HARARE – Zimbabwe’s currency environment is hostile to business operations, and although there have been attempts by the government and aligned commentators or analysts per se to sanitise the existing policy environment, evidence shows that the country is facing a currency crisis.
While a market-based exchange rate system is touted as the way to go, government has instead chosen to stick to unwise and rather disruptive “Diocletian” rule tendencies on policy direction, including currency usage – which involves forcing businesses to accept the Zimbabwe dollar using the questionable weekly determined auction rate. However, contrary to government’s expectations, the market is characterised by multiple exchange rates and businesses in pursuit for survival as the 2008/9 demons still haunts, have in most instances remained resistant to pegging prices using the Central Bank rate.
Amidst the currency conundrum, Companies in line with regulation, are supposed to release periodical financial statements and trading updates which are basically public records and are intended to keep the company’s investors and potential investors up to date on the company’s performance as well as to highlight any areas of difficulty.
For the local companies – those listed on the Zimbabwe Stock Exchange (ZSE), preparation of financial statements has not been easy with most companies recently citing delays in the auditing processes worsened by COVID-19 related constraints. We, however, to the best of our knowledge believe that a series of policy changes on currency usage under the second republic is a major contributor to the challenges being faced by the listed entities in preparation of financial statements.
Delta Corporation Limited which manufacturers and markets international and locally-produced beverages in Zimbabwe, in its recently published audited financial statements for the year ended 31 March 2021, raised a red flag on the exchange rate disparities existing in the market.
The Group also highlighted lack of accessibility to the Foreign Exchange Auction Trading System due to “rules relating thereto”.
“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. 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. International Accounting Standard 21 (IAS21) requires an entity to determine the functional currency based on the economic environment in which it operates.”
The Group questioned credibility of existing exchange rates.
“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, with reference to the selling prices of goods in ZW$ compared to US$.
“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 has at times differed from the official rates,” Delta said.
As such, the Board of directors advised users exercise caution in the use of the condensed consolidated inflation-adjusted financial statements in relation to the reporting currency and conversion to comparative currencies.
The Group’s inflation-adjusted revenue increased by 39% to ZW$40,446 billion comparable to ZW$29,074 billion in the previous year ended 31 March 2020.
Operating income increased by 47% to ZW$10,713 billion, while profit for the period at ZW$6,384 billion was 74% ahead of ZW$3,674 billion recorded in the previous year.
The Group said that it has legacy foreign liabilities of US$18,8 million, being those amounts that were due and payable on 22 February 2019 when the authorities promulgated SI33/19 which introduced the ZW$ currency, as distinct from the US$, as the functional currency.
“The Group has registered these liabilities with the Reserve Bank of Zimbabwe and transferred to the Reserve Bank the ZW$ equivalent of the foreign debts based on the USD/ZW$1:1 exchange rate in line with Directives RU102/19 and RU28/19 and as agreed with the Reserve Bank of Zimbabwe,” it said.
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