Businesses challenges that I expect Zimbabwean businesses to face in the near future, and advise to management on the strategy to adopt or cope.
The business sectors of Zimbabwe’s economy in the next six (6) months are expected to face massive challenges militating against attainment of their organizational goals of satisfying customer needs and wants, deliver quality goods and services to their customer and ultimately play a role in the economy of Zimbabwe and assist in attainment of national economic goals. The challenges range from shortages of raw materials and basic commodities characterized by production of low quality goods, low quality imports and a thriving parallel market, shortage of foreign currency, a forecasted galloping inflation, economic decline characterized by shrinkage in demand and unemployment, loss of export viability, massive brain drain of critical – (skills, focused talent and turn around management leadership), low capacity utilization, shortages of power (electricity and fuel) and insufficient support services for example water supply from Zimbabwe National Water Authorities/ZINWA, a ballooning debt crisis and drying of capital financing from local and international financial institutions, high country risk factor emanating from negative perceptions by the outer world leading into low tourism receipts, the decimating effects of HIV/AIDS creating inefficiencies and ineffectiveness at organizational level, a rapidly changing legal and political environment (legislations and a general election only a year ahead). However there is a need to proffer strategies for management of the concerned companies to cope with these challenges, this will be spelt out later at the end of this paper.
The next six months will be characterized by supply shocks of basic commodities and raw materials. This is particularly likely given the current price slash ordered by the state that all prices must be priced as at the prices prevailing on the 18th of June 2007 on all goods and services which is in itself a blanket price control at the time of writing this paper goods had disappeared on the shelves of most supermarkets as panic buying and hoarding of the goods grips shoppers. Suppliers and producers of goods and services have also decided to stop supplies citing the existence of an unviable price on the market since there is no definite pricing approach, which offer a reward, being proffered by the state. Those producing or importing raw material have also abruptly stopped doing so further entrenching the shortages of goods. If the present scenario is to persist, Captains of industries will be left with no option but to close or retrench staff to cut cost. Because of this shortage of inputs materials and basic commodities the economy will witness a proliferation of the black market where unethical business practices and deals are the order of the day further prejudicing consumers and buyers with low quality raw material and commodities at exorbitant prices which will only serve to ignite further inflation in the economy. The shortage will put further strainon the already limited national forex reserves as the government and individuals try to turnaround to avert mass starvation and closure of industries by importing basic commodities and raw materials or even the final products.
The foreign currency shortage on the formal market will also worsen given the absence of a sustainable forex mobilization and stabilization strategy from both the private sector and government. The shortage will cause low production in the businesses of Zimbabwe further precipitating the downturn and the use of forex from the parallel market by companies will fuel inflation as they try to sell their products at the going rate of the parallel market. This pricing approach is likely to put the business at loggerheads with the government as it is also one of the reason which led to the price slashes or ‘price war’ therefore in the presents of strict enforcement by the regulating authorities most businesses will find the issue of forex a constraining one especially when it comes to the profits after using imports financed by the parallel market.
The economy as outlined above and below will suffer massive unemployment as companies continue to offload and restructure their workforces. With the inflation forecast from reputable institutions like the IMF and World Bank projecting Zimbabwe to face a hyper-inflationary environment savings and incomes will be eroded in terms of their purchasing power. The layoffs, low savings and low incomes will lead to reduced effective demand which implies that Zimbabwean businesses will because of inflationary pricing, price themselves out of the market with certain goods and services not being purchased especially luxury goods and goods with substitutes at lower prices. This will mean business will be at its lowest level. In the absence of a sustainable income policy this will have a huge impact on businesses in Zimbabwe.
The exchange rate management system used in Zimbabwe is the fixed and multiple systems characterized by the state pegging the rate of exchange of the Zim dollar ($) to the rate of foreign currency. The rate of exchange is not being reviewed and has led to the Zim dollar ($) being over valued against its trading partners. This will imply that Zimbabwean goods and services will be too expensive for foreigners, this will lead to loss of international competitiveness and viability constraints further chocking the forex generation capacity of companies compounded by limited national forex reserves. In Zimbabwe tourist pay for their services in forex but because we are pricing our tourism services at artificially high rates, thus Zimbabwe will become a very expensive destination causing tourist to shun us further eroding our forex generating opportunities. Therefore in the absence of a shift in policies from monetary authorities this will run down companies because foreign currency generated from imports will be remitted to the state at ‘peanuts level’ because of an artificially low rate of exchange this will frustrate exporters creating a balance of payment deficit and ultimately lead them to reduce or stop exports.
It is normal that when the economy cannot reward individuals with special skills and talents that are critical in all sectors of the economy they leave for greener pastures, this is called brain drain. As the economy further slump eroding salaries and benefits to nothing most companies are already facing loss of skills and future projected losses of skills especially in areas of education, engineering, medical, science and technology, special business areas (International Marketing, exports and imports managers etc). This brain drain will result in organizational loss of focused talent, institutional memory and leadership planning which are all critical elements of a successful entity because Zimbabwean businesses are suffering from brain drain there are likely in the next six months and in future to be lacking branding, total quality management and organizational long-term vision among other limitations.
The economy is already failing to provide basic productive support services such as water supplies from the Zimbabwe national water authority/ZINWA, power shortages in electricity and limited fuel supplies. The inconsistent supply of electricity will cause industries to experience low production because factors of production (e.g. equipment and skills) will be lying idle because of incessant power cuts worsened by the failure by the Zimbabwe electricity supply authority to draft and comply with a load shedding timetable. The fuel shortage on the formal market will lead to poor supply and distribution of goods and services in the economy leading to low sales and low capacity utilization. The companies will be forced to procure fuel from dealers on the black or formal market at a much higher cost, which will translate to high production costs. Water remains arguable the “blood” in production its absence or limited supply will result in businesses completely shutting down.
The businesses in Zimbabwe will face access to credit constraints and high borrowing costs locally and internationally. As inflation takes its toll discouraging savings and because of low interest rates, banks will fail to lend money to finance projects because people or organizations are not saving and are diverting resources to speculative areas, finances to bail out companies and capacitate companies will dwindle leading to low capacity utilization and company closures. Even in the presents of finances institutions will be reluctant to finance companies because there is no reward and but high risk since interest rates are too low and way below inflation. Furthermore because of an unfriendly macro-economic condition most companies who were lucky to access credit have defaulted or are behind their debts schedule naturally no one is willing to finance when there is too much risk. At the international scene the country is perceived as risky most finances to companies and government have dried up especially given a low credit rating because of sour relations with IMF and the World Bank.
The country risky factor is how the nation is perceived at the international scene it is determined by the respect for human rights, good governance, property rights and relations with international financial institutions (eg IMF and World bank). Zimbabwe is viewed as a very high risky economy to deal with because of negative media campaigns from the BBC, CNN, Sky news among others and the sanctions imposed officially and unofficially by Britain, USA etc. Because the point of departure according to the international community is political and now a time when the general elections are less than a year away Zimbabwe will witness massive sabotage, anti-Zim crusade and embargoes. This will translate into low businesses particularly for the tourism sector where visitors first look at their safety before choosing a destination, this is most likely in the next six months given past experiences and that some anti-Zim nations such as Australia have already started issuing travel warnings and are tightening visa conditions. And for other businesses in other economic sectors things will be so bad because of this politicization, which might lead to loss of eg tenders, markets, quotas and financing opportunities.
HIV/AIDS has devastating and crippling effects to the economy because it leads to absentees at the industries because staff will be ill or attending to a sick relative and in the event that those ill die it leads to loss of skills and institutional memory which imply that resources used in mentoring the deceased will have been lost. Since the rate of infection is still high though declining and coupled by shortage of forex to procure ARV’s /HIV/AIDS drugs in the next six months HIV/AIDS will be still decimating operations of businesses in Zimbabwe causing untold suffering, inefficiencies in working and other constraints listed above. This will translate into low capacity utilization, poor export performances and ultimately low national productivity.
The year in Zimbabwe started on a high note with the signing of a social contract in June 2007 with all parties (labour, business and government) assigning each other roles to undertake to ensure macro-economic stability. However the aftermath and the time towards the signing of the social contract witnessed irresponsible pricing policies, emergence of pricing like cartels and overall unethical business practices meant to pre-empt the social contract and its associated policy changes. The government reacted by ordering a price slash, which was more political than economic. This further strained relations between the political authorities and businesses because of loss of mistrust. There is a strong likelihood that the authorities are going to nationalize some entities that defy the pricing policies spelt out. This will obviously lead to the business taking a cautious approach when making decisions especially given that an Indegenisation and Empowerment bill has been tabled which in some circles is viewed as equivalent to expropriation. All this will imply that Zimbabwean businesses face an uncertainty on the backlash they will get from politicians because there are now viewed as the major drivers of inflation bent on fomenting social instability ahead of general elections. This is even true because the stock exchange has tumbled because of this risk facing these businesses.
The lack of confidence in the economy and poor future expectations are causing businesses in Zimbabwe to use inflation for pricing, when making remunerations etc, this implies that inflation has emerged as the major driver of inflation. This price madness in the absence of state interventions (price slash operation) will create massive galloping and hyperinflation, which will translate into high cost of production for the businesses in the near future (say in six months time). The prevailing high prices of goods and services will lead workers to continuously demand salary adjustment thus creating a wage-price spiral. Inflation and other factors such as forex shortages will lead to de-industrialization and low capacity utilization in Zimbabwe. The high inflation will put pressure on IT systems and infrastructure of banks as they fail to cope with high number digits causing transactions to be split to facilitate processing this is a big challenge given that it can be mitigated by upgrading software and hardware which has a forex need component this however requires solutions at regulatory authorities level through currency reforms such as the slashing of Zeros done in August last year.
As inflation rises and economic melt down precipitating the socio-economic environment deteriorates. This evidenced by the diminishing corporate governance and taking corruption as normal yet it has the capacity to cause massive asset stripping of business property as people try to maintain their living standards deteriorating. This high level of dishonest can lead to high red tape and high transacting cost to businesses if improperly checked as what happened at NMB bank where senior bank employees siphoned $4,5million without the RBZ noticing.
However the presents of challenges and absence of a stable environment necessitates strategic planning full of focused talent and a leadership full of long-term vision. Below are the strategies that management can adopt to cope with the challenges; venturing into electricity production and own fuel procurement, IT upgrading and automation, Export promotion strategies, sourcing of financing capital, Proactive leadership, joint ventures, HIV/AIDS workplace programmes, Image building, lobbying (on currency reforms, exchange rate policies, support funds and price controls), anti-corruption strategies, toll manufacturing, export consortia’s, industrial clusters, techno parks, business linkages-buyer mentoring and information provision, Income policies, cost reduction, strategic acquisitions, profit and loss centers, import substution and corporate social responsibility.
It is the duty of the government in Zimbabwe to provide electricity but in other countries such as Malaysia there are independent power producers (IPPs) producing a lot of electricity for their own use and surrendering the excess to the national grid at a price. This approach is very useful particularly given that ZERC has licensed some companies to be independent power producers such as Hippo valley and Triangle (pvt) Ltd this will help instill independents especially for high energy consumers. The businesses willing can consult with ZERC so that they can settle their tariffs in forex in exchange for preferences during load shedding this facility is there and has been utilized by platinum mine thus saving it on the losses during power outages. Own fuel procurement remains an opportunity exporters can take to save them from erratic supplies in the service stations thus enabling them to make timely product supplies ahead of competitors. This approach is being implemented by other organizations especially those with parent companies domiciled outside Zimbabwe.
Export strategies are essential in these days of forex shortages, these strategies include joining and creating export consortia’s so as to help in sharing experiences and foreign currency, other resources etc. These associations do not necessarily have to be for companies in the same industries. This approach has worked well in the Far East where consortia’s are particularly popular because of their success. Management can also engage in image building under the buy Zimbabwe campaign this is workable especially in the tourism industry where a company can create a website, brochures, advertisements on the satellite televisions with global viewers showcasing their products and services. Some might even invite a reputable person to boost their image eg a popular states man like Nelson Mandela, the Queen of England, prestigious footballers-Barcelona/Manchester, or even celebrities this is usually done in South Africa where they can a make free offers for visits at no cost to the celebrated invitee. The last approach involves aligning your export to where there are favourable incentives or no discrimination eg most companies must embrace the look East policy because of sour relations with our traditional partners who can sabotage/freeze your assets any moment in case you are linked to the government, however there is need to avoid abruptly pulling out of the traditional markets such as USA, Britain in case relations normalize.
Management needs to be able to source financial resources especially when the company has no working capital. They can approach unbiased institutions such as UNIDO for assistance or other friendly nations/institutions. At a local level resources are available through a variety of banks such as the IDBZ in case of capital projects or utilizing government window finances such as the companies distressed fund, export support schemes, if mining-Mining fund /gold support fund. Management can also make a share offer and list on the local stock exchange (local currency) or foreign stock exchange (Forex) this can help raise funds for investment in the business. The company can also float treasury bills or bonds this is usually done by parastatals such as ZESA when in need of resources. At the time of writing this paper Premier Financing Holdings, a leading financial and advisory company had floated $400 million Agri-bonds to raise money to fund agricultural projects.
Proactive leadership is a prerequisite in case of an environment as ours; there is need for focused talent, leadership planning and highly qualified people in special critical areas eg export managers, brand managers. If the company is lacking those attributes there is need to engage into a management change strategy to allow the emergence of new ideas of doing business. All negating factors to human skills must be counteracted eg low remunerations and unfair labour practices so as to retain and attract the big brains. Companies can establish special packages to retain critical skills such car loan scheme, grocery allowances and retention allowances. There can also nurture and identify the rare talent by creating generous study leaves, attaching university graduates still at university, scholarships and bursaries etc this is being practiced at Econet a leading communications company.
The management can scout for joint venture initiatives from especially foreign partners with access to forex. This approach however requires the management to show vision to be able to attract an investor as what happened at ZISCO where global steel industry a company leading in the steel industry in India withdraw because of poor planning and lack of focus by the local management.
The HIV/AIDS scourge’s decimating effects can be countered by having those infected with the HIV virus being put under Anti-retroviral therapy. This will reduce the absentee hours at the workplace while other support packages such as medical Aid schemes and company assisted funerals can help to reduce the impact of the disease. The management can establish a canteen at the workplace because nutrition is central to mitigating the effects of the disease. Workplace programs are also important to enable behaviour change for those not infected.
There are some entities, which suffer because of bad publicity especially those in the tourism area. Some image building campaigns to their markets can help in image building thus boosting the organizations chance of clinching joint ventures and other desirable opportunities. Management must also make sure that corporate image does not collapse because of law quality goods, which can cause the company to be viewed as responsible for inferior goods.
Forex generation strategies are key in coping considering the current state of national reserves. The management can engage in what is called toll manufacturing. This is situation in which a buyer supplies raw material to a supplier and then he/she buys the finished goods at the cost of labour and machinery used. This will help especially under import forex constraints because the industry will be kept active while the layoffs are avoided. The company can also engage in import substitution this is the developing of local products/raw materials so as to replace imports thereby reducing pressure for foreign currency demand. This requires that the company creates a sound research and development or engage consultants for good recommendations that do not lower the quality of product before import substitution. Techno parks also provide an opportunity for companies to break through in obtaining imports substitutions. Techno parks are research/industrial complexes of usually light industries housed by universities but owned by Government, private sector and the hosting university.
The management can also engage in business linkages which can be defined as commercial linkages between separate profit oriented enterprises this results in specialization, diversification, efficiency and high value addition. The approach involves information provision about opportunities for linkages and what is called buyer mentoring were by buyers provide credit or raw materials to the supplier and fixed contracts or guarantees of buying to help the supplier in accessing financing capital. This approach will help the troubled small enterprises to be able to cope with economic stress. These business linkages can also be in form of industrial clusters, vertical and horizontal integrations.
The businesses facing challenges can also engage in cost reduction this can be in form of a retrenchment to cut on the cost of labour. Companies can also reduce their consumptive spendings e.g. on vehicles for executives and other luxuries. The establishment of business linkages can also serve to cut cost of production. Techno parks can also be used to research a break through on cost reduction.
The management can also organize their entities into profit and cost centers (strategic business units/SBU) this creation of specialization can help in management but if not properly done can result in competing units. The management can also make strategic acquisitions which help to breath life into the troubled companies, the company can acquire ventures which produce its raw materials or even those which produce like/unlike products.
Some businesses by their nature eg banks deal with many transactions the current hyper-inflationary environment presents challenges of IT systems failing to cope with the transactions running into trillions. This was the predicament when the monetary authorities slashed the zeros last August but there are still promising that the currency reforms are ongoing and a new currency is set to be introduced anytime. This cannot cause comfort on the banks they still need to upgrade their IT systems and hardware to be able to cope with the large volume transactions in order to avoid IT collapse. CBZ a leading bank reported in its financial reports that it is now ready and has installed state of art equipment to cater for the crisis.
The level of corporate dishonest and managerial corruption needs to be checked if Zimbabwean businesses are to thrive. There is need to set up anti-corruption task forces which are operated by company security staff with a wide spy network to unearth corruption. The company needs to set up a suggestion box to protect whistle blowers, those caught on the wrong side of the law should be dealt with accordingly so as to set deterrent examples to those contemplating engaging in corrupt practices. Lastly the company needs to be able to remunerate its work force because research has shown that poor working conditions are breeding grounds of corruption.
The businesses in Zimbabwe to be able to get out of the crisis there are facing, they need to play their part in fighting inflation at local/firm level. Because the businesses are well organized into associations (e.g. CZI, ZNCC etc), they need to engage in lobbying of the Executive, monetary authorities and parliamentarians for favourable policy shifts in the areas of exchange rate management, currency reforms, budgeting, pricing, inflation management. This is critical and it is part of normal business practice the world over, it is called ‘moral suasion’ and it is common in the banking sector. It also helps eliminate clashes with authorities. The business sector urgently need to court the government and the labour into resuscitating the social contract under the banner of the Tripartite negotiating forum/TNF and the Clergyman under their nation building programme ‘the Zimbabwe we want’. This will foster the necessary human factor qualities required to fight the national challenges while strengthening industrial harmony.
The lessons from the price slashes are that big corporate need to gauge the mood of the authorities and need to be in good books with the authorities through a clear policy of social corporate responsibility in terms of pricing either wise there will be nationalized as echoed by the state president symbolizing that it is now a matter of policy to nationalize firms engaging in profiteering such pronouncements from the highest office in the land are not threats but serious policy issues. The other option available to the management but it is a last resort and needs to be done after a thorough assessment is to close business and make a strategic exit that will not put blame on the management nor on the owner of the business but on the nature of business that some ventures prosper while some fail.