e-spaces

By Tom Robbins

Cape Town – Lifting foreign exchange restrictions on Zimbabwean retailers would enable Massmart to stock up its two big-box Makro stores there, chief executive Grant Pattison said on Friday.

Retailers and analysts agreed that lifting import restrictions on raw materials and finished goods, thus filling up store shelves again, would be the first sign that a political deal was delivering a real improvement in the retail environment.

Despite the erosion of Zimbabwean consumer purchasing power by inflation, currently at more than 11 million percent, supply cannot meet demand.

Store expansion in the shrinking economy was not on the agenda for now, participants said last week.

Pattison said Massmart would be able to normalise stock levels within months at its stores, which were still
breaking even but selling significantly less than the total R500 million in annual sales achieved by outlets of a similar size in South Africa.

But to gain better access to foreign exchange, multilateral finance organisations would likely have to provide financial support to the country, he said.

Pattison said his initial thoughts were that any political settlement in Zimbabwe would improve the business climate there, but by how much remained an unanswered question.

“The country has in effect had no government since the election and any government will be better.”

After President Robert Mugabe’s ruling party lost control of parliament in the March election, some analysts
had high hopes that donor countries would rapidly offer significant financial assistance.

This would alleviate rising government debt and ease foreign exchange restrictions.

Similarly, there were hopes that a presidency under opposition leader Morgan Tsvangirai would reduce government spending and that the two moves would curb inflation.

But Investec Africa Fund portfolio manager Roelof Horne told Reuters that last week’s power sharing deal would likely result in less Western generosity and less enthusiastic cuts in government spending than a complete transfer of power.

Nothando Ndebele, a portfolio manager at Renaissance Specialist Fund Managers, said the first South African retailers to benefit from a deal leading to the economy’s stabilisation would be those selling basic necessities, such as Pick n Pay, Shoprite and Massmart.

But she cautioned that even if foreign exchange were to become more freely available to retailers and allow them to stock up stores at normal levels again, it would take time for spending power and consumer confidence to return.

Zimbabwean authorities would have to take harsh measures to curb rampant inflation, such as raising interest rates and cutting back on government spending.

“This could result in more consumer pain in the short term,” said Ndebele.

An immediate opportunity for grocery retailers would be to take back market share from the black market, which had mushroomed as a result of foreign exchange limitations. If the recovery were sustained, these grocers would be able to use existing footholds to expand, followed by an improvement in selling discretionary goods such as clothing.

Pep commercial director Louis Brand agreed that the biggest challenge because of foreign exchange restrictions was to keep shelves stocked, but he said Pep would remain cautious until “one sees the agreement on paper”.

Pep has a 40 percent stake in 200-store clothing retailer Power Sales, which made a “small” profit.