Zimbabwe’s year so far: a tale of regression

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HARARE: Zimbabwe has missed just about every major economic target so far this year, with most indicators pointing to an economy headed for recession, a local investment advisory firm has said.
Finance minister Patrick Chinamasa set an ambitious growth target of 2,7 percent – later adjusted to 1.5 percent — but Invictus Securities say the prevailing conditions point to weaker growth.
“In terms of revenue collections, we forecast the economy to register a modest 0.6 percent GDP growth, down from the official figure of 1.5 percent, underpinned by poor revenue collections, drought, low mineral prices and continued decline in productivity as political protests escalate,” said Invictus.
Revenue collection in the first half of the year at $1,65 billion was 6 percent below target as economic activity slows down, businesses collapse and more people find themselves out of work.
The first half’s revenue collection was 9.31 percent lower than last year’s figure. This underperformance has resulted in government failing to pay its workforce estimated at 500,000 workers on time since the country runs on a cash budget largely financed by taxes.
“A decline in revenue collection shows the shrinking of the revenue base as companies close down and people lose employment,” said Invictus.
Citing data from the Master of Higher Court, it said 949 employees were retrenched in the first quarter of 2016, down from 1,011 retrenched over same period in 2015.
“The highest number of reported retrenchments were witnessed in Q4 2015 when above 2,300 retrenches were registered. A total of 6 companies were placed under judicial management, while 13 were liquidated during the first quarter of 2016, compared to 11 and 17 respectively, during the same period in 2015.”
Agriculture is seen contracting by 9,9 percent in the face of an El Nino induced drought and weak commodity prices. Tobacco, at 23 percent is Zimbabwe’s second biggest export and is likely to beat last year sales of 198 million kilogrammes.
Gold prices have risen 25 percent this year and bullion has become the largest export with 24 percent of total export proceeds. Zimbabwe sold 10,4 tonnes by end of June, and expects total output to reach 24 tonnes by end of year as output slowly inches towards a peak of 27 tonnes registered in 1999.Advertisement

But overall mining production is seen lower compared to last year.
The Zimbabwe Stock Exchange is expected to continue on a downward trend and “may reach further lows with increased protests in the country.”
Total market capitalization as at 31 July 2016 stood at $2,731 billion, down from $3,062 billion as at the beginning of the year, losing 10.8 percent in the year to date.
As at 31 July 2016, 687.6 million shares valued at $101.1 million have been traded for the year 2016 against 1.703 billion shares valued at $157.1 million traded for the same period last year with foreigners dominating trade.
“Foreigners have been more active on the selling side for the year to date as political protests and bond notes introduction unsettles investors,” said Invictus.
After missing its self-imposed June deadline to clear $1,15 billion arrears owed to multilateral financial institutions, central bank governor John Mangudya said Zimbabwe is close to securing a $1 billion loan from Afreximbank and now expects to pay up by September.
The southern African nation has not received direct budgetary support from the IMF and World Bank in nearly two decades since it defaulted in 1999.
Diaspora remittances have become the major source of liquidity to the economy as Foreign Direct Investments (FDI) and exports remain subdued.
Last year the country recorded a paltry $421 million in FDI, compared to $545 million in 2014 while Diaspora remittances were reported at $830 million as at June 31, on course to pass the $935 million that was received for the whole of 2015.
“We are of the view that, if the trend persists, given a growing number of Zimbabweans in the diaspora, Diaspora may inject at least $1,5 billion by year end. We are, however, pessimistic about foreign direct investment, as investors call for institutional and economic reforms for remarkable inflows to start flowing into the country,” said Invictus.
The country has remained in a deflationary environment, reflecting a decline in aggregate consumer demand as consumer incomes remain subdued. Zimbabwe’s inflation for the month of July 2016 fell by 0.24 percentage points to -1.60 percent.
Invictus say it is likely to end the year in the negative as companies continue to cut prices to remain competitive.
“We forecast inflation to end the year at negative -1.5 percent as companies continue to readjust prices to remain competitive in a tough operating environment that is continually under intense pressure.”
Going forward Invictus urged government to prioritize debt clearance “to unlock liquidity for the economy to regain its momentum.”