PLASTIC pipes and fittings manufacturer, Proplastics Limited, has recorded an erosion in the competitiveness of its products after the central bank raised its forex retention level by 5% on export proceeds.
During the first quarter, the Reserve Bank of Zimbabwe (RBZ) raised its export retention threshold to 30% from 25%.
At a time of dwindling foreign currency generation in the formal market, businesses had demanded that the RBZ reduce this level, which the bank rejected owing to its low forex reserves.
“Despite a promising start to the quarter, the environment remains constrained by liquidity issues, low economic activity and increasing power disruptions,” Proplastics said in its trading update for the first quarter.
“The tight monetary policy measures currently in place have resulted in the scarcity of the local currency, with the resultant slowing in government projects.”
The company said that while the exchange rate and inflation had been brought under control, the availability of the ZiG remained limited, negatively impacting potential revenue streams.
“The increase in the foreign currency surrender requirement from 25% to 30% for exports has not only eroded the competitiveness of our exports, but also negatively impacted overall market positioning and exporting viability,” the firm said.
“Revenue for the first quarter was primarily received in USD, with USD payments dominating transactions throughout the period. In the current quarter, the formal market, particularly the retail sector, made appeals for a reduction in the cost of doing business and the removal of informal sector advantages.”
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Proplastics noted that the proposals would potentially reduce smuggled products, which were disrupting value chains and forcing manufacturers to adapt to the presence of such products.
Despite the prevailing liquidity issues, however, the quarterly sales volumes grew by 11% over the prior period.
“Revenue grew by 3% to US$4,263 million (ZiG114,078 million) against US$4,123 million (ZiG110,331 million) achieved in the prior period without any export contribution recorded in the current quarter,” Proplastics said.
Production volumes also increased by 11% against the previous period, as the business cleared supply backlogs and replenished stocks for high-demand products. The raw material supply remained consistent throughout the quarter.”
Overall, the firm reported that the business traded profitably in the quarter under review.
“As the rainy season comes to an end, we anticipate a strong increase in demand for piping, with major projects across all sectors set to commence,” the firm said.
“Export revenue is expected [to increase] in the second quarter, with a growing volume of export inquiries being received. Favourable rainfall has significantly improved water levels at Kariba, which should enhance electricity generation and improve operational efficiencies.”
The firm also projected raw material prices to remain stable throughout the year, with no foreseeable challenges.
“The factory remains well-equipped to process and fulfill all orders promptly to meet our customers’ needs,” Proplastics said.
