Despite the continued build-up of retained export earnings in nostro accounts, enough US dollars are starting to flow to the interbank market to make that market work. Delta is also providing the best independent evidence by its announcement that it had accessed adequate foreign currency through the interbank to restart production.
Delta is Zimbabwe’s largest industrial concern, as well as one of its best managed. So how it operates and how it performs gives a good indication of how various parts of the economy are performing. While Delta, to its credit, is a large consumer of Zimbabwean-grown raw materials and for a good chunk of its needs has built up a stable of farmers who grow the precise varieties required under contract, it still needs a fair whack of foreign currency to produce a finished product.
For its international brand soft drinks for example, it can use Zimbabwean sugar and water but has to import the syrup concentrates. For beers it must import the hops flavouring plus modest quantities of other requirements although the grains are largely local. This makes it fairly typical as a responsible Zimbabwean manufacturer.
Gaps in our industrial landscape mean that economic growth can drive up imports, since we are not self-sufficient in many areas, even when we have a manufacturer willing to source locally whenever possible.
Besides giving a strong indication that the interbank market is starting to work as intended, the Delta statement contained a second interesting point. As the company moves back into production it plans on using the returnable glass bottles as primary packaging, at least at first. This, when you think about it, reduces the foreign currency component in a bottle of flavoured soda. The bottle top is still imported but the rest of the packaging can be recycled.
We assume there are higher operational costs with using returnable glass bottles. They have to be collected, washed, rendered sterile, checked for damage and the like. But those costs, primarily labour costs and electricity we guess, are not paid in foreign currency. And the local costs can largely be calculated well in advance. Some may find the old returnable glass bottle a bit old fashioned; Delta seem to be able to use the technology that works.
This is the second major intervention by Delta in a matter of weeks. The first was the change it made to its pricing formulas once it discovered that larger volumes at lower margins produced significantly more profit than negligible volumes at high margins. No one expects any management team, even one as good as the team that runs Delta, to get it right all the time. What makes good management is a willingness to monitor markets, costs and customers closely and then change, adapt and seek the best solutions and not be tied to what “everyone else is doing”, or conventional wisdom or what happens in a neighbouring market.
Of course greater reliance on glass packaging would be easier if Zimbabwe still made glass, although Delta obviously has stocks. The crash of Zimglass was a typical Zimbabwean industrial story, an unwillingness to reinvest and a reliance on running museum pieces into the ground. All our successful businesses have put reinvestment very high on their priority lists and that is why they are successful. But if a business has gone south because of a refusal to follow that obvious rule, all is not permanently lost.
Another piece of good news recently was the likely revival of David Whitehead following the purchase of a 51 percent stake by Praduman Kumar Ganeriwal through his Agri Value Chain Zimbabwe. He did not pay a lot, for there was not much left to buy in an entity that is operating at low level under judicial management.
But Mr Ganeriwal seems unfazed. He realises that before the profits start flowing he needs to mobilise considerably more investment to pay off the most essential of the legacy debts and to re-equip the company; Whitehead seem to be running a textile machinery museum rather than a modern textile factory. What he also gets for his money is a skilled workforce that can easily be retrained and invigorated rather than having to start from scratch.
Mr Ganeriwal already has part of his supply chain in place, with cotton ginneries in the Lowveld and Kadoma in Zimbabwe plus three more ginneries in Zambia plus, and this shows just how far a business investor sometimes has to go, a 94 000 ha outgrower contract cotton farming scheme in that country to ensure his ginneries have enough raw material.
Among his plans is to expand from Whitehead’s spinning and weaving into clothing manufacture. That produces the interesting vision of a business that starts with making sure farmers are growing the right stuff in the right quantities all the way to delivery vans carrying the final product. That is a bit different from too many of our manufacturers who seem to think raw materials come from the Reserve Bank of Zimbabwe and customers will automatically buy from them at the prices they set because they have a recognised brand.
In other areas Mr Ganeriwal has built up his Zimgold edible oil brand in Zimbabwe, breaking into what was a very tightly controlled market, and is the first manufacturer for decades to spread his processing to include sunflower, rather than just rely on imported soya. We did suggest some time ago that Zimbabwean manufacturers should diversify but doubt if that was the spark for Mr Ganeriwal; he must have thought of it first.
We have dwelt a bit on Delta, our oldest manufacturer in continuous production, and Mr Ganeriwal, one of our newest, because both show the way forward. Both are prepared to invest across the full value chain, rather than just take one end of it and then start messing around in dubious dealing to see if they can find sources of raw materials. Both are prepared at each stage to look at the opportunities, rather than the problems, and then see if they cannot turn opportunities into growth. And incidentally both operate on both sides of the Zambezi River. And both reinvest rather than just follow short-term strategies if high profits today that are consumed today.
Good management and the like all help, but the basic culture of reinvestment, ensuring that the whole supply and value chain is in place, and thinking always of the person you are selling to is what in the end makes a long-term success.