable business plans,” he said.

According to CZI’s 2013 manufacturing sector survey, industry’s capacity utilisation dipped in the year to September 2013 from 44,2 percent to 39,6 percent due to lack of affordable credit lines, ageing equipment, coupled with acute power and water shortages.

Industry Minister, Mike Bimha, said Zimbabwe needs at least US$10 billion to revive its distressed manufacturing sector.

Presenting the 2014 National Budget last month, Chinamasa proposed a “fair playing field with the external competitors or imports to protect our infant and fragile industry” because many companies were closing shop.

A July 2013 National Social Security Authority (NSSA) Harare Regional Employer Closures and Registrations Report for the period July 2011 to July 2013 shows 711 companies in Harare closed down, rendering 8 336 individuals jobless.

In addition, many companies are downsizing and have retrenched many employees.

Major companies that have retrenched include platinum miners Mimosa and Unki, Bindura Nickel, Spar supermarkets, Dairibord, Cairns, Olivine Industries and PG Industries.

According to the NSSA report, 330 companies in Harare in the retail and other business services category, closed while administration-related businesses also suffered a huge knock with 59 companies closing, with the construction and baking industry losing 42 and 32 companies respectively.

It also indicated that 47 companies shut down in the farming sector while 20 players went under in the printing industry.

Some companies sent workers home penniless ahead of the Christmas and New Year holidays without indications of when they are likely to reopen in 2014.

More than 35 companies have been placed under judicial management since 2010. Nearly 20 other companies were placed under liquidation last year. Ten were placed under judicial management in 2010 while eight companies faced a similar fate in 2011. In 2012,  more than six companies were placed under judicial management.

Last year, Zimbabwe Stock Exchange listed Phoenix Consolidated voluntarily applied for judicial management, Steelnet was placed on final liquidation while Valley Technologies, which was not listed, was placed under provisional liquidation.

The list of companies that shut their doors include Karina Textiles, Cairns Foods, Pine Products, PG Safety Glass, G & D shoes, National Blankets, Belmont Leather, Textile Mills, Archer Clothing, Security Mills and Mutare Board and Paper Mills, which used to be the country’s only manufacturer of newsprint.

The list also includes Radiator and Tinning, Safety Africa, Lion Matches, Hunyani Mill and Baobab Industries.

In Bulawayo, three companies that liquidated last year were Geozing Pawn Brokers (Pvt) Ltd, Dueze Oil (Pvt) Ltd and Walters Bakery (Pvt) Ltd.

Twelve companies, among them Polyfoil Zim Ltd, Ocean Park t/a Tashas Supermarket (Pvt) Ltd, Paramount Motors (Pvt) Ltd, Lazen Burry Engineering, Impala Enterprises (Pvt) Limited and Lasker Brothers (Pvt) Ltd, were placed under judicial management last year.

Julius Chikomwe, a corporate lawyer with Thompson Stevenson & Associates, said policymakers need to address the root cause of the systemic corporate distress that Zimbabwean companies were facing.

Backyard industries have been giving some formal businesses a run for their money, taking advantage of the low-cost bases, thereby in some cases condemning thousands of workers onto the streets.

The country’s industrial hub, Bulawayo, is now quiet and desolate, as industrial chimneys last puffed several years ago.

The African Development Bank says most Zimbabwean firms were highly geared and lacked creditworthiness, leading to their failure to access credit lines.

The regional lender said while there are bank facilities created to bail out the distressed companies, most of them “generally fail the due diligence test”.