By financial securities
The 2019/20 period has been difficult for Zimbabwe due to concerns over severe drought, Cyclone Idai and important but necessary economic reforms.
2020 has been hit by a pandemic.
According to the World Bank, the pandemic resulted in an 8% reduction in national GDP in 2020.
This had a serious impact on livelihoods and added 1.3 million Zimbabweans to the extremely poor.
The World Bank estimates that the number of very poor people has reached 7.9 million, or nearly 49% of the population.
In July 2020, the proportion of rural households would have reached 37% without food all day, due to rising food prices and declining disposable income.
Food insecurity has been exacerbated by inadequate coverage of related social protection programs, with less than a quarter of the poorest households receiving food assistance as of June 2020, according to the Zimbabwe Bureau of Statistics.
In the face of all these adversities over the past two years, the medium-term outlook shows the outcome of a modest economic recovery in 2021 and even stronger growth in 2022.
The recovery is uncertain due to the downside risks associated with the pandemic at regional and global levels.
GDP growth is expected to reach 3.9% in 2021 (World Bank data), building on agricultural recovery, improved power generation from replenished reservoirs and slower-than-expected inflation .
Uncertainty over the credibility of the potential third and fourth waves of the pandemic and the possible timing of a widespread vaccine deployment in Zimbabwe and its major trading partners will dampen external demand.
In addition, domestic demand could remain constrained in 2021, as inflation remains high and the continued use of export maintenance policies limit productivity and competitiveness.
The economy is expected to accelerate in 2022 as the adverse effects of the pandemic abate due to increased global vaccine deployments and the results of strategic national development policies against the backdrop of a growth trajectory economic growth.
The projected recovery relies heavily on prudent fiscal and monetary policy to take advantage of macroeconomic stability.
The budget balance is expected to be in the red in 2021, but remains within sustainable limits.
Incomes are expected to gradually recover as a percentage of GDP due to post-pandemic easing.
The regional ripple effect of the pandemic on trade taxes, as well as very low corporate and income taxes due to weak trade flows, will continue in the medium term.
Effective management of public finances depends on permanent measures to ensure strict expenditure control. Public wages in particular provide sufficient resources at the same time to provide basic services.
Conservative monetary policy should curb inflation and stabilize prices over the medium term.
With the right policy, prices could stabilize by 2022 with a much lower inflation rate of around 22%.
The economy is expected to recover during the quarter, driven by a good harvest in the agricultural sector and soaring commodity prices.
The Treasury forecasts a recovery of the economy of 7.8%. This is a fairly optimistic forecast compared to the World Bank forecast of 3.9%.
The economy has emerged from a two-year economic contraction and the economic environment is characterized by a shortage of foreign exchange, hyperinflation and long-term drought.
The outbreak of the Covid-19 pandemic in early 2020 has exacerbated economic challenges that have negatively impacted the country’s economic recovery.
The government’s fiscal and financial stabilization efforts have succeeded in slowing inflation, giving hope that the economy can prosper.
The imposition of a blockade to curb the spread of the coronavirus has disrupted the supply chain and operational restrictions have negatively impacted all sectors of the economy.
Supply shocks are subsidies associated with the relaxation of blockade measures, but demand-side shocks continue to persist as the pandemic continues.
The country receives above normal rainfall during the 2020/21 agricultural season and expects better harvests.
The government has played a role in mobilizing inputs through various programs to increase production.
Heavy rains in the 2020/21 season signal a better economic outlook for the year, with the country expecting 2.1 million tonnes, the biggest harvest since the land reform program.
Better harvests reduce the pressure on grain imports and save an estimated US $ 300 million that the country spends on grain imports each year.
Grain imports are banned as the country is well positioned to meet annual demand, with deliveries continuing to enter the Grain Sales Commission.
Secondary sales of soybeans and corn are illegal, and only authorized buyers are allowed to purchase strategic grains.
Hailed as one of the country’s main sources of foreign exchange, tobacco marketing currently faces the challenge of being dominated by foreign-funded entrepreneurs.
As of June 30, the industry had reached US $ 487 million from tobacco sales, according to TIMB data.
Of the industry’s revenue, US $ 455 million was generated by the entrepreneur, while the tobacco auction house only made US $ 32 million.
This has raised concerns about the collapse of the tobacco auction house in the country.
The financing of local tobacco cultivation is also envisaged, but the lack of guarantees for many farmers remains a problem limiting access to financing from other actors.
This year’s good harvest will enhance national food security, as dependence on food aid has continued to grow in rural and urban areas.
Whether sector performance is really important in stimulating economic growth remains a very controversial question, as sector performance limits the spillover effect of the economy on other sectors. ..
Spending increases as the government continues to provide subsidies and free inputs to the sector.
The mining sector is one of the main anchor points of the Zimbabwean economy.
However, we continue to face challenges that hamper our contribution to economic recovery.
The government has a sector
US $ 12 billion by 2023.
While this is achievable, there are many obstacles in this industry that need to be overcome before the dream can come true.
Foreign investment remains limited at the national level due to regulatory divergences and excess.
There are many policy cuts and changes that are not good precursors for sectors that depend on large-scale long-term capital investments in the years before production begins.
The country uses vast mineral resources, but has not been studied because it limits production below its potential. Mining companies continue to face the challenge of financing projects, which is a commercial limitation.
Smuggling remains a concern for gold mining given its high level of informality.
It is estimated that smuggling gold costs the country at least US $ 100 million per month.
Central banks have introduced various measures to combat smuggling, but the problem continues to arise and some industry experts have stressed the need to liberalize the sector.
Apex Bank is reportedly eagerly awaiting the formalization of artisanal miners in the gold mining sector as a measure to curb smuggling and protect the environment.
Artisanal miners associate formalization with high compliance costs, so authorities need to relax this offer to prevent smuggling.
Commodity prices remain high in the international market as production continues to increase with the easing of lockdowns and a slow return to normal as major manufacturing countries succeed in their vaccination programs. ..
Gold prices continue to soar amid fears of inflation in countries like the United States and uncertainties posed by pandemics where new varieties continue to be discovered.
The manufacturing industry is said to have improved its utilization rate from 36.4% to 47% in 2020.
The utilization rate by the Zimbabwe Federation of Industry is expected to increase to 61% this year.
The sector has benefited from better access to foreign currencies, macroeconomic stability and a good harvest since the introduction of the auction system in June 2020.
The manufacturing industry suffers from fierce competition from cheap imported products.
The country risks an upsurge in infections, which will lead to tighter blockade restrictions.
This negatively impacts the supply chain, reduces revenue streams, and affects aggregate demand.
Given the uncertainties posed by the current pandemic, we believe that the utilization of manufacturing capacity should continue to be reduced.
According to the World Bank, domestic demand is expected to remain weak due to low incomes.
The limited flow of foreign direct investment (FDI), influenced by policies to maintain exports and other factors, is expected to keep productivity and competitiveness low in some sectors of the economy.
Over the past two years, the country has suffered from hyperinflation and the extreme depreciation of local currencies.
This triggered tight controls on money supply and financial regulation, leading to slowing inflation and stable exchange rates.
Inflationary pressures were observed in the first quarter of this year due to tariff adjustments by some government agencies.
However, inflation is expected to continue to decline thanks to prudent fiscal and financial controls, stabilizing exchange rates and improving farming seasons to stabilize food prices.
To keep inflation low and stable, the RBZ must continue to limit the growth of the money supply, primarily by avoiding financial finance and all quasi-fiscal activities.
- Vincent Securities as a securities company registered in Zimbabwe