Zimbabwe’s CEOs face tricky terrain

Zimbabwe’s CEOs face tricky terrain
BAT managing director Clara Mhlambo

BAT managing director Clara Mhlambo

ZIMBABWE’s chief executives officers (CEO) face the daunting task of restoring fortunes in their organisations against the backdrop of a declining economy and persistent erosion of disposable income.
The company executives have had to contend with persistent cash shortages, aging equipment, a gridlock in payment systems and foreign currency shortages.
British American Tobacco (BAT) Zimbabwe managing director, Clara Mlambo, told the Financial Gazette’s Companies & Markets (C&M) that companies had to review their strategies in line with market conditions.
Speaking about her own company, she said the cigarette manufacturer and distributor continued to review its strategy year-on-year to ensure that it remained relevant and fit for purpose in the dynamic Zimbabwean environment.
These reviews, she said, allowed the company to remain focussed on bringing value to shareholders and consumers.
BAT is the leading manufacturer and distributor of cigarettes in the country.
“Just like any company, we are experiencing some challenges in the current operating environment. Some of the challenges faced by our industry are (difficulties in making) foreign payments to purchase important raw materials, an increase in duty and cost of utilities,” she said..
She said CEOs would this year be expecting various measures introduced by government last year to start bearing fruits.
These measures include the introduction of bond notes to address the issue of cash shortages and stimulate local production.
“BAT Zimbabwe has recently noticed a steady rise in suspiciously priced tobacco products, particularly in the high density suburbs of Harare, which indicates that relevant taxes have not been levied on these products. The foregoing represents significant revenue loss for both government and legitimate industry players. The Revenue Authority is aware of this issue, and we are confident that they will put measures to address this swiftly,” she said.
Mlambo said the cost of utilities remain an “alive discussion with utility providers” as they seek opportunities to reduce ever increasing costs.
“As a business, we continue to re-look at our operations and structures with a view of ensuring that they remain optimum and efficient,” Mlambo said.
Such is the environment that CEOs and managing directors are operating in and are trying to navigate to ensure that companies make profit.
In this environment, it is a position that peace of mind is no longer associated with. High blood pressure and stress are now a common trend among this group of people.
A volatile economic environment makes planning very difficult.
For those companies planning long term, a CEO cannot with certainty forecast where the economy would be in the next five years and which currency will be in use then?
Human resources expert, Memory Nguwi, said declining demand for products and services due to liquidity challenges and lack of disposable income was one of the major challenges CEO’s would be facing this year.
He said executives may need to scout for new markets beyond our borders to improve profits.
“Before expanding to other countries they need to address product competitiveness. Our products are not competitive due to a high cost structures which we are passing to consumers. Executives need to address the issue to do with productivity not production,” he told C&M.
“Broadly business must address product competiveness instead of focusing on country competiveness alone. This area is complicated by the rampant corruption that increases the cost of doing business. With foreign currency shortages and other problems the role of the middlemen is likely to increase as companies seek survival means. The end result is a high cost structure,” said Nguwi.

Human resources expert, Memory Nguwi

Human resources expert, Memory Nguwi

He said most companies were taking too long to restructure their businesses and in the process lose time and market share. Cost cutting alone would not improve most companies’ performance and hence the need for comprehensive restructuring programmes that cover revenue, human resources, cost efficiency in all departments.
“Business must prioritise how they allocate resources internally. Management is very inefficient when it comes to resource allocation. Resources sometimes are poured into areas of little value thereby reducing productivity,” Nguwi said.
This issue of corporate governance has directly affected most companies in Zimbabwe since the economy was formally dollarised in January 2009. Most companies — listed and unlisted — still have to align their boards in line with best corporate governance practice.
CEOs have been facing challenges in dealing with company boards where most members were not independent from the shareholders.
As a result such members would tend to make decisions that favour the shareholder rather than the business.
CEOs then face a difficult time in pleasing the board while also trying to drive the business.
Economist, Evonia Muzondo said it was not going to be business as usual for CEOs in Zimbabwe this year as there was pressure from their boards to perform in a difficult environment characterised by failure to attract capital due to country risk and pressure from the Zimbabwe Revenue Authority for companies to be up to date with their taxes.
“Shortage of foreign currency to pay critical imports and low aggregate demand will be the major challenges managers will face this year. This is against a demotivated workforce whose stress levels are high in an underperforming economy,” she told C&M.
She said finding a lasting solution to compete with imports and containing costs was an area CEOs needed to focus on to be competitive.
CEOs will face challenges in dealing with a government that is inconsistent when it comes to policy making and a government that rarely consults market players before coming up with policies.
Statutory Instrument (SI) 64 of 2016 which bans importation of some goods comes to mind and the recent imposition of bond notes despite a spirited fight to thwart the issue of bond notes.
CEOs of “foreign-owned” companies have to live the ever unsolved issue of indigenisation over their heads.
Economist and former Zimbabwe National Chamber of Commerce president ,Trust Chikohora told C&M that the biggest challenges that every CEO would face this year were liquidity constraints and absence of cheap loans to support ideas that would have been agreed at strategic meetings.
“The problem of accessing foreign currency to import materials for industry is getting worse and this will be a big challenge. This has resulted in some companies already insisting on cash payments. Some shortages of goods may begin to emerge and those companies which benefited from SI64 may not be able to meet demand due to these challenges,” he said.
He said most companies will find it difficult to pay employees on time.
Assembling a team and departmental heads that would work as a team to implement agreed strategies and structures is a task that CEOs should constantly monitor so that companies achieve their desired objectives.
Speed was becoming the biggest challenge in business whether it’s execution of ideas, changes in the market and consumer behaviour. Those that are fast to respond increase their chance of visibility and growth.
Reputation management is a concern in today’s world where social media channels are becoming crowded spaces.
How to touch on the reach of social media and connecting to the correct target audience would continue to be of concerns for most CEO in this competitive market.
“One of the biggest challenges I see, among other things, is staying focused on the customer and serving their needs. To do this, CEOs must continue fighting the urge to be lured by the latest and greatest shiny new thing and navigating through a myriad of ways to connect, engage and communicate with customers. Due diligence which is sometime lacking should be applied all the time,” an executive said.
There is so much available at our fingertips that it is easy for small businesses to get lost in a sea of tweets, periscopes, Facebook ads, podcasts or a press release.
Market analyst James Ndiyamba told C&M that the major headache most CEOs will face would be the ability to raise capital in order to improve their companies’ capacity utilisation.
“A number of listed companies are in need of fresh capital for retooling. The major sources of capital are debt and equity. Rights issues are rarely successful in this environment as shareholders may not be able to follow their rights while there is a shortage of long term debt. CEOs are then left with running undercapitalised companies or taking expensive short term debt and face huge finance charges,” he said.

newsdesk@fingaz.co.zw

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