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Zim dollar expected to stabilize largely next year

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Zim dollar expected to stabilize largely next year. Soaring inflation, coupled with the loss of value have severely eroded consumer purchasing power with manufacturers now expecting a major decline in output this year. The Zimbabwe National Statistical Agency reported on Tuesday that month on month inflation rate in September was 17,72 percent, shedding 0,35 percentage points on the August 2019 rate of 18,07 percent.

Zimbabwe industrial output is expected to take a knock this year — particularly for non-exporting companies — due to a myriad of challenges including a decline in demand of products, foreign currency shortages as well as shorter production time due to long periods of load shedding, business organisations have warned.

Finance and Economic Development Minister Mthuli Ncube in his 2020 Pre-Budget Strategy Paper recently, said the economy is projected to underperform by as much as 3 to -6 percent in 2019. He admitted: “The situation is being worsened by shortages of foreign currency, electricity and fuel, all constraining industry operations.”

However, in 2020, the economy is projected to turn around, building on the success of the ongoing reform initiatives and premised on an improved rainfall season, which should enhance agriculture production and electricity generation. The industry says the rolling power cuts and water shortages have severely affected production, with some coming up with expensive alternatives.

CZI president Mr Henry Ruzvidzo told The Sunday Mail Business last week that the harsh macro-economic environment would result in a major decline in output, especially for non-exporting businesses. “The decline against 2018 performance will be significant,” said Mr Ruzvidzo in an interview. “As companies scale down operations, loss of jobs is inevitable.”

He said “while one solution is to increase local production and reduce imports the opposite is happening” and this was putting more pressure on the limited forex resources. “Our trade balance with regional partners is now tilted in their favour even for the small economies.”

The pace of depreciation of the local currency has largely caused the instability in the macro-environment caused by the recent large injections of liquidity into the market. Salaries and wages have been unable to keep pace with the rising inflation resulting in huge social costs as well as loss of aggregate demand for local products.

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Many workers both in public and private sectors have since declared their incapacity to come to work demanding cost of

living adjustments. Speaking to this publication, president of Confederation of Zimbabwe Retailers, Mr Denford Mutashu, said capacity utilisation has slumped due to prevailing economic challenges.

“What we need as a country is a utilisation at a broader context, harnessing working together between the formal and informal sectors,” said Mr Mutashu. Imports have also been another factor leading to a decline in industrial productivity.

“Firms are encouraged to grow their production with a greater intent of maximising their potential in the export market in order to grow the country’s export earnings and to avert the crippling foreign currency shortages being experienced in the country.”

He added that Government needs to deal with corruption, policy inconsistencies, and access to cheap finance, smuggling of restricted goods and low demand for domestic products, which are an impediment to the growth of the manufacturing sector.

Meanwhile, Mr Mutashu said the Government should consider short term measures to stabilise the prices. This comes as President Mnangagwa warned businesses against relentless price increases, saying the government will be forced to take action.

Hope not lost but . . .

The Zimbabwe dollar is expected to largely stabilise next year before it starts firming against the US dollar on the back of growing confidence in the domestic currency, the UK thinks tank revealed last week.

The local currency would fall to an average $16 against US dollar next year, but would be considerably weaker on the black market, a report by Economic Intelligence Unit (EIU) said. It said the suppression of demand through limited access to the currency would continue to temper depreciation, which “we believe would be much more rapid otherwise”.

According to EIU, the domestic currency would then firm to an average of $10 against the greenback in 2021, and to an average of 6,1 the following year, as inflation moderates, exports increase and the country starts realising more foreign direct investment.

Source – Sunday Mail

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Roland Muchegwa

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