Rapid dollarization affects business for GB Holdings

Rubber and Chemicals Specialist, General Bettings (Pvt) Ltd (GB Holdings), has said rapid dollarization in the economy and the consequent basing of local costs on unofficial rates further reduced profitability when compared with same period prior year.

In its latest trading update, the group described the environment they operated in with the delayed disbursement of approved auction bids threatened the relative stability of the exchange rate and general price levels, a strong parallel rate base, COVID 19 pandemic in the quarter persisted, and the violent riots in South Africa and the subsequent cyber attack.

“Further, the enactment of SI 127 of 2021 had the inevitable effect of constrained pricing of output while input costs had a parallel rate base. This anomaly effectively rendered local products uncompetitive against imports thereby negating the fragile recovery since beginning of the year”.

“The impact of COVID 19 pandemic in the quarter persisted, while the violent riots in South Africa and the subsequent cyber-attack all conspired in the disruption of logistical flows of raw materials resulting in reduced consumption of the company’s products,” reads the update.

For the period under review, margins were under severe pressure due to the strengthening of the rand against the United States dollar which resulted in increased raw materials costs.

However, rubber and chemicals’ volumes for both divisions were 31 % and 48 % ahead of same period prior year for the chemicals and rubber division respectively with both divisions operating profitably.

The second republic regime came with the re-introduction of the domestic currency. However, according to analysts the local currency got on a bad start, having crumbled dismally against the USD to date.

As a result, the economy is relying mostly on the unofficial rate to get USD which is currently way higher than the official rate.

Currently the unofficial rate spread is between 135 and 195 while the official rate is at 98, zimpricecheck.com reveals.

This has yielded inflationary outcomes in the economy, eroding incomes as well as compromising company confidence.

GB Holdings is expecting to operate profitably for the rest of the year although at reduced levels when compared with prior year and budget.

“The Chemicals division is expected to recover from the effect of lockdown measures which shut off its traditional markets. The rubber division is expected to maintain its recovery path and its out turn will depend on improved logistical flow of raw materials following the intermittent disruptions at the raw materials suppliers’ factories,” reads the update.

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