CAFCA wary of hyperinflation

LISTED cable maker CAFCA says it is concerned that the current foreign currency shortage in Zimbabwe could lead to “hyperinflation”.
This comes only a decade after the country suffered an episode of hyperinflation, which has been recorded in history books as one of the worst ever after monthly inflation was reported at 2 600,24 for July 2008 before government discontinued reportage of the statistics for the rest of the year.
“The company is concerned that the shortage of foreign currency is going to lead to acute hyperinflation and the customers will not be able to either afford of finance purchases from CAFCA,” the listed cable manufacturer said in statement accompanying its results for the half year ended March 31, 2019.
According to Steve Hanke, a prominent currency expert and applied economist, hyperinflation is when the inflation rate reaches 50 percent per month.
While Zimbabwe’s annual inflation is currently very high at 75,86 percent in April, the monthly rate, which reached a post-dollarisation high of 16,4 percent in October last year, is however relatively subdued at 5,5 percent.
Still, CAFCA said it has taken steps to hedge against hyperinflation.
“What is significant to note from the statement of financial position is that there is adequate liquidity to operate and trade for the foreseeable future and adequate hedges in various asset classes against any future hyperinflation.
“There is no exposure to United States dollar liabilities,” the company said.
This also comes as Zimbabwe’s worsening foreign currency crisis has not only pushed prices up and wiped out consumers’ purchasing power, but has also threatened the viability of many companies, particularly in the manufacturing sector as they have been having challenges procuring supplies.
CAFCA however said it “is well placed to meet all the requirements of the local markets and to continue meeting the requirements of our export customers”.
Meanwhile, the company said its profit for the six months ended March 31, 2019 was RTGS$2,55 million from US$1,79 million in the previous comparable period.
“Translation of current and previous year’s revenue to achieve comparability has not been possible as there is a conflict between Zimbabwean legislation Statutory Instrument 33 of 2019 and International Accounting Standard 21 as to the exchange rate to use,” the cable manufacturer said.
The group’s revenue for the period was RTGS$18,9 million compared to US$13,3 million in the same period last year.
“It should be noted that four and a half months of the current year’s revenue has been deemed by the authorities to be at an exchange rate of 1:1 to the United States dollar. The functional currency of the country and CAFCA was changed on February 22, 2019 to RTGS$ from United States dollar,” the company said.
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