Toilsome Quarter 1 smothers optimism

BUSINESS optimism has been dented by a challenging first quarter, marked by brutal power cuts and continuing exchange rate volatility.
In addition, commerce and industry anxiety around possible policy changes and political turbulence before, during and after the upcoming national elections is quelling business confidence.

This comes after the country’s relentless power cuts intensified during the first quarter of this year, with some areas going without electricity for up to 18 hours a day.

At the same time, the Zimbabwe dollar’s slump has escalated, including on the official market — with the hapless local unit plunging to a record low on the parallel market in recent days.

Concerned business leaders who spoke to The Financial Gazette this week said developments in the first three months of 2023 had run counter to their expectations for the year.

Power interruptions and currency challenges had especially unsettled industrial and commercial activities, drastically increasing business costs and curtailing operating hours during the quarter.

The president of the Confederation of Zimbabwe Industries (CZI), Kurai Matsheza described the first three months of the year as having been “disastrous” for most businesses.

“Some companies with low power demand were able to switch to alternative power like diesel, but running a business on diesel generators increases the cost of production and this eats into the margins.
“The only sustainable way to take the country out of the current power shortages is to invest in more generation, either hydro or thermal.
“Other alternatives like solar and the wind are commendable, but these alone will not address the current deficit,” Matsheza said.

He added that while the commissioning of new generation units at Hwange was welcome, business had yet to feel the impact of this.
Economist Prosper Chitambara echoed Matsheza’s sentiments, saying the country’s power crisis had adversely affected all facets of the economy during the first quarter.

“I would describe the first quarter as very challenging on account of the prevailing power outages.
“However, the situation could improve during the second quarter and going forward, because we are also expecting Hwange Unit 8 to come on stream,” he said.

Chitambara also feared that the second quarter could be marred by preparations for this year’s harmonised elections.
“For the second quarter, it’s not yet clear when the elections are going to be, but the quarter could be blighted by the looming elections,” he said.
Another economist, Eddie Cross, said power challenges and exchange rate volatility were the major challenges currently affecting business.
“My view is that the economy has continued to expand, and I see little or no signs of this easing.

“The major problem is power and exchange control, and I think local industry is also struggling with competition from imported and smuggled goods.
“I do not see this situation changing in the remainder of the year,” Cross told The Financial Gazette, Zimbabwe’s number one business publication.
The former monetary policy committee member warned further that if nothing was done about the foreign exchange market and smuggling, industry’s ability to grow would continue to be inhibited.

On his part, Trust Chikohora, another economist, described the first quarter as both good and bad, citing increasing exchange rate disparities as the major challenge that businesses were facing.

“We saw the parallel market beginning to gallop, and we saw the gap between the official exchange rate and the parallel rate widening yet again.
“This will surely bring about inflationary pressures in terms of increases in the prices of goods and services.
“There is also the situation around the increases in salaries for civil servants and the uniformed services, which will have an impact on exchange rates,” Chikohora said.

“The month-on-month inflation was coming down before we saw the recent increases in the exchange rates. So, that could reverse as we go into the second quarter.

“Year-on-year inflation also came down at the beginning. We will see what the figures for March will be.
“How the second quarter comes out depends on how the authorities will deal with those fundamental issues,” Chikohora added.
Yet another economist, Tarisai Pardon, warned that the second quarter would be equally turbulent due to inflationary pressures, exchange rate volatility and the fast-approaching elections.

In that regard, he urged the business community to brace for an even more challenging operating environment, while also calling for consistent policy measures.
“Policy measures need to be consistent to bring certainty within the business environment. The exchange rate also needs to be liberalised.
“Businesses have to brace themselves for an operating environment which will be very unstable,” he said.

Another economist, Tony Hawkins, noted that challenges had continued during the first quarter, with money supply increasing and inflationary pressures rising.
“The authorities are doing their best to rekindle inflation with an exceptionally loose monetary policy.

“Money supply is estimated to have increased more than 600 percent over the past year. Reserve money has also doubled so far this year.
“Government spending is surging due to elections, wage awards and the need to print money to finance agricultural subsidies which will be much higher in 2023,” Hawkins said.

He also warned that the situation would worsen in the second half of the year as the country would feel more of the effects of the world recession, while the exchange rate would continue to weaken.
“The Zim dollar will become increasingly irrelevant. The key exchange rate will be that between international US dollars and those within Zimbabwe, a return to the 2016 to 2018 situation.

“In five years, (Finance minister) Mthuli Ncube will have got back to where he came in! He is a genius.
“On the policy front, the Al Jazeera revelations will confirm widely-held views internationally that Zimbabwe is a very poor credit risk,” Hawkins added.

“Accordingly, the cost of borrowing internationally will rise sharply as it becomes increasingly difficult to borrow.
“Skilled emigration will accelerate and unemployment will increase further as more Zimbabweans are forced to leave South Africa,” he also said.
However, Hawkins also highlighted that growth would accelerate in the second quarter, amid the bumper agricultural harvest and recovery in gold production.

Economist Newton Mambande said the country would experience a spiralling economic downturn in the next two quarters if the energy crisis remained unresolved.
“There is already waning investor confidence due to inter-party and intra-party violence in the country.
“In Zimbabwe, political violence is associated with gross violation of property rights. So, and because of this, it will scare investors,” he added. newsdesk@fingaz.co.zw