Cash puts brakes on Olivine projects

08 Jan, 2017 - 00:01 0 Views
Cash puts brakes on Olivine projects

The Sunday Mail

Perfection and Dolphin soaps in the offing

Livingstone Marufu —
OLIVINE Industries, which is pinning its hopes on the current import restrictions to relaunch itself, is groaning from the cash and foreign currency shortages that are slowing its planned expansion projects.

A biting cash crunch is affecting consumer demand and the ability to acquire new capital equipment.

Soaring imports and progressively declining exports have resulted in foreign currency shortages that are making it increasingly difficult for manufacturing companies to fund critical economic activities.

Although industry is being prioritised under the current forex rationing exercise that is being overseen by the Reserve Bank of Zimbabwe (RBZ), Olivine believes that delays in processing foreign payments are disrupting its recapitalisaton effort.

So far, the fast-moving consumer goods producer, which was acquired by Singapore-based Wilmar International in 2015, has invested more than US$15 million in its margarine processing technology. But there have been difficulties in sourcing raw materials for the soap plant.

Investment projects
Olivine board chairman Mr Peter Madara believes that bottlenecks in accessing foreign currency to make offshore payments will most likely delay investment into the planned projects, which are expected to take three years (2016-2018).

The company re-introduced established brands such as Buttercup margarine and Jade bathing soap to local supermarket shelves last year after a two-year absence.

There are also plans to reintroduce Perfection ad Dolphin laundry soaps by September 2017.

“The liquidity challenges also impact on the pace of implementation of capital expenditure projects which are expected to take three years (2016- 2018). The fiscal constraints facing the manufacturing companies in Zimbabwe in making payments to external suppliers of crude oil raw material inputs into local production persist.

“The foreign currency challenge extends beyond just the crude oil imports but also to other imported raw materials into local production. Like its counterparts, Olivine faces this constraint,” said Mr Madara.

He, however, noted that the central bank was pulling all the stops to ensure that there is enough foreign currency to meet demand from industry.

Market watchers say the RBZ needs to continue to allocate foreign currency, especially to local oil manufacturers, in order to enable them to continue refining, deodorising and packaging edible oil.

Olive Industries is presently supplying its iconic Olivine cooking oil brand to both the wholesale and retail market. There already exists a niche market for the time-tested products, but supply is struggling to match demand.

New products in the offing
According to Mr Madara, demand and the availability of raw materials are presently determining capacity utilisation, which, however, differs depending on product category.

Olivine began implementing a three-phased margarine processing technology project in 2016.

“Phase One was completed in June 2016 and the supply of locally produced Buttercup Margarine began end of June 2016. Phases Two and Three will be implemented this year and next year respectively.

“The investment in the laundry soap and toilet soap plants for production of laundry and bath soaps remain in progress.

“While Jade bath soap production is currently underway, the production of laundry soap will start upon plant commissioning expected by the third quarter of this year,” explained Mr Madara.

It is expected that the new margarine plant will help boost production efficiencies and improve production capacity to 80 percent from the current 20 percent.

Some of the equipment that made up the old margarine plant which dates back to 1947, 16 years after the company was established — is blamed for the inefficient production process of the product, which resulted in the firm losing ground to its competitors.

It is believed that the success of Olivine on the local market will ultimately define its future growth in the region. Encouragingly, the company’s cooking oil products have managed to claim space in major South African retailers such as Shoprite, Pick n Pay, Spar and Massmart. Olivine was the target of major acquisitive international groups after Independence in 1980.

It is unsurprising therefore that the company was acquired by American food processing group HJ Heinz in 1982.

The Pennsylvania headquartered business subsequently increased its investment four years later.

But the souring relations between the United States government and Zimbabwe after 2000, which resulted in Washington imposing sanctions through the Zimbabwe Democracy and Economic Recovery Act (Zidera) in 2000, forced the company to pull out. The sanctions effectively outlawed American companies from dealing with firms linked to the local Government.

Olivine, which was majority owned by Government through a 49,3 percent controlled by the Ministry of Finance and Economic Development and a 1,3 percent stake held by the Industrial Development Corporation (IDC) — a state owned enterprise — was naturally affected.

IDC was also put under the sanctions watch list.
From the time Heinz divested from Zimbabwe in 2007 up until 2014, Olivine has been struggling to court a suitor. It however got relief last year when it was removed from the blacklist. Wilmar International, which also has interests in Chitungwiza-based Surface Investments the biggest multi-oilseed processing plant in Zimbabwe swooped on the business in 2015.

It was widely expected at the time that Wilmar would inject US$32,2 million into the business, of which US$25 million was supposed to address part of a debt estimated at US$34 million.

Apart from edible oil, bath and laundry soap, Olivine also produces bakers’ fats, candles, soya meal and cotton seed meal.

Its unit, Chegutu Canners, also manufactures canned beans, tomato and fruit products. The new investors had earlier envisaged that they will be able to make the company profitable by the end of last year.

There are still plans to push the company’s brands to reclaim their market share by the end of this year.

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