Olivine suspends operations, owes foreign supplies US$11 million

Olivine Industries, the maker of household consumer brands such as Buttercup margarine and Jade soap, has suspended operations after foreign creditors cut off raw material suppliers over a US$11 million debt.

The shutdown of a firm of Olivine’s scale drives home the depth of the foreign currency crisis, adding pressure on President Emmerson Mnangagwa’s administration.

Olivine is 65% owned by Surface Wilmar, and 35% by the Government.

“The company has struggled to restart its manufacturing operations in January 2019 for lack of imported raw materials,” Olivine said in a statement Friday.

“Unfortunately, production during the remainder of 2018 struggled at low capacity due to shortages of raw materials procured through letters of credit established before 30 September 2018 and on foreign supplier credit lines which were last serviced in July 2018. The company currently owes US$11 million to its foreign suppliers who have since cut off supplies until the arrears are paid. The company awaits foreign currency allocations, and is sitting with sufficient RTGS account balances to pay off the foreign credits in full and procure further raw materials.”

Olivine’s move came just a day after the Confederation of Zimbabwe Industries, which represents the bulk of the country’s largest industries, warned that many of its members were down to just a month’s supply of raw materials.

Zimbabwe has been failing to meet its forex requirements, with a backlog for foreign payments now estimated at over US$700 million.

Surface Wilmar, a joint venture between Singapore agribusiness giant Wilmar and Midex Global of India, bought into Olivine Industries in 2015. The investment revived the company, which had virtually collapsed, bringing back household brands that had disappeared from store shelves; Jade, Perfection soap and Olivine baked beans, among others.

However, in September, the company warned that foreign currency shortages had become a serious threat to operations.

Surface Wilmar invested US$15 million when it entered the market in 2015, and had plans to invest a further US$73 million into the country. But its shareholders have had to push back on those plans due to deepening forex shortages, Surface Wilmar said in September.

“However, we are still facing huge challenges in availability of forex and low oilseed production, which is not only pulling down our existing investment, but also quite concerning for our shareholders, both foreign and local. They are discouraged from further investment, as the returns are hampered by insufficient foreign currency allocations to support importation of raw materials and new capital equipment,” the company said then.

Having government as a shareholder in the business has not helped Olivine access forex. According to the company’s statement on Friday, “efforts to engage government especially the shareholder, the Ministry of Finance, have not had any resolution”.

Finance Minister Mthuli Ncube with Surface Wilmar chairman Narottam Somani (left) during a factory tour, Nov 2018

In November last year, on a tour of Surface Wilmar’s Chitungwiza oil factory, Finance Minister Mthuli Ncube said he planned to sell-off part of Government’s stake in Olivine to a private investor to allow the company to raise fresh capital.

At a meeting with youth groups earlier on Friday, Ncube admitted that the forex crisis was keeping investors away and bleeding industry.

“Really the issue at the moment is the shortage of foreign currency, for our corporates. So, for me, the silver bullet is the currency reform; if the corporates can access foreign currency whenever they need to, a lot will change,” he said in Harare. “We are fully aware that if investors cannot take their money out, they are not going to invest in the first place.”

Surface Wilmar employs 450 workers at its Chitungwiza Pure Drop oil factory alone.

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