Zimbabwe industry frets over economic indicators

Zimbabwe industry frets over economic indicators
Published: 06 September 2018
BUSINESS has raised the red flag over the country's ever-deteriorating economic indicators - including rising inflation, soaring prices, worsening foreign currency shortages and continuing retrenchments - which all indicate a gloomy outlook.

This comes as President Emmerson Mnangagwa is looking for a $2 billion bailout from China to stabilise the economy and at a time government's expenditure continues to rise alarmingly, with the country's trade deficit also set to widen beyond the $3 billion mark this year.

John Mufukare, Employers' Confederation of Zimbabwe (Emcoz) executive director, told The Financial Gazette this week that the contracting formal labour market was a sign that all was not well in the economy.

"We need workers and if we are making money there is no reason for employers to retrench," he said, pointing to ongoing retrenchments in the mining sector as exemplifying the level of economic distress in the country which had been worsened by low commodity prices.

"The business environment in Zimbabwe has remained squeezed and hopes were pinned on the successful conclusion of the elections to usher in some level of confidence," Oswell Binha, the CEO Africa Round Table chairman weighed in.

"Many businesses have engaged in processes of right-sizing, as well as stream-lining their operations for survival," Binha said.

"It is, therefore, imperative for both fiscal and monetary authorities to ensure the sector survives to save the few formal jobs the country has," he said, adding that "the new government is encouraged to invest in genuine re-engagement … as a deliberate confidence building strategy".

"Re-engagement opens up avenues for access to cost effective lines of credit, beyond just a seal of approval that Zimbabwe is now good and ready for business," Binha said.

He also said Zimbabwe needed to cut all unnecessary expenditure "to acceptable levels and to ensure fiscal prudence in all its activities".

"If need be, outlaw excessive government borrowing in excess of three percent of gross domestic product (GDP)," Binha said - adding that spending 90 percent of its revenue on employment costs as the government was doing was unsustainable, and would also "continue to erode the little confidence left".

Tony Hawkins, a University of Zimbabwe economics professor, said as a result of all the current issues, "there is no way Zimbabwe can achieve its economic targets, including a middle income status by 2030".

"There is no way we will grow at the projected double digit rates. Treasury published documents at the weekend which show a 12 percent deficit to GDP. This is about four times what (Finance minister Patrick) Chinamasa planned," he said.

Latest official figures show that Harare's expenditure in the first half of this ballooned to $4 billion - against a target of $2,5 billion.

On the other hand, the country's official annual inflation rate quickened to 4,29 percent in July, from 2,9 percent in June - the highest since 2012.

To this end, Chris Mugaga - the Zimbabwe National Chamber of Commerce chief executive - said Zimbabwe's inflation rate was way higher than the touted official figure.

"Zimbabwe's inflation is already beyond the 4,29 percent that Zimstat speaks of. Real feel inflation is currently ranging around 25 percent at the moment," the trained economist said.

"We are going to breach the official figures by over 100 percent," Mugaga said.

According to international inflation expert, Steve Hanke of the Cato Institute, Zimbabwe's inflation rate has in fact already breached 51 percent.

In the meantime, the country has been experiencing severe foreign currency challenges, with some companies accessing their foreign currency needs at parallel market premiums of up to 80 percent.

At the same time, global think-tank NKC has also raised red a flag over the country's basic commodity-pricing trends.

"Price pressures will continue to go up … The World Bank and IMF are concerned about the bond notes losing their value against the US dollar, thereby fuelling inflation," Chantelle Matthee, the Oxford Economics outfit's economist said.

John Robertson, another economist, also warned that the government's propensity to spend above its means, by shelling out treasury bills, was also driving inflationary pressures.

"Government's budget deficit is the most damaging influence now, but that is on the back of much more serious damage done over many years, affecting industrial output and export revenues," he said.

Isaac Kwesu, the Zimbabwean Chamber of Mines (CoM)'s chief executive, said it was prudent for government to address shortages of foreign currency and the general rise in the cost of inputs to allow businesses to thrive.

"Shortages and delays in accessing foreign currency to import critical inputs and supplies is affecting production," he said.

"The inability to restock critical inputs such as machinery spares, chemicals and explosives will negatively impact on production in the short term. Discussion with relevant authorities is ongoing to secure a lasting solution to this challenge," Kwesu said.

While critical capital goods are listed as a priority on its import priority list, the Reserve Bank of Zimbabwe (RBZ) has struggled to allocate enough foreign currency for critical imports due to low reserves.

Lead time for foreign currency processing can also take between three to 12 weeks, the Confederation of Zimbabwe Industries (CZI) said in its 2017 manufacturing sector survey.

Such lags tend to hamper production as companies have to lower output targets, which affects overall business performance.

Like other sectors, mining producers are forced to pay more than the fair value of inputs due to the multiple exchange rate system - which affects the prices of imported inputs.

"The operation of the multiple exchange rate system has resulted in multiple prices of inputs, with those paid using RTGS almost double those paid in cash," the CoM boss said.

"Given that most of the producers get a majority of their revenue in RTGS, this obviously impacts severely on costs and the viability of mining operations," Kwesu said.

Sifelani Jabangwe, the CZI president, said while retrenchments may be well pronounced in the mining sector, the manufacturing sector was not currently under pressure to lay off workers.

"There is pressure to manufacture and meet demand, even though there are selected cases where production is halted for a week or two, waiting for demand," he told The Financial Gazette.

Mazowe Gold Fields, the parent company of Mazowe Mine, said recently that it was suspending operations for the next two years to allow for refurbishments.

"Alongside these changes there is a rationalisation of labour predominantly due to the fact that underground labour is not required during this period. Hence, those positions not directly involved in current production and underground re-development will become redundant," it said.

"These measures have been implemented in order to reduce costs and increase profitability in the short term, and ensure the viability of the mine in the long-term. On resumption of underground operations, priority will be given to re-employing the former employees," the company said.

In the meantime, Fitch group think-tank, BMI, says that Zimbabwe's economy will likely sink back into recession in 2018 - as the ongoing liquidity crisis continues to weigh on production in import-dependent sectors.

"The lack of monetary liquidity in Zimbabwe will continue to undermine prospects for economic growth over 2018," it said recently.
- fingaz
Tags: industry,

Comments

Latest News

Latest Published Reports

Latest jobs