Business hopes for 10% GDP expansion

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WITH Zimbabwe’s high inflation tumbling, business confidence continues to surge — amid industry hopes that the country’s recovering economy may even grow by as much as 10 percent this year.
This comes after annual inflation for April 2021 came in at 194 percent, a marked decline from the 838 percent recorded in July last year. Even more heartening, monthly inflation fell to 1,58 percent — from March’s 2,25 percent.

Speaking to The Financial Gazette this week, a bullish chairman of the Confederation of Zimbabwe Industries’ economics and banking committee, Jimmy Psillos, said the dropping inflation was “very good news” that would enhance local production.

“When inflation is high, it sucks working capital out of businesses. Stable exchange rates and stable inflation allow businesses to plan, to offer credit and to grow.
“If inflation continues to fall, then I believe that the 7,1 percent growth prediction is in fact low, and we could go as high as 10 percent.
“At the same time, there are significant downside risks. Confidence in the (local) currency remains low, and we have got a huge maize harvest to pay for. Managing this is going to be key to our success,” Psillos said.

“The Ministry of Finance and the Reserve Bank of Zimbabwe (RBZ) have done a great job in controlling money supply and they need to continue having a very tight leash on this, otherwise inflation will rebound sharply because of the low confidence in the currency,” he added. Zimbabwe National Chamber of Commerce (ZNCC) chief executive, Chris Mugaga, also said the economy was becoming more stable as local use of the greenback grew.

“There has also been a liquidity crunch, which is stemming from the central bank’s monetary targeting framework. That is also keeping inflation down.
“Keeping a lid on money supply is a good thing, but the authorities should be careful not to suffocate the economy. There should be a balance,” he said.
Economist Gift Mugano said all indications were that the steady decline in the country’s inflation would continue during the year.
“By July this year, we will be below 100 percent in terms of annual inflation.

“If we sustain that, on the back of assumptions around production, which has been quite noticeable in the agriculture sector, thus guaranteeing the availability of raw materials to the manufacturing sector, we will provide a refreshing position on the macro-economic environment, particularly on saving foreign currency — which means we will have more leeway to stabilise the exchange rate further,” he said.

Mugano added that the continued stabilisation in auction exchange rates would also see a further reduction in the disparity between the formal and parallel forex rates.
Another economist, Brains Muchemwa, was among the experts who said the downward trend in inflation and increase in local production would result in more market confidence.
“The economy is on an upward trajectory on the back of improving local production. We now need to improve on exports and take advantage of firming commodities prices. The upward trajectory has to be sustained,” he said.

Speaking to The Financial Gazette a fortnight ago, following the opening of this year’s tobacco season, experts also said earnings from the golden leaf would give a further boost to the Zimbabwe dollar and the local economy.

A confident RBZ governor, John Mangudya, also said then that the opening of the tobacco marketing season would further improve forex inflows and consolidate the stability of the much-lauded foreign currency auction system.
“This will, without doubt, enhance the stability of the exchange rate, which is very good news,” he said.
On average, tobacco generates about 30 percent of Zimbabwe’s foreign currency earnings annually.

Last year, total golden leaf earnings were in excess of US$500 million — at an average price of US$4,06 per kilogramme compared to US$4,51 per kg in 2019.
Morgan & Co head of research, Batanai Matsika, also predicted continuing stability in the country’s exchange rate and the economy generally, due to the expected significant inflows from tobacco earnings and hopes for an overall bumper agricultural season this year.

“The whole issue revolves around the anticipated bumper harvest, which will significantly reduce the import bill and increase savings that will be allocated to the auction system for its sustenance.
“Therefore, I see the exchange rate maintaining its current levels in the short to medium term,” Matsika told The Financial Gazette then.

Tobacco industry expert, Kudakwashe Saringo, also said the opening of the tobacco marketing season would further stabilise the Zim dollar and help improve the country’s liquidity.
“Tobacco earnings will be a significant factor in improving foreign reserves, but the availability of hard currency for the importation of pharmaceuticals, fuel, power and raw materials must be supported by other foreign currency inflows, including those of gold and diamonds, among others.
“Indeed, tobacco is a major foreign currency earner in Zimbabwe and has the potential to significantly contribute to the much-needed hard currency for essential imports,” he said.

Economist Eddie Cross also said he had no doubt that the onset of the tobacco marketing season would further stabilise the Zim dollar and the country’s liquidity — but not to last year’s levels.
“The hard currency on the market comes from exports and domestic hard currency dealings. The present market stability is being maintained due to the fact that we have a small export surplus over our import demands,” he said.

All this comes after experts recently implored the government to keep a close eye on the foreign currency parallel market — warning that the last thing that the country needed now was to see a disruption of its critical foreign currency auction system, which had helped to stabilise the local currency and the economy.
Of particular concern to the experts was the significant gap between the official and parallel forex rates, amid fears that this could soon erode market confidence.

The foreign currency auction system, which was introduced last year, has been widely acclaimed for taming the country’s once rampant forex black market — thereby boosting the Zimbabwe dollar and calming the prices of goods and services.

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