Of Borrowing and What! What!

The state of the Bulawayo productivity industry leaves a lot to be desired and more and more firms keep closing down. The story in the papers everyday points to the inconvenient truth that more and more jobs are being lost. Statistics are very varied with some saying that as much as 90 firms in total have closed down over the course of our lost decade. There are many questions that arise when such figures pop up. Some may ask that does it mean Bulawayo has a growing unemployment rate. Some many continue to ask what the causes of the problem are. My curiosity goes beyond the closures and centers on the reasons why these firms are failing to stay open. I would like to assume the reason to a national problem that has haunted us from back in the day, the issue of outdated machinery, finance planning and ideas. Most African firms seem to be stuck in the pre-colonial era as you will be left with a lot to desire when you take a tour of our factories. No disrespect intended wake up a soul from the 80’s and let it drive in the Bulawayo industrial area, trust me no map will be needed. The area has not changed a bit. Adding to that in a constantly changing global environment, can we compete?

 

Outdated machinery means that performance is still limited because our competitors in other countries keep updating their production line. This means that we are still producing at 1980’s rates! With a growing population these machines are worked beyond their recommended capacity and no wonder why break downs are becoming more frequent than production. Look at our electricity utility; load shedding and a growing debt book are the order of the day. No wonder why our firms are failing to match regional pay levels, the capacity is just not there.

I would like to focus more on financial planning. Back in the day the financial manager could forecast a new product’s assumed profitability. He could factor in the cost of production, cost it into the product and eureka push a competitive product into the market. It is no secret that the cost of debt at the moment is considerably high. Banks are charging between 12%p.a to 24%p.a on loans. What this means is that before the financial manager even thinks of profitability he has a bank target of between 12% - 24% so as to service his facility. So for him to breakeven he has to push a product with an above bank rate margin. What this means is that if the cost of producing bread in Southafrica and in Zimbabwe is the same, the Zimbabwean loaf will still have a higher retail price due to the cost of funds and more! Unfortunately the cost of production between these two countries realistically is very varied. So the financial manager is then forced to seek other means. But at the same time why are talking debt when the firm was built by pioneers of entrepreneurship in our country in personal equity? Yes the cliché is that times have been tough and all industry was in trouble. To be honest some firms have fought it out without the need of expensive debt! Yes maybe I may be referring to a minority but the inconvenient truth is that minority does exist. At the moment look up our listed companies and trust me most of them are already heavily financed. Adding to that most share prices have remained stagnant and some have even slumped. Rights issues have been instituted and the issues itself is becoming a cliché in the industry. To date i am still to come across a successful recent local rights issue.

So this then points to the fact that companies are letting down their shareholders. Does this then mean that the maturity to take on debt is low? If so does that hypothesis that we are not fit to run our own firms is nonexistent. Yes my centre of discussion has gone national while i try to focus on Bulawayo. But all i see is a Bulawayo problem that is inherited from a national problem. So does this mean debt is bad? Absolutely NOT! I firmly believe that even the best of firms have some form of debt whether it be equity based or finance based. I firmly believe that the finance manager should become innovative, find a gap, see an efficiency and turn around the fortunes of the firm.

Glorious firms that have showed it can be done are the likes of zimplow, tn and fidelity. They have seen the value of innovation, the value of brand awareness, the value of proper financial planning and the reward of growth. Trust me let the 40million Bulawayo relief fund come, will change come? Do our captains of industry have a plan for the cash or will they finance a new fleet of executive vehicles and repaint their factories and ultimately default AGAIN? Personally (i stand to be criticized for this) i believe where there is a plan there is a way. How can we be efficient? Firstly match loans to return. Some firms plough loans to non performing assets, they repaint buildings, buy executives vehicles and ultimately service already aged machinery. The answer is to identify need areas first. I am alluding to replacing machinery. Next, as a firm replaces, it has to inherit efficiency through the transaction. Train the work foreign the updated mechanism of production. The finance manager should then stop being a data capturer and cost his product well. Many a times it has become synonymous with our locals to say “i am importing t-shirts from china at $1 each and reselling here at $20 each” now there is no background that would justify that. No wonder why most of these dealers are slowly losing business. The role of industry is to supply at the least possible cost. Industry should not become a burden to its customers. That is our Bulawayo problem, we need to have a loyal customer base otherwise people will keep going to Botswana and even as far as Tanzania to get it cheaper.

The next role of our financial manager is to be innovative, if foreign is cheaper and locally the environment does not allow for meaningful production to take place, employ regional partnerships. The city is run by informal traders, so firms can take that market and repackage it as their own. A lot of controversy has arisen from the CSC deal with the Batswana as local players cry foul. What mind boggles me is what justification do our local beef players have in their mark-ups which make our cattle way more expensive than our neighbors? CSC has been innovative in trying to supply cheaper beef but getting it cheaper. I am not a protectionist but I do hope that is the goal of CSC. So if firms such as willsgroove found the going tough, why did they not create synergies with regional players to distribute pottery if their operations were suffering? Maybe i may not well informed as to why all these firms are closing but the few that have fought back have surely greatly inspired me.

If the cost of borrowing is high and what ever else may be a problem, why not locate leakages and switch the innovative gear on.