Beverages manufacturer, Schweppes Zimbabwe Limited, has stopped producing its flagship cordial drink, Mazoe Orange Crush, after The Coca-Cola Company which supplies critical ingredients of the product, cut off supplies due to an estimated US$10m debt.
Mazoe Orange Crush is manufactured and distributed by Schweppes Zimbabwe under licence from Coca-Cola whose other products bottled by Schweppes are Minute Maid juices, Bonaqua still water, and Schweppes still water.
Business Times can report that Schweppes Zimbabwe has not been manufacturing Mazoe Orange Crush for the past three weeks. It is understood that the US$10m debt emanated from concentrates for cordials supplied by the world’s leading soft drink manufacturer. This has seen Coca-Cola stopping supplies until the debt is settled.
This could only be the beginning as international suppliers, who are owed about US$1.2bn, begin to press for the settlement of legacy debts. Several local companies have been struggling to continue getting supplies of critical raw materials on credit from offshore suppliers due to the non-payment of legacy debts, also known as blocked funds.
Off shore suppliers have threatened to cut supplies to Zimbabwean firms, and the majority of them are now demanding pre-payments until the legacy debts have been settled. Charles Msipa, Schweppes managing director, yesterday confirmed the debt owed to Coca-Cola.
“Yes, there is an amount due and need to be paid so that the release of the concentrate can be done,” Msipa told Business Times. “It’s a forex issue which is causing frustration. Part of the resolution is that we are working with local banks and the Reserve Bank of Zimbabwe because that amount due, though it is less than US$10m, is legacy debt accrued over three years. So, this is part of the blocked funds.”
Alex Makamure, Delta company secretary, told Business Times that the problem was caused by legacy debts and was also administrative.
“All companies are buying imported raw materials on pre-paid basis due to legacy debts,” Makamure said. “The delay in the purchase of ingredients for Mazoe Orange Crush arose from administrative issues on the lodging and settlement of a letter of credit.”
As first reported by Business Times last week, the RBZ revealed that it would this month issue financial instruments worth about US$1.2bn to local companies to balance their books. The RBZ would then next year start paying the international suppliers owed. The viability of several companies has been under serious threat as a result of legacy debts, denominated in foreign currency following far-reaching currency reforms by the government in June this year.
The debt burden has spooked business and companies, which are now finding it difficult to borrow from offshore creditors and financiers.
Most lenders across the world have now become risk aversed when dealing with Zimbabwean companies. The debts have continued to weaken companies’ balance sheets and remain a deterrent to their chances of courting foreign investors.
Most investors demand clean balance sheets before extending the much-needed fresh international capital. Schweppes, which recently introduced a tomato business in Norton, is said to be struggling due to a plethora of challenges, including the influx of cheap imported products.
The challenges at the Norton factory, the company said, was delaying the prospects of opening another plant at Esigodini in the Matabeleland South Province. Schweppes is planning to scale up exports to generate foreign currency. The company has been exporting to Zambia, Namibia, Botswana, South Africa and Mozambique, but these have been limited.
Last month, Schweppes commissioned a US$2m one-megawatt solar generating plant in Harare. The project is the biggest rooftop solar generation plant in Sub-Saharan Africa, outside South Africa. The solar plant will see the company cutting its electricity bill by about 67%.
Speaking at the launch, Msipa said operating on back-up generator had driven costs to over 40% of the group’s total expenses, from 25%. The company took five months to complete the project and expects the plant to play an important role in the provision of constant electricity in the wake of the current power challenges.
Electricity consumers are subjected to crippling rolling blackouts which lasts up to 18 hours daily, resulting in reduced production. Capacity utilisation for the manufacturing sector is below 40%.
Schweppes Zimbabwe also has significant shareholding in Beit Bridge Juicing, which supplies about 50% of Schweppes’ requirements. Most citrus farmers prefer to export their product where they fetch higher prices than what they get at Schweppes.
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