Less credit, less buyers: Zimplow HY earnings show downside of tight monetary policy on businesses

Zimplow's Mealie Brand sells farm implements, but demand under pressure

Results from Zimplow, the country’s biggest supplier of farm and construction equipment, show the impact that government’s move to fight inflation by draining the market of liquidity has had on some businesses.

Zimplow performed strongly last year as it benefitted from strong demand for farm equipment. But after a temporary ban on lending, and a hike in interest rates to 200%, farmers are borrowing less, and therefore buying less equipment for their operations, Zimplow reports.

“The measures to reduce money supply, such as the suspension of lending in May dampened demand as most agricultural contractors decided to suspend extension of credit to the out-grower schemes in agriculture. In addition, the interest rate spike that followed discouraged bank borrowings which the group has traditionally leveraged on to address the increased appetite for cash given the long working capital cycles,” Zimplow says in its latest results for the six months to June.

The Grain Marketing Board’s low producer prices discouraged farmers, who already suffered weak harvests in the 2021-2022 season. Volumes of implements such as animal-drawn ploughs fell by 26% while spares grew 35%, because farmers used what little income they were left with to repair equipment instead of buying new tools.

Zimplow’s earthmoving equipment supplier Barzem had a good year in 2021 as the government increased spending on infrastructure and mines expanded operations. But payment delays to contractors have hurt Barzem.

“On the mining and infrastructure segment, the delay in settling road contractors remain a bottleneck in the spending patterns of contractors both on fleet maintenance and replacement,” Zimplow says.

Barzem had a tough half-year. It faced delays in the remittance of foreign payments via RBZ’s auction system “causing parts and equipment orders to be delayed or cancelled”. Barzem’s decades-old relationship with Caterpillar also ended, and the company is looking for a new supplier.

Farmec, the Zimplow unit that sells tractors, however had a strong volume performance with tractors at 22% ahead of prior year.

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