High interest rates choking Zimbabwe currency borrowing

Listed clothing retailer, Edgars Stores Limited, has reported a resilient performance for the half-year period ending July 7, 2024, despite the ongoing economic setbacks and high interest rates that continue to burden local currency debtors.

The company's half-year report revealed a significant growth in its US dollar retail debtors' book, which closed at USD$10.4 million, marking a 25.3% increase compared to the same period last year. However, the retailer highlighted the strain that high interest rates on the Zimbabwean dollar (ZWL) have placed on local currency borrowing, with the ZWL debtors' book surging to ZWL$7.5 million, a massive 1154.3% increase from the prior half-year.

"Whilst the ZWL retail debtors' book closed the half year at ZWL$7.5 million, a 1154.3% increase on the prior half-year, the skew reflects the growing dollarisation in the market and the impact of high ZWL interest rates, discouraging borrowings in local currency," the company noted.

The increase in US dollar-denominated accounts was notable, with active US$ accounts rising to 82,000, up from 77,000 in the prior half-year. This was driven by new account openings and initiatives to convert existing accounts to US dollars.

Despite the growth in US dollar-based transactions, Edgars faced mounting challenges, including reduced disposable incomes among Zimbabweans, which affected consumer spending on non-essential goods like clothing. As a result, total units sold during the period declined by 22.4%, from 1.09 million units to 0.85 million units. However, revenue decline was contained at 15.4%, with total revenue amounting to USD16.1 million, down from USD19.0 million in the same period last year.

The company's retail merchandise revenue also saw a decline, falling 12.8% year-on-year to USD13.2 million. A shift towards ZWL credit sales was evident, with ZWL credit sales contributing 93.1% of total ZWL sales, a sharp increase from 51.2% in 2023. Meanwhile, USD credit sales made up 73% of the total USD sales, slightly up from 71% in the prior year.

Despite the economic headwinds, Edgars continues to focus on expansion, with the opening of new stores aimed at strengthening its market presence. During the period, the company launched a new Edgars Store at Ascot Shopping Centre in Bulawayo and a Jet Store in Harare at Hogerty Hill Mall. Additionally, three Express Stores catering to the low-income market segment were opened, with plans for five more before the end of the year.

"The business will strengthen its store power back-up capabilities to safeguard customer experiences and contain generator costs in light of projected reduced electricity availability in the outlook period," Edgars said in its report.

The company remains optimistic about its growth prospects despite the tough economic environment and is committed to providing accessible and affordable retail options for Zimbabwean consumers.