Proplastics: Demand in the economy is growing, but forex auction holding us back

Proplastics factory: Despite some expansion, companies under stress due to volatility

Latest results from Proplastics, one of Zimbabwe’s biggest manufacturers of the plastic pipes used in construction, reflects the sentiment across much of industry; a mixture of hope and frustration.  

In its financial report for the six months to June, Proplastics saw sales volumes growing by 71%. Exports grew sharply, up 240%, as the company recovered from last year’s COVID-19 restrictions.  

The company makes products such as the PVC pipes used in construction as well as borehole casings, and is benefitting from growing demand from infrastructure and housing. But there is a fly in the ointment; the company could be doing more, were it not for Reserve Bank of Zimbabwe’s foreign currency system.  

A “significant portion” of the company’s sales was in foreign currency, but this was recorded at the official exchange rate, which is trading at a big discount to the parallel market rate. Delays by RBZ in allocating forex from the auction has left Proplastics unable to pay its suppliers in time. This means that the company cannot take full advantage of what it sees as an “improvement” in the economy.  

Says chairman Greg Sebborn: “With the business environment improving, and plans put in place to ensure consistent supply of raw materials, it is expected that the demand for the group’s products will continue to firm, and product supply gaps minimised into the second half of the year.” 

He warns that meeting this growing demand depends on a more efficient forex auction.  

“Despite sound supplier relationships and arrangements, raw material acquisition to meet rising demand will depend on foreign currency availability through the auction system. In addition, further delays in settling allocated amounts will result in the worsening of the group’s foreign currency exposure,” Sebborn says.  

Forex backlog

By the end of June, Proplastics had a backlog of almost two months on its forex allotments. Arrears to foreign creditors stood at US$1.7 million, and “the position exposes the group to huge exchange rate risks as well as negative impact on supplier relations”.  

The company expects a new production line at the end of the year. The new PVC 500mm extrusion line is meant to meet firming demand for the larger diameter PVC pipes used in bigger construction projects. It will be commissioned in the first quarter of 2022. 

In August, RBZ said the auction had a US$175 million backlog. Companies face delays of up to nine weeks, according to the Confederation of Zimbabwe Industries. The Monetary Policy Committee, at its last meeting in August, said the Bank must clear the backlog in a month and stick to paying winning auction bidders within two weeks.