Dark cloud hovers over Proplastics

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ZIMBABWE’s sub-optimal monetary environment, characterised by foreign currency shortages and inflation, is a dark cloud over Proplastics, a company that is in an otherwise very strong position.
The listed plastic pipe manufacturer, one of the few local companies that have thrived in the face of the crippling economic conditions in the country, faces a serious threat as its foreign remittance pressures are mounting with no apparent indication of relief in sight.
Gregory Sebborn, Proplastics chairman, said foreign currency was the company’s biggest challenge during the half year period to June 30, 2018.
“…the amounts available have not been sufficient to meet the group’s requirements. We have, fortunately, continued to enjoy good support from our suppliers and this has enabled the operations to run largely uninterrupted,” he added.
Foreign currency shortages have plagued the southern African country’s economy for the better part of the decade. The crisis has been brought about by a persistent trade deficit which has been underpinned by deterioration local industry.
The trade deficit has created an unstable monetary environment within the country, with foreign currency shortages manifesting as cash shortages in the multi-currency system which replaced the domestic currency in 2009 after record breaking hyperinflation.
Meanwhile, government borrowing has resulted in money creation in the form of electronic balances.
Compounded by foreign currency shortages, the surplus liquidity has created inflationary pressures which have also been part of the challenge for Proplastics.
Sebborn said the company’s 244 percent increase in profit after tax was in spite of the considerable inflationary pressures.
“Revenue at $10 762 251 was 71 percent up on the previous period, with volumes increasing 29 percent, driven by strong demand, especially in the first quarter of the year. The sales performance was matched by a solid plant performance resulting in cost of sales being contained to a 57 percent increase despite the huge inflationary pressures in acquiring raw materials. Resultantly, the group posted a gross profit of $3 405 921,” he said.
As the company is not spoilt for choice in the way of options of recourse regarding the foreign currency shortages and inflation, it is pinning its hopes on improvements in the broader economy.
“We remain confident that the current efforts to revitalise the economy will improve the operating environment in the short-to-medium term,” Sebborn said.
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