By financial securities
The period of 2019/20 was difficult for Zimbabwe due to concerns about severe drought, cyclone Idai, and severe but necessary economic reforms.
2020 was hit by a pandemic.
According to the World Bank, the pandemic led to 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, accounting for almost 49% of the population.
By July 2020, the proportion of rural households reportedly reached 37% without food all day, due to rising food prices and declining disposable income.
Food insecurity was exacerbated by inadequate coverage of related social protection programs, with less than a quarter of the poorest households receiving food aid in June 2020, according to the Zimbabwe Statistics Bureau.
Faced with all of these adversities over the last two years, the medium-term outlook shows the outcome of a modest economic recovery in 2021 and even stronger growth in 2022.
Recovery is uncertain due to pandemic-related downside risks at both regional and global levels.
GDP growth is expected to reach 3.9% in 2021 (World Bank data), relying on agricultural recovery, improved power generation from replenished reservoirs, and slower-than-expected inflation.
Uncertainty about the credibility of the potential third and fourth waves of the pandemic and the possible timing of widespread vaccine deployment in Zimbabwe and its major trading partners will curb external demand.
In addition, domestic demand could remain restrained in 2021 as inflation remains high and continued use of export maintenance policies constrains productivity and competitiveness.
The economy is expected to accelerate in 2022 as the adverse effects of the pandemic subside due to increased global vaccine deployments and the outcome of national development strategic policies against the backdrop of an upward economic growth trajectory.
The projected recovery relies heavily on prudent fiscal and monetary policy to take advantage of macroeconomic stability.
The fiscal balance is projected to be in the red in 2021, but remains within sustainable limits.
Revenues are set to gradually recover as a percentage of GDP due to post-pandemic easing.
The pandemic’s regional knock-on effect on trade taxes, as well as the very low corporate and income taxes due to weak trade flows, will continue in the medium term.
Effective management of public finance depends on ongoing measures to ensure tight control of spending. Public wages in particular provide sufficient resources at the same time to provide basic services.
Conservative monetary policy is expected to curb inflation and stabilize prices in the medium term.
Given proper 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 predicts that the economy will recover 7.8%. This is a fairly optimistic forecast compared to the World Bank’s forecast of 3.9%.
The economy has come from a two-year economic contraction, and the economic environment is characterized by a shortage of foreign currencies, hyperinflation and a long-term drought.
The outbreak of the Covid-19 pandemic in early 2020 exacerbated the challenges within the economy that negatively impacted the country’s economic recovery.
Fiscal and financial stabilization efforts carried out by the government have succeeded in slowing inflation, giving hope that the economy may prosper.
Imposing a blockade to curb the spread of the coronavirus has disrupted the supply chain, and operational restrictions have had a negative impact on 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 more than normal rainfall during the 2020/21 agricultural season and expects better harvests.
The government has played a role in mobilizing inputs through various schemes to increase output.
The heavy rains of the 2020/21 season signal a better economic outlook for the year, with the country expecting 2.1 million tonnes, the largest harvest since the land reform program.
Better harvests reduce pressure on grain imports and save about US $ 300 million the country spends on grain imports each year.
Grain imports are banned as the country is in a good location to meet annual demand as deliveries continue to penetrate the Grain Sales Commission.
Secondary sales of soybeans and corn are against the law and only authorized buyers are allowed to purchase strategic grains.
Acclaimed as one of the top foreign currency earners in the country, tobacco marketing is currently faced with the challenge of being dominated by foreign-funded contractors.
By June 30, the industry had achieved US $ 487 million through tobacco sales, according to TIMB data.
Of the industry’s revenue, US $ 455 million was generated by the contractor, while the tobacco auction floor only realized US $ 32 million.
This has raised concerns about the collapse of the domestic tobacco auction floor.
Funding local tobacco cultivation is also being considered, but the lack of collateral for many farmers remains a problem limiting access to financing from other players.
This year’s good harvest will strengthen domestic food security as the reliance on food aid has continued to grow in both rural and urban areas.
Whether sector performance is really important in driving economic growth is still a very controversial issue, as sector performance limits the spillover effect of the economy on other sectors. ..
Spending is rising as the government continues to provide subsidies and free inputs to the sector.
The mining sector is one of the key anchors of the Zimbabwean economy.
However, we continue to face challenges that impede our contribution to economic recovery.
The government has a sector
US $ 12 billion by 2023.
While this is achievable, there are many hurdles in this sector that must be overcome before the dream can be realized.
Foreign investment remains restrained domestically due to regulatory discrepancies and overkill.
There are many policy cuts and changes that are not good precursors for sectors that rely on large-scale long-term capital investment over the years before production began.
The country uses vast mineral resources, but has not been investigated as it limits production below its potential. Mining companies continue to face the challenge of financing projects, which is a business limitation.
Smuggling remains a concern for gold mining given its high level of informalization.
Gold smuggling is estimated to cost the country at least US $ 100 million a month.
Central banks have introduced various measures to curb smuggling, but the problem continues to arise and some experts within the sector have emphasized the need to liberalize the sector.
Apex Bank is reportedly looking forward to the formalization of artisan miners within the gold mining sector as a measure to curb smuggling and protect the environment.
Artisan miners associate formalization with high compliance costs, so authorities need to loosen this offer to prevent smuggling.
Commodity prices remain strong in the international market as production continues to increase with relaxation of blockades and a slow recovery to normal as major manufacturing countries succeed in vaccination programs. ..
Gold prices continue to skyrocket over fears of inflation in countries like the United States and the uncertainties posed by pandemics where new varieties continue to be discovered.
The manufacturing industry is reported to have improved its utilization rate from 36.4% to 47% in 2020.
The utilization rate by the Zimbabwe Industry Federation is expected to increase to 61% this year.
The sector has benefited from improved 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 is at risk of a surge in infections, which will lead to stricter blockade restrictions.
This negatively impacts the supply chain, reduces revenue streams and impacts aggregate demand.
Given the uncertainties posed by the current pandemic, we believe that manufacturing capacity utilization is likely to continue to be curtailed.
According to the World Bank, domestic demand is expected to remain low due to sluggish incomes.
The limited flow of foreign direct investment (FDI), influenced by export maintenance policies and other factors, is expected to keep productivity and competitiveness low in some sectors of the economy.
Over the last two years, the country has suffered from hyperinflation and extreme depreciation of local currencies.
This unleashed tight controls on the money supply and financial regulation, resulting in slower inflation and stable exchange rates.
Inflationary pressure was witnessed in the first quarter of this year due to tariff adjustments by some government agencies.
However, inflation is expected to continue to decline on the back of careful fiscal and financial controls, exchange rate stabilization and improved agricultural seasons to stabilize food prices.
To keep inflation low and stable, the RBZ needs to continue to limit the growth of the money supply, primarily by avoiding financial finance and all quasi-fiscal activities.
- Vincent Securities as a Zimbabwe Registered Securities Company
“Quite optimistic GDP growth forecast”
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