8 March 2019

Zimbabwe: Foreign Currency Allocation System Complex - Mkushi

interview

Although manufacturing companies are facing challenges in securing foreign currency, bottlenecks in remitting dividends, as well as generating significant foreign currency from exports, cable manufacturer Cafca says it remains optimistic about future prospects and has managed to overcome most of the hurdles hampering industrial sector operations.

Business reporter Melody Chikono (MC) spoke to Cafca chairperson Honour Mkushi (HM). Below are interview excerpts:

MC: Cafca has been doing well in terms of overall performance. What have been the major drivers of your performance?

HM: I think the main driving factors have been the experience we have in the country. Our product is not a luxury product, it's a necessary item for the development of so many sectors of the Zimbabwean economy.

We are talking about mining, housing, construction in general and the product of Cafca is needed everywhere. Over and above, it's the quality of the product which we have managed to build over the years, especially if you look at the export market. We are exporting to Botswana, Mozambique, South Africa, and Zambia and all the way to the Democratic Republic of Congo and it's proving very attractive to us.

MC: You speak of exports. How have your exports contributed to the generation of foreign currency?

HM: We export a lot more and in the last three years we have gone up by more than 50% from the export proceeds of the cable. In general figures, we are talking about no less than US$50 000 every month which we are able to bring into the country, but a lot of our products, as you know, are for the needs of Zesa and the local market at large.

MC: You have engaged the government in connection to the difficulties you face in securing scrap copper. Has the engagement yielded positive results?

HM: We have yielded support and we have received foreign currency allocations. We have also made barter arrangements in terms of which we have been allowed to harvest disused copper and work on it and produce excellent product for our homes.

MC: How many tonnes of copper do you require?

HM: We need about 100 tonnes per month.

MC: Are you generating enough foreign currency to cover your needs?

HM: We do generate enough foreign currency for all our needs because the bulk of our sales are still local. Our first responsibility is to satisfy the local market and the government demand and that is our priority and we understand that.

MC: How much do you need in terms of foreign currency?

HM: If we could get an allocation of US$200 000 per month, we would be able to use that to generate and earn, we would be able to create and use that to generate exports which could earn about US$300 000.

MC: How have you benefited from the Reserve Bank of Zimbabwe's forex allocation system?

HM: That has been very difficult, especially in the last six months and we had to depend on banks. Direct allocations from the RBZ have been very scarce and we are hoping the interbank market system, if they have the money, will improve the situation.

MC: Some companies have been facing challenges in terms of settlement of their letters of credit with some instruments being disowned. Have you encountered such problems?

HM: We have not experienced problems with letters of credit. Once we have confirmed orders, we have always met our requirements and our bankers have always honoured their commitments.

MC: In terms of production, what is your outlook in 2019?

HM: 2019 is likely to be some 30% better than 2018. 2018 was a record year for performance but we have also seen opportunities which we think will take us to be 30% better both locally and regionally. We will meet local opportunities first.

Regionally we will expand very much to the DRC, Mozambique, Zambia and Botswana. Priority number one is to ensure that the local market is serviced. We are probably doing that, (we are) about 99% effective on that. Of course, there are other competitors but our product is predominantly everywhere in Zimbabwe

MC: What is your capacity utilisation at the moment?

HM: Capacity utilisation has not been too bad, around 70%. I think industry in general is probably working around 40%,50% to 70%, so at 70%, we rather feel good about it.

MC: You mention that the new interbank system might be useful to you, can you explain how you think it is going to affect you, considering that the formal exchange rate has now moved from 1:1 to 1:2,5.

HM: The interbank system is going to affect us only to the extent that foreign currency is actually available when we apply for it. If it is not available, the whole plan is going to be a disappointment. As far as we are concerned, if they can bring the rate down from 4:1 down to 2,5:1 that can only benefit our efforts.

MC: Some companies have been facing challenges in terms of settling their offshore creditors because of foreign currency shortages. What is Cafca's position?

HM: We have no foreign debt -- that is the beauty of Cafca -- because we export and we pay all our debts outside. I must say that the way we have structured our strategies is quite satisfying in that we are not paying attention to issues like having to pay for foreign debtors. We may have some foreign debtors in terms of export proceeds but as far as creditors are concerned, it's a zero situation.

MC: Besides these forex challenges, what are the problems you have been facing while operating in Zimbabwe as Cafca?

HM: Initially, it was what I thought was unfair competition -- every Tom, Dick and Harry being allowed to bring products and really some of the quality has been very disappointing and, of course, we have got an obligation to our local labour force here. We have got an obligation and we really felt very strongly that we were not receiving enough support. That has changed in the last year and, as we speak now, we have got very good support because imports are not just allowed willy-nilly into the country.

MC: All things being equal, what are you looking at in terms of turnover for 2019?

HM: We are looking at probably in the region of about US$500 million, mainly driven by our capacity to access the copper and aluminium. We are also praying for our good customers like Zesa being put on a very strong footing because the demand for Zesa is endless, especially their rural projects.

It is also important for people to know that Cafca has been here for a long time. Cafca has operated and looked after Zimbabweans for a very long time and the shareholders have tightened their belts for a long time without any dividend for more than 12 years just to make sure that the company survives and so I think we deserve their support as well.

MC: You just spoke of dividends, do you mean you do not have foreign dividends to remit?

HM: We do, we have not remitted any of whatever has been declared. We have been ploughing back whatever we were making back into the country but, when we do, the foreign shareholders are allowed to go and apply for authority to remit their money outside the country.

MC: How much are you supposed to remit for the foreign dividends?

HM: The main shareholders, who are South African, have not taken any dividend at all. They just ploughed back all their dividends back into the company in order to grow the company.

Zimbabwe

Ndiraya Appointed Dynamos Coach

Trusted Dynamos son Tenderai "Stanza" Ndiraya has made a sensational return to be Dynamos head coach after agreeing to a… Read more »

See What Everyone is Watching

Copyright © 2019 Zimbabwe Independent. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.