• Sales volumes declined both on a quarterly basis and cumulative 9 months basis
  • However, revenue jumped both for the third quarter and cumulative nine months
  • The Group revealed mixed feelings about outlook due to the latest interest rates cut and policy slippering by officials due to elections fever

Harare- Zimbabwe’s record bank policy rates, then 200% and now 150% have stunned the sales volumes for OK Zimbabwe during the third quarter ended 31 December 2022 according to the Group’s latest trading update. However, the Group believes the recent 50 percentage points cut in interest rates will increase the Group’s performance going forward, an assertion which is still subject to debate.

Sales volumes decreased by 11.33% on a quarterly basis and by 9.37% for the cumulative nine months to 31 December 2022 due to a decline in consumer spending power. 

OK Zimbabwe is a Zimbabwe Stock Exchange (ZSE)-listed largest retail outlet in the country trading under various branded store names, including OK stores, Bon Marché and OKMart. 

As it battled to curtail the inflationary pressures and the Zimbabwean dollar’s total demise, the Reserve Bank of Zimbabwe passed a raft of measures, among them was the hiking of interest rates by 120 percentage points in 2022 from 80% to 200% and a continued tightening of the quarterly reserve money at below 7%. 

The policies were a double-edged sword as they tamed inflationary pressures and managed to frost exchange rates at the expense of consumer purchasing behaviour. High-interest rates mean banks and people will borrow less due to usurious interest charges. Therefore, consumer spending behaviours are curtailed. 

In simple economics, high-interest rates affect money in circulation hence, reduced inflationary pressures. However, less money in circulation means consumers purchasing habits are limited hence, low spending. 

However, the Group believes with the latest 50 percentage points slash in interest rates, consumer spending behaviours will soar thereby contributing to increased sales volumes. 

This is a subjective observation because at 150%, literally, they are still toxic lending rates to rejuvenate consumer spending. 

Firstly, 150% interest rates are still the highest in the world and they are never better as borrowing is still expensive. Therefore, OK Zimbabwe will not report record sales for the fourth quarter as the bank policy rate is still unrealistic.

Second, which is the biggest threat, given that inflation is already above the borrowing rates, the cut fuels rent-seeking behaviour. Given that headline inflation fails to fall as the Central Bank expects due to MPS’ failure to price the impacts of the upcoming general elections and its associated risks on inflation, the latest interest rate cut will spark speculative borrowing and increase arbitrage opportunities on the parallel market, thus, increasing inflationary pressures. 

Statistics show that government borrowing is mounting unsustainably and this will increase with the 50% cut in interest rates. The latest RBZ report shows that in 2022, Treasury Bills issuance expanded by 394% from ZWL40.24 billion in Jan 2022 to ZWL198.81 billion in Nov 2022. This is clear evidence of mounting spending pressures which could get worse in an election year. From June 2017 and June 2018 towards an elections period, RBZ increased money supply by 41% from US$6.5 billion to US$9.1 billion with a month-on-month increase of 6.84%. To date, the Zimbabwe dollar has already lost by 18% against the greenback since 2023 January. Hence, it is difficult to predict that inflation will fall in the outlook. 

Further, if the PVO Bill is signed into law, this will cut remittances by about 16% adding to forex pressures in the market. In 2022, NGOs’ forex inflows increased to 16.6% making up circa 10% of US$11.6 billion received abroad for the entire year.

The reduction in repo rates amid a flourishing parallel market rate is questioned. Central Bank’s common sense is even questionable.

Therefore, despite OK Zimbabwe expecting rejuvenated consumer spending, hence, more sales volumes, it is likely to be the opposite. There is going to be high ZWL liquidity exacerbated by election fever causing pressure for the greenback hence, rejuvenating inflationary pressures. OK Zimbabwe is likely to lose more from this policy through high exchange losses and an inflationary operating environment that will make products more unattainable to a big chunk of the population. 

The Group will further continue facing huge operating costs due to excessive reliance on external power sources like generators and solar systems amid erratic power supplies due to ageing power plants at Hwange, reduced water levels at Kariba which is insufficient to generate electricity as well as the failure of adding Hwange’s Unit 7 on the national grid. 

This compromises the ease of doing business and inflates costs. 

Commenting on its outlook, the Group said, “The relatively stable but fragile operating environment remains subject to frequent policy changes.”

However, the policy slippery has already started ahead of elections with the 50% cut in IR which will inflate government spending. 

“We welcome the reduction in interest rates pronounced by monetary authorities, and the envisaged further liberalisation of the Willing Buyer Willing Seller foreign currency management system,’ the Group added. 

 Revenue grew by 18.3% for the quarter and 28.4% for the nine months while profit margins remained consistent with the prior year and in line with the Group’s plan for the current year. 

 Equity Axis News