RISING inflation and a 5 percent increase in excise taxes have hammered the tobacco cigarette business of BAT Zimbabwe, which is now anticipating an increase in production costs as it weighs the impact of Russia’s invasion of Ukraine.
With consumer spending power in Zimbabwe declining as a result of cost pressures emanating from elevated inflation, BAT Zimbabwe recorded flat tobacco cigarette sales for the quarter period to the end of March. Retailers have recorded a wave of price increases in the past week as the parallel market exchange rate expanded.
“The company’s volumes from sale of cigarettes were relatively flat as compared to the same period last year on the backdrop of shrinkage of consumer disposable income,” BAT Zimbabwe chairperson Lovemore Manatsa said yesterday.
Tobacco is a major economic sustainer for Zimbabwe through exports that rake in much-needed but scarce foreign currency. For BAT, the quarter period to the end of March has been volatile due to the trading environment and shifts in the taxation regime for cigarettes.
“The trading environment for the three months ended March 31, 2022 was characterised by a significant increase in inflation and exchange rate volatility. Additionally, the cigarette excise ad valorem regime was changed from 20 percent to 25 percent with effect from January 1, 2022,” said Manatsa.
However, BAT Zimbabwe recorded overall volume growth compared to the contrasting period last year “mainly attributable to increased export of cut rag tobacco and leaf” products.
Value brands helped cut the loss of cigarette volumes as they were significantly up on the prior year period.
“Export volumes of leaf and cut rag tobacco were up by 163 percent in the three-month period under review compared to prior year due to the increased demand of leaf from our export markets.”
Net turnover resultantly strengthened by 147 percent, underpinned by a “pricing review done” during the period.
BAT Zimbabwe is now monitoring the conflict and trade disruption occasioned by Russia’s invasion of Ukraine to determine the “potential impact” on the Zimbabwean business. Other local and global companies have been impaired by supply chain, export and consumption disruptions emanating from the crisis.
In the short-term outlook, the company “anticipates an increase in the cost of production”. However, it “remains hopeful that fiscal and monetary policy reforms will be employed to eliminate the market challenges currently impacting the economic environment”.
As industry demands that the government officially dollarise the economy, President Emerson Mnangagwa says he will introduce a raft of measures to protect the fast-plunging Zimdollar.
The International Monetary Fund, however, says the popular “parallel market for foreign exchange can weigh on growth” through distortions to investment, “encouraging rent seeking, and adding to uncertainty” within the economy and policy frameworks.
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