10 July 2014

Zimbabwe: Over 600 Companies Retrench

Mike Bimha, minister of Industry and Commerce says 75 companies closed shop in 2013.

AT least 624 companies across the country have retrenched over the past four years and a significant number have closed shop, rendering thousands of people jobless, a Cabinet minister has revealed. Mike Bimha, the Minister of Industry and Commerce, told the Financial Gazette's Companies & Markets (C&M) that last year alone, the situation was serious as another bout of economic turbulence saw 75 companies closing shop due to numerous viability challenges in the economy.

However, there are fears the number could be higher this year as the economic downturn accelerates, taking a toll on businesses. A report from the National Social Security Authority revealed that at least 10 firms have been closing every month since the beginning of this year. This translates to 60 companies having closed shop so far and the figures could get to 120 companies by the end of the year if the situation remains calamitous.

A liquidity crunch in the economy has seen domestic companies failing to recapitalise to deal with competition from cheap imports. The economic growth target of five percent for the year ending December 31, 2013 was not achieved due to a number of challenges facing the economy which among others included diminishing consumer demand, liquidity constraints, high cost of borrowing, absence of significant Foreign Direct Investment (FDI) inflows and declining capacity utilisation.

This resulted in the estimated growth of 3,4 percent in 2013. Zimbabwe's economy has never had significant FDI inflows with the last major FDI being that poured into Zimplats in Ngezi in 1998. The country currently is attracting less than one percent of FDI to Africa which topped US$65 billion in 2012 despite Zimbabwe possessing vast natural resources. Global FDI reached US$1,3 trillion in 2012 with Africa receiving five percent of that.

"Most companies that had shown signs of recovery since the hyperinflationary era, have either closed or are significantly downsizing, shedding many jobs in the process," said Bimha on the sidelines of the recent Zimbabwe National Chamber of Commerce annual congress held in Victoria Falls.

"More and more companies are being liquidated, while others are being placed under the care of judicial managers as low economic activity persists. In 2010, about 141 companies retrenched while the number increased in 2011 to 171 companies which retrenched. However, statistics in 2012 show that about 147 companies retrenched but in 2013 there was an increase of 18 percent to 165 companies which retrenched."

Bimha said the situation was worse in 2013 alone, as about 75 companies closed shop due to viabilities challenges, the major reason being the liquidity challenge exacerbated by lack of affordable credit lines and the general economic slowdown. He said while government was aware of the need for availing affordable funding of medium to long-term for distressed companies, the fiscal space remains tight but indicated that government would continue to ensure that affordable and long-term credit lines were sourced to resuscitate the local industry.

He commended companies that have remained afloat in these trying times through innovation. "In light of this, I would like to commend companies that have remained resolute in this trying situation through innovation. Business people have big roles to play for the success of their entities. In that regard I urge all to be innovative and conduct business with integrity to take this country forward," said Bimha.

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