Currency crisis hits company operations
Alpha Media Group
BY TATIRA ZWINOIRA THE rapid depreciation of the Zimbabwe dollar has affected operations in the country’s listed firms. In an all too familiar scenario, the depreciation of the Zimbabwe dollar has accelerated in recent weeks, reaching $620 to the US dollar on the parallel forex market after hovering around US$1:$400 for a bit. Similarly, the official forex auction and interbank rates for the local currency have reached $338,49 and $347,31, respectively, to the US dollar from a comparative of $258,54 and $293,27 three weeks prior. This is evident in the country’s three largest companies, financial firm, CBZ Holdings Limited as well as the beverage manufacturer and Delta Corporation Limited, along with Econet Wireless Zimbabwe the telecoms outfit. Just recently, CBZ announced it experienced a near 5,5% decrease in profit after tax to $7,7 billion in the year ended December 31, 2021 from a 2020 comparative of $8,15 billion. This was because the Zimbabwe dollar depreciated by 33% from 2020 to 2021. Resultantly, the group saw its monetary loss widen by nearly 511% to $7,15 billion in the period under review, from a 2020 comparative of $1,17 billion. It also resulted in credit losses widening by about 382% to $7,33 billion last year, from $1,52 billion in the prior year. Thus, the decline in profit after tax for the period under review, continued into the first quarter of 2022. In its results for the quarter ended March 31, 2022 CBZ took a near 68% knock to its profit after tax to $929,2 million for the first quarter, compared to the 2021 comparative owing to inflation. At the end of the 2021 first quarter, CBZ posted a profit after tax of $2,86 billion. During March, the Zimbabwe dollar depreciated to $142,42 against the U.S. dollar, down from $84,40 at the end of the comparative 2021 period. In the financial statement for the year ended March 31, 2022 beverage manufacturer, Delta Corporation Limited (Delta), reported widening its net monetary loss by nearly 197% to $7,64 billion from a prior year comparative of $2,57 billion. “The Zimbabwe businesses have relied mostly on foreign currency obtained through the sale of products on the domestic market in line with the multicurrency framework. There is a significant disparity between the auction exchange rates and the rates reflected by comparing the market prices of goods and services quoted in alternative currencies,” DCL said, in a financial statement attached to the results under review. “International Accounting Standard 21 (IAS21 - The Effects of Changes in Foreign Exchange Rates) requires an entity to determine the functional currency based on the economic environment in which it operates.” Delta added: “The entity does not believe that the official exchange rates prevailing during the financial year were, at all times, fairly reflective of the currency exchangeability and as such, has used an estimation process, which is allowed by IAS 21”. The beverage maker said therefore, the exchange rate applied in translating the revenues to the reporting currency and as the spot rate used in translating other foreign currency denominated transactions, at times, differed from the official rates. The difference was typically higher as experts believe the official forex rates do not reflect the true value of the Zimdollar.