Paul Nyakazeya

ZIMBABWE can achieve its 2011 inflation target of 4,5% owing to the depreciation of the South African rand against the US dollar, economic analysts said this week. Most (52%) of Zimbabwe’s imports come from rand-denominated South Africa, while local pricing is in US dollars. The past two months have seen the rand weakening against the US dollar, resulting in month-on-month inflation moving marginally downwards.

Zimbabwe being a net importer, particularly from South Africa, is bound to be affected by exchange rate volatility between the US dollar and the South African rand. Economic analyst Eric Bloch told businessdigest that the inflation target of 4,5% was “well on target, barring major surprises”.

“The exchange rate between the US dollar and the South African rand will determine which direction inflation will take, but if the current situation prevails, the target will be achieved,” Bloch said.

The year-on-year inflation rate for the month of October as measured by the all-items Consumer Price Index (CPI) stood at 4,2%, shedding 0,1 percentage points on the September rate of 4,3%.

Bloch said not only was economic recovery critically dependent upon government living within its means, but also government had no alternative.
He said: “Government neither has any borrowing powers in the current environment nor the ability to print.”

The country’s year-on-year inflation rate, which was at 3,5% in January, dropped to 3% in February. The rate dropped further to 2,7% in March and did not move in April. The figure dropped further to 2,5% in May before increasing by 0,4 percentage points to 2,9% in June. The inflation rate rose in July, August and September to 3,3%, 3, 5% and 4,3%, respectively.

Economist Brains Muchemwa told businessdigest this week that the year-end inflation target of 4,5% was within reasonable target, especially given the recent weakening of the rand against the major world currencies.

“Zimbabwe’s industry imports about 80% of its raw materials from South Africa, whilst trade in finished goods is equally very huge,” Muchemwa said
“Considering therefore that the US dollar is the major transacting currency in Zimbabwe, the weakened rand will make the imports cheaper and that, in the ideal scenario, should translate into some decrease in consumer prices in Zimbabwe,” he said.

A report from the African Development Bank (ADB) last month indicated that price hikes by local manufacturers following the imposition of duty on some imported products, if not reversed, could militate against the achievement of the year-end inflation target of 4,5%.

“There is need to address these price hikes, given that the import duty re-introduction was aimed at protecting local producers against cheap imports in a bid to support local industry,” said ADB.

While presenting the 2012 National Budget last week, Finance minister Tendai Biti said since the inauguration of the inclusive government 35 months ago, inflation management and oversight remains the apogee of Zimbabwe’s macro-economic targets.
“Treasury, therefore, carefully analyses monthly inflation developments, scrutinising all price-related data and the causes thereof of any marginal shifts in inflation points,” Biti said.

Developments in the month of October witnessed some reversal, with monthly inflation falling to 0,1%, he noted. Monthly inflation in September was 0,8%, a level last registered in March.

“The major drivers of inflation this year have been housing and rental cost, alcohol and food. Our domestic price developments also reflect the economic integration pattern between our economy and that of South Africa, a major source of our imports; hence some of the price movements in South Africa are reproduced asymmetrically in Zimbabwe,” said Biti.

The significant deceleration in inflation during October saw year-on-year inflation falling to 4,2%, he added.

“Projections to year end, however show annual average inflation remaining within the targeted range of 3,5% to 4,5%,” Biti pointed out.

Confederation of Zimbabwe Industries President Joseph Kanyekanye told businessdigest imported products, mainly from South Africa, were resulting in an increase in inflation as retailers wanted to maintain previous margins that were in place before the duty that was imposed by Biti.

“Some local manufacturers are following suit but there are no cost reviews on their inputs. We are not saying business should not make profit but the days of making unrealistic and unjustified profits are long gone,” he said. He insisted there was no justification for local goods to be more expensive than imported ones. Some economists said given the prevailing foreign currency-denominated economy, government would be forced to operate within budgetary allocations because of lack of control over money supply.

Corporate lawyer and analyst Alex Magaisa said history has shown that government has generally failed to live within its means and Biti’s Herculean task is to inculcate discipline in line ministries.

“The trouble is there is so much that needs to be done and all this requires resources but there is little by way of resources to do it. At the moment, as a country we are living like hunter-gatherers, living from hand to mouth and whilst this might permit survival, it does not provide the facility for development at all,” Magaisa said.

Magaisa said much of the government revenue was being expended on “survival needs” as opposed to “growth needs”.
For example, more than 60% of government’s budget has been spent on allowances for civil servants.

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