Chibuku drives Delta earnings

By Daniel Chigundu

DELTA Corporation earnings per share rose nine percent to US$3.83 cents driven by an increase in Chibuku Super volumes, the company has said.

The positive result in sorghum beer has helped  grow the company’s total beverage volumes by four percent at a time when lager beer sales have slumped.

Lager beer volume was down 10 percent to prior year yielding to a soft consumer demand occasioned by liquidity and affordability constraints.

In a statement accompanying its half year results ended September 30 2013,  Delta said because of the impressive growth shown by sorghum beer they are focusing on commissioning a second plant for Chibuku Super in the second half.

“Sorghum beer volumes grew nine percent, driven by a successful introduction of the premium Chibuku Super. Investments are being accelerated to support the growth in Chibuku Super.

“Total beverage volumes grew by four percent over prior year, driven mainly by the recovery in sorghum beer,” the company said.

Currently the popular Chibuku Super is only being manufactured at Chibuku Brewery in Chitungwiza where the company has invested in access of US$6.5 million in a state of the art fully automated bottling plant purchased from a German company Krones.

In an interview earlier in the year,  company technical services manufacturing development manager at the brewery Brian Karemba said they are failing to keep the product in stock because of huge demand.

“We are excited by the level of demand that we have seen ever since the introduction of this product to the extent that we are not even stocking anything as trucks will already be waiting to deliver to customers.

“After packaging Chibuku Super, it is only taken into a warehouse as a formality for accountability purposes but it is not staying there for more than 10 minutes and as you can see the warehouse is empty and trucks are actually waiting for the product and such has been the demand since we started,” said Karemba.

Chibuku Super is brewed in the same way as the standard Chibuku but is fermented longer to a consistent alcohol level and is said to be smoother, has consistent quality taste and a longer shelf life of 21 days.

The Zimbabwe Stock Exchange listed blue chip company said they specifically invested in new equipment that has new technology to produce the desired results of the product.

While the Chibuku Super is being distributed in specific urban markets, investing in additional bottling lines will enable easy rolling out the product to other centers, including rural areas.

Meanwhile Delta has heaped blames on an increase in excise duty and liquidity challenges prevailing in the economy for the poor performance of its lager beer volumes arguing that it might hamper the benefits set to be achieved from the success of its barley contract scheme.

“Our 2013 barley contract scheme is expected to deliver record crop of over 40 000 tonnes indicating an improvement in yields to over 5.5 tonnes per hectare.

“Unfortunately the benefits of the contract scheme could be curtailed going forward in view of the downward trend in lager sales.

“The challenges of the disruptions to recommended retail prices arising from the excise duty increase remain. Our premium brands contribution have helped to mitigate the impact of this volume loss on revenue,” said Delta.

Liquidity crisis to persist

By Daniel Chigundu

THE liquidity crisis bedeviling the economy is likely to continue, unless government finds ways to attract long term deposits, seasoned market watchers have said.

Unavailability of long term deposits has been used by financial institutions as a panacea for not extending long-term loans to the productive sector at a time when most companies are in need of funds to recapitalise after a decade of misfortune.

Reserve Bank of Zimbabwe (RBZ) indicated that in September, demand deposits accounted for 58 percent, under 30-day 21 percent, long term 14 percent, while savings stood at 12 percent.

In their weekly market watch report for the week ending November 8 2013, Tetrad Securities said lack of long term deposits will affect the country’s economic growth.

“We are still of the view that policy makers need to find a way of attracting long term deposits as a way of reviving the sector and economy at large.

“The monthly trends by the RBZ on the monetary developments do not paint a sunny picture as the same old challenges continue to haunt a key sector within the economy. We are mainly concerned with the decline in the annual growth in total deposits.

“Such a trend implies that liquidity conditions will remain tight in the economy further curtailing economic growth prospects. Further to this, the transitory nature of deposits continues to create a mismatch as the industry requires long term capital compared to the available short term expensive capital.

“This explains the decline in capacity utilisation from 44 percent to 40 percent in 2013,” Tetrad said.

Meanwhile, the central bank published its monthly economic review paper for September 2013, where it said annual broad money supply growth declined from 5.77 percent in August 2013 to 4.89 percent in September 2013.

Tetrad said this decline mirrors the slowdown in the economy which has seen other sectors contracting leading to the gross domestic product (GDP) downward revision from 5 percent to 3.4 percent by the Ministry of Finance.

However, money supply increased by 3.01 percent on a monthly basis to US$3.91 billion in September compared to August’s US$3.79billion.

And this increase in money supply was attributed to inflows of US$87.83million at commercial banks according to the RBZ. However, deposits remained transitory in nature with demand deposits and under 30- day deposits accounting for a combined 74 percent.

Annual growth in credit to the private sector was down by 1.88 percent from 12.84 percent in August to 10.96 percent in September according to the central bank.

Tetrad said it also noted that the decline in private sector credit on an annual basis relates to the above mentioned factor of depressed demand in the economy.

Credit to the private sector on a monthly basis rose by a marginal 0.64 percent from US$3.69 billion in August to US$3.71billion in September. Outstanding loans and advances were mainly in respect of manufacturing (16.71percent), agriculture (18.38 percent) and distribution activities (16.72 percent).

The RBZ monthly economic review also highlighted that households accounted for 17.77 percent of total loans and advances to the private sector. As a result, the 3.01 percent growth in deposits compared to the 0.64 percent growth in credit saw the loan to deposit ratio for the sector improving to 95.07 percent from August’s 97.32 percent.

SMEs are own enemies

some of the SMEs at work

By Daniel Chigundu

 PERMANENT Secretary in the Ministry of Small to Medium Enterprises and Co-operative Development Evelyn Ndlovu has accused SMEs of pulling themselves down when it comes to accessing loans.

The permanent secretary who was guest of honour at a business conference held on the side-lines of the just ended third edition of the SMEs International Expo said SMEs can only get loans if they start banking.

“Our people (SMEs) are keeping money under pillows; they are not banking at all.

“If you are not banking you are actually killing the goose that lays golden eggs, because loans come from deposits, how then do you expect banks to give you money if you do not bank, let’s try and help banks to get money, let’s bank with them,” she said.

Ndlovu sentiments are in line with remarks made by Bankers Association of Zimbabwe president George Guvamatanga earlier in the year that it was not fair to encourage banks to give loans without encouraging people to first bring their money to banks.

The permanent secretary added that while her Ministry was doing all it can in trying to encourage SMEs to employ best practice in their businesses, it is the issue of record keeping that still remain a challenge.

Most SMEs in the country are reluctant to formalise their businesses with government for fear of being taxed and this has also put them at a disadvantage in accessing loans from financing institutions.

Zimbabwe is said to have about four million small businesses that mushroomed as a direct result of company closures that swept across the country in the last decade due to bad economic policies by government.

Statistics from the FinScope MSME Survey Zimbabwe 2012 SMEs account for close to six million jobs across all sectors of the economy.

Chinamasa unhappy with cotton

Cotton field

By Daniel Chigundu

FINANCE Minister Patrick Chinamasa says he is unhappy with the way farmers are dumping cotton in favour of the high paying tobacco.

The number of farmers who are turning to tobacco farming has been on a sharp increase in the past three farming seasons, and the increase has been attributed to competitive prices being paid for the “golden leaf”.

Tobacco Industry and Marketing Board (TIMB) a few weeks ago announced that 23 000 more farmers have registered to grow tobacco in the 2013/2014 farming season, taking preliminary figures of tobacco farmers somewhere in the region of 87 000.

Just in the past selling season close to 161 million kilograms (Kgs) of tobacco went under the hummer compared to 142 million Kgs sold in the 2011/2012 season.

Minister Chinamasa said the situation cannot not be allowed to prevail arguing that cotton provides more opportunities for the country, than any other crop.

 “…we are most unhappy about what is happening cotton industry; the Minister of Agriculture is going to look into that issue about cotton production. We are very unhappy that traditional cotton growers are migrating from cotton to other crops such as tobacco; this is a very unsatisfactory development.

“It’s something we should not accept, why because cotton throws up more opportunities for us, because it has more value chain. If you are talking about serious industrialisation, it should be along cotton value chain.

“So we would want to see that the growing of cotton is not collapsed and so we are going to formulate and come up with a policy to see that we do something and see what interventions we can make in cotton.

“We have to look at each value chain, who are the players, and what are they doing, who is abusing who and the necessary interventions have to be made,” he said.

Although cotton prices were increased early in the year from a minimum of US$0.35 per Kg to a maximum of US$0.58, farmers still feel the prices are low and not attractive enough compared to US$ 3.50 fetched by tobacco.

Statistic from the Cotton Ginners Association indicate that production of cotton has been on the retreating side failing to meet the 2012/2013 target of 250 000 tonnes and only settling for something in below 145 000 tonnes.

The increase in tobacco farming has not only taken its effects to cotton farming but also the critical maize production.

Zimbabwe recorded its all-time peak of 353 000 tonnes of cotton in 2000 and from that time production has been on a downward spiral.

The downward trend in cotton production and side-marketing by some unscrupulous farmers has also been attributed for causing the collapse of the country’s textile industry.-

Duty increase dangerous

Some imported goods being offloaded

By Daniel Chigundu

 MARKET watchers Tetrad Securities have warned government on the dangers associated with increasing import duty as it embarks on efforts to revitalise the country’s crumbling industry.

In its weekly market watch Tetrad said while clamping down on imports through duty increase will be good for local industry, the move is inflationary and will only serve to increase prices of goods.

“… regarding the influx of imports coming through the normal channel we are of the view that increasing duty is not a sustainable measure to ease the industrial challenges.

“Our view is that with the local industry capacity utilization shrinking, hiking import duty will be inflationary.

“This is explained by the fact that Zimbabwe is a net importer of most goods mainly from South Africa; hence hiking duty will only increase the cost of accessing imports.

“An increase in imports will ultimately see the consumer feeling the impact through increased prices which with static and declining disposable incomes will see citizens becoming worse off.

“The only long term solution to the challenges being faced in the sector is recapitalisation,” said the report.

Tetrad added that recapitalisation is the only sustainable root compared to protectionism in the form of hiking import duty; arguing that retooling will help corporates to buy updated plants and equipment which will improve quality whilst lowering overall costs of production.

Former Prime Minister Morgan Tsvangirai had also expressed concern over what he termed “absolute equipment bought in 1963” which he had said must go.

Economists are also of the view that with the current status quo, Zimbabwe cannot compete with imported goods as the country is relatively a high cost producer compared to regional peers.

Thus recapitalising will be a step in the right direction.

The only impediment however to solving the recapitalisation woes in the sector relates to how long term affordable capital can be unlocked considering the illiquidity in the economy.

Zimbabwe is facing serious liquidity challenges since the adoption of the multi-currency regime in February 2009 at the consummation of the now defunct inclusive government.

So dire is the financial situation in the country that banks are literary refusing to finance businesses on long term basis arguing that they have no capacity owing to the unavailability of the lender of last resort, a role normal played the central bank.

Bankers Association of Zimbabwe president George Guvamatanga has even made it abundantly clear that banks have no money of their own to lend on long term basis highlighting that majority of deposits are “money of call” and can be demanded at any time.

Former Minister of Finance Tendai Biti was in the process of trying to privatise the lender of last resort role when his term came to an end.

Zimbabwe is also said to be lacking clear economic policies and investor protection laws which are critical drivers in attracting foreign capital.