Simbisa Brands, the country’s biggest fast foods company, is calling out Reserve Bank of Zimbabwe on its auction system, after the firm’s auditors called fowl on its annual accounts.
Accountants Ernst & Young said part of the accounts do not meet standards of reporting in hyperinflation conditions, especially as they relate to the use of the official exchange rate. But Simbisa said the report does not consider the “deficiencies” of the auction, introduced mid-last year.
In its accounts for the year to June, Simbisa said it translated foreign currency monetary assets and liabilities for Zimbabwean operations to Zimbabwe dollars using transactions-based exchange rates. The auditors saw this as not compliant with International Financial Reporting Standards (IFRS). The accountants considered the auction rate to be a “spot rate” compliant with IAS 21, and therefore IFRS.
Simbisa disagrees, and its reasons reflect the frustrations of many companies with RBZ’s auction system, which began running mid-2020.
“A regulatory prerequisite for bidding at the weekly foreign currency auction is that bidders must not have positive foreign currency balances in their foreign currency accounts (FCAs) that are equal to or more than the bid amount. This requirement disqualifies the group’s Zimbabwean operation from bidding because of daily USD sales inflows into its FCAs, which makes the auction rate inaccessible, and therefore fails to meet the accessibility criteria required by IAS 21,” Simbisa explains.
Secondly, the auction is facing delays in delivering forex to companies that do participate, with backlogs as long as 12 weeks.
“The directors do not believe that Simbisa would, in the event that it could participate in the auction, be priorotised ahead of other bidders and get immediate settlement of the foreign currency,” the company says.
The auction is not meeting all forex demand on the market, Simbisa said. “The directors do not believe that Simbisa would, in the event that it did not generate its own foreign currency from sales, meet all its foreign currency needs from the auction.”
Simbisa says forex supply did improve on the market over the past year, but the gap between the official and parallel market exchange rates remains “significantly divergent”.
Multiple exchange rates disrupted pricing by suppliers and affected consumers’ spending habits.
Says Simbisa: “The board would like to urge the government to address the deficiencies in the foreign exchange auction and allow for efficient price discovery and distribution of foreign currency in the economy.”
Simbisa: growth still strong
But the forex crisis, and the impact of COVID-19, did not prevent growth at the company, showing how resilient consumer spending still remains in the face of the economic crisis.
Over the past year, Simbisa opened 13 new outlets in Zimbabwe. COVID-19 restrictions saw the company trading at 33% fewer counter hours than full capacity, but customer counts still grew 8% compared to last year. Average spend – the average amount of money spent by customers at Simbisa – adjusted for inflation, was up 34%. This fed into a 60% growth in revenue.
To counter COVID-19 restrictions on sit-in customers, Simbisa upped deliveries. The number of deliveries increased by 133%.