Explained: What made headlines this week

25 Sep, 2020 - 00:09 0 Views
Explained: What made headlines this week Justin Bgoni

eBusiness Weekly

Taking Stock Kudzanai Sharara

This week was a hive of activity, but as we look at it in retrospect, probably the biggest news is that of ZESA’s 50 percent tariff increase.

The need for electricity cuts across all facets of human life, economically and socially. As a result, whatever changes that affect the provision and pricing of electricity has a bearing on human lives one way or the other.

The big question that needs explaining is whether the upward tariff adjustment is justifiable or not. Without doubt it is justifiable. In fact, it was long overdue. Before the latest adjustment, electricity consumers were now paying an equivalent 2.33 US cents per kWh. This according to ZESA, and many would agree, was now sub-economic. In fact, it was now threatening the viability of power provision. With Zimbabwe importing some of its electricity needs at more than 10 US cents per kWh, the level of subsidy that ZESA was now providing to its customers was not sustainable.

If tariffs were to continue at such low and sub economic levels, there was serious risk of not only failing to import power but also failing to service and provide working capital for local supplies including coal which ZESA gets from private companies.

We must, however, point out that this is not a licence for businesses to put up prices by such magnitude. There is need to access the impact of this latest tariff review on the overall cost of doing business. Only then can a decision be made on how the additional cost can be absorbed, either by the companies or consumers or both.

Missing out on the gold rally

This week, one of the country’s primary gold producers, RioZim, released its results for the half year to June 30, 2020.

The ZSE-listed entity said it had recorded low production volumes of gold at 586kg compared to the 962kg achieved in the comparative prior period.

The low volumes were attributed mainly to “significant equipment challenges”. For a company of its calibre, it is worrying that it talks of plant breakdowns at most of its mines. What could be the issues? How can they be resolved going forward? Losing 39 percent of production volumes, at a time the price of gold is up 27 percent is not good, not only for the company but the country as a whole.

Apart from plant breakdowns, RioZim bemoaned heavy losses it incurred “as a portion of the Group’s revenue was being received at an inferior fixed interbank exchange rate”. It also lamented erratic power supply which “posed a big threat to the Group’s operations as our mines experienced much lower than capacity running hours”.

We understand such challenges with regards currency policies, payment terms and erratic power supply affected or are still affecting the gold mining sector.

A total of 13,4 tonnes of gold had been delivered to Fidelity by August, down from 17,84 tonnes same time last year and this was blamed on payment related issues. The sooner such issues are resolved the better as Zimbabwe risk missing out on the current gold rally which is forecast to reach US$2 200 according to projections by American multinational investment bank, CitiGroup.

The exchange rate strengthens again

Following Tuesday’s foreign currency auction, the Zimbabwe dollar was stronger for the fourth consecutive week against the greenback. A record US$31 million was also allotted with the bulk going toward the importation of raw materials. This strengthening of the local currency is commendable and we expect the authorities and economic players to consolidate on the prevailing stability in the economy.

An interesting observation however is that there are still fewer players from the small to medium enterprise (SMEs) sector that have come forward to participate. Since inception of the SMEs foreign currency auction system, the highest number of bids per SMEs forex auction is 117. For a country that is said to be SME driven fewer participants at the FX auction compared to large corporates should be a major worry. What could be the reason? Lack of formalisation? SMEs not banked? Onerous processes?

Policymakers should seek answers to these questions and use them to create a conducive environment that incubates small businesses and encourages them to formalise their operations.

ZSE targets individual investors

In a tweet this week, Zimbabwe Stock Exchange chief executive Justin Bgoni wrote:

“The need for ordinary Zimbabweans to participate on ZSE remains a big concern. With daily trades around 300 in a country of 14 million people, we have not yet cracked this.”

This was not the first time Bgoni tweeted about the lack of participation by retail investors on the equities market.

In June he tweeted that the average daily trades were low around 250 a day.

“We will be launching various initiatives soon to increase retail participation and daily trades,” he said then.

True to his promise, the ZSE this week launched an online trading platform, ZSE Direct, that is targeted at retail investors. The new platform will enable users to access the market remotely without talking to a Stockbroker which has been the traditional way of investing in stocks.

This new initiative, it is hoped, will not only increase the level of activity on the local bourse, but is also expected to demystify that investing in stocks is not for the elite, but should be a mainstream activity.

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