Budget fails to cheer equities

EQUITIES dipped this week as the budget failed to cheer the local stock market, with analysts painting a gloomy outlook for most key economic sectors, dampening prospects for the majority of listed companies.

Report by Clive Mphambela

On Wednesday, the Zimbabwe Stock Exchange softened during the week ending November 21 2012, after mining counters took a 15% knock, led by a 30% drop in Bindura which closed at 1,75 US cents from 2,50 US cents a week ago.

The industral index was also 1,5% softer in the post- budget week. According to market analysts, Finance minister Tendai Biti’s much hyped 2013 “developmental budget” fell short of market expectations as he projected an even lower GDP growth forecast of 4,4% for 2012, punctuated by a review of his forecast for the years 2014 to 2015, which relegated the average growth rate to about 6%.

While market watchers generally lauded Biti for the “realism” shown in setting out the financial plan for the country for 2013, the budget also exposed structural weaknesses in the economy that could send investors scurrying for cover.

Analysts say although the budget was realistic and conservative, the statement failed to provide concrete actions that would restore fiscal stability and put the economy on a sustainable growth path.

In their analysis of the impact of the budget on the market this week, regional investment banking group Imara Edwards Securities said their initial reaction was that the budget was market neutral, but they were wary about the tendency by the authorities to resort to command economics, especially with regards to the proposed guidelines on bank charges and interest rates, as well as proposed protectionist tariffs targeting the poultry industry.

According to Biti, financial institutions and the central bank were negotiating an agreement which would guide interest rates and bank charges.

Biti also issued guidelines stating that no bank charges should be levied for deposits up to a maximum of US$800 and that term deposits of US$1 000 and above held over a period of at least 30 days should now earn a mandatory minimum annual rate of 4% .

“History has shown us that arbitrary price controls do not work and are not good for business. If implemented, the idea flies in the face of greater financial inclusion as financial institutions may shy away from certain market segments due to the high cost of doing business,” Imara said in a statement.

Imara said most local products are not competitive because of the high cost of raw materials, especially with regards to chickens. Most imported chickens are fed GMO stockfeed, which is significantly cheaper than locally produced non-GMO stock feed.

Therefore, the increased tariffs on some imported products might not have the desirable effects, longer-term. The surtax will only impact on products originating outside of the Comesa and Sadc regions and in this case mainly products from South America. Thus the impact on the retail end might be limited.

Local investment advisory firm MMC Capital, in their research note this week said while the mandatory interest on deposits was welcome news for depositors, it would inevitably increase the cost of funding for banks, exerting pressure on margins.

Profitability of banks going forward might be subdued as a result.

Imara said companies such as BAT and Delta would enjoy marginal gains from the hiked excise duties due to the minimal negative impact on their volumes.

“In our opinion Zimbabwe’s excise duty on cigarettes remains below that of its regional peers. For clear beer we believe the playing field is no longer skewed towards imports, with local producers in a better position to price their products.

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