Firms ride on price hikes to make profits

30 Mar, 2020 - 00:03 0 Views
Firms ride on price hikes to make profits

The Chronicle

Oliver Kazunga, Senior Business Reporter
THE private sector is taking advantage of free market principles adopted by Government to increase prices willy-nilly with several listed companies posting profits and declaring dividends despite the challenging operating environment, economic analysts have said.

While price escalation persists across the economy, consumers continue to bear the brunt of loss of buying power as their earnings are eroded within a short space of time. The trend has escalated tensions between workers and employers as business owners are always under pressure to review earnings, which always chase endless price increases.

Amid this dilemma, many consumers are wondering what the benefits of a free market economy are, as this is being taken advantage of by corporates in order to make profits.

In separate interviews yesterday, analysts suggested that the liberal market approach adopted by the Second Republic was being abused. They noted that while there has been little or no Government control in the market, the determination of pricing of goods the market forces has become problematic as those bent on profiteering often get away with it.

A closer analysis of latest financial reports from Zimbabwe Stock Exchange (ZSE) listed companies, indicates that some firms continue to make huge profits at a time when the rest of the economy is subdued with disposable incomes also on the lower side.

Recent financial results for the half year ended December 31, 2019 indicate profitability and declaration of dividends. For instance, Innscor Africa Limited group in its abridged financial results for six months ended December 31, 2019, posted a profit before tax of $296,14 million, which was 371 percent ahead of the comparative year. During the period under review, the board declared an interim dividend of $13,73 per share payable in respect of all ordinary shares of the company.

While listed wine and spirit maker, African Distillers (Afdis) total volumes for the six months ended December 31, 2019 dropped by 35 percent due to reduced consumer spending, its revenue rose 25 percent to $223 million on replacement cost pricing. Similarly, National Foods declared an interim dividend of $86,47 per share payable in respect of all ordinary shares in the company.

“While the prevailing economic environment is extremely harsh for business, it should be noted that decisions to declare and pay dividends is a function of two things, that is, the level of profit and funds available in a company bank accounts,” financial economist, Mr George Nhepera, said.

“Currently many companies in this free market economy adopted by the current Government are maximising on revenues and reducing on costs, hence are profitable and with good balance sheets to absorb payments of dividends.”

Another analyst, Mr Peter Mhaka, said the liberal market approach empowers companies to charge prices they deem necessary in the market without Government interference. This has created more revenue to the businesses as costs such as labour and utilities were trailing behind, he said.

“The Second Republic has shifted away from the conservative approach. As a result, prices of goods and services on the market are now being determined by market forces with little or no Government intervention at all and once this happens, it means more revenues for companies hence profitability allowing businesses to declare dividends,” he said.

Economist, Ms Grace Nyoni, concurred saying that what was adding to company profitability was because companies were able to contain wage adjustments, which otherwise would put pressure on the entities’ balance sheets. — @okazunga

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