At The Market With Tetrad – Whither Zim exporters?

By The Tetrad Group

THE third monetary policy statement in 2004 was released by the Reserve Bank at the end of last week. The governor deserves commendation for practising what he preaches with regard to the

need for a concerted effort to raise production.


His personal contribution running this quarter to over 130 pages exclusive of a supporting document of almost 30 pages setting out a Troubled Bank Resolution framework, will have been a welcome addition to the printing industry’s output.


Commendable too is the inclusion of some up-to-date figures, all the more welcome with the widening gaps in official statistics.

According to the statement, real GDP growth this year is projected at below -5,2%, the slowest annual rate of national income decline since 2001.


Real GDP is expected to show positive growth in 2005 following a turnaround next year in agricultural production, mainly as a result of a more than doubling of tobacco production.


“Robust” performance by gold and platinum producers is expected to result in a strong surge in mining output this year and next. Although an early revival in secondary industry, construction and tourism is not foreseen, the utilisation of the Productive Sector Facility will, it is hoped, begin to show positive results before long.


Of concern to PSF recipients is the pronouncement that the central bank will be calling back all the concessionary borrowings for those companies that paid dividends to shareholders post accessing the funds. A deadline of November 30 was set for affected companies to defend their cases through their bankers. For those that fail to pay back, an amount equal to the dividend payout would be converted to market rates.


Whilst a number of listed corporates could be affected by this development it will be interesting to see the market rate that will be applied given the fact the governor reprimanded banks for preying on borrowers by charging minimum lending rates, not in line with inflationary expectations.


Inflation, the country’s declared “number one enemy” continued on its downward trend in the third quarter and has fallen every month since last January. The RBZ predicts that the year on year rate of change will fall to between 150% – 160% by year end and continue on a downward trend in 2005 “provided we do not become complacent”.


The governor also called on the fiscal authorities to refrain from awarding unplanned benevolent and gratuity payments unrelated to current productivity levels and real economic growth. In an apparent contradiction,

The Herald on Monday reported that a Bill aimed at facilitating the payment of gratuities to ex-political prisoners, detainees and restrictees had sailed through parliament. The government intends to pay lumpsums of the order of $60 billion, or $10 million per person for the estimated 6 000 intended recipients.


Although there is recognition of the need to maintain export competitiveness by compensating local producers for the inflation differential between Zimbabwe and their markets, strong criticism was expressed in the statement of those who confined their representations to the exchange rate adjustment alone, ignoring the incentives made available for lowering production costs and raising effective export receipts. A significant adjustment in the exchange rate appears to have been ruled out at least in the immediate term.


Many exporters would have been pleased if the rate had been adjusted to close to the prevailing parallel market rate, a suggestion emphatically dismissed by the monetary authorities. So, in essence, exporters are expected to continue to show the resilience which has brought them this far.


A move that caught many by surprise, and which turned out to be the only really notable development in the 130 or so pages, was the announcement that platinum producers would be incorporated into the system on very much the same lines as those which apply to the gold mining industry. What in fact is proposed is that all platinum group metals will be sold direct to the RBZ with effect from February 1 next year.


Although the statement talks about platinum being accorded “strategic metals status”, meaning that special support will be given investors in the industry, discussions to that end are still to be finalised.


Whilst the full implications of this reclassification of the metal are not yet clear, productive sector reaction is that this move, at face value, does not augur well for the future of the industry especially given that most of the investors are foreign. We all know how volatile foreign investment is.


Still on the subject of “strategic metals”, the gold support price was reviewed upwards from $85 000/gramme to $92 000/gramme for both large and small-scale miners who opt to receive their proceeds in local currency.

The new support price works out to an exchange rate of $6 717 per US dollar, or an equivalent of US$508,76 per ounce, using the latest international gold price of US$426/ounce and auction rate, respectively.


Another constituency not overly happy are stock market participants who would in one way or another be disappointed, that the governor’s much acclaimed third quarter monetary policy review statement did not have anything exciting for them. On the contrary, what it did was to bolster an already decidedly circumspect and bearish trading approach. Institutional investors have by and large stayed on the sidelines.


Bearing testimony to the apprehension of investors is the fact that on October 29 the industrial index lost 12,478 points, it heaviest fall since September 20. The retreat was on the back of losses in heavyweight counters, Old Mutual and Meikles.


So far the week to Wednesday, the industrial index has lost 3,24% to close on 843 098 points.


The losses recorded on Friday, Monday and Tuesday could in some way be attributed to investors bailing out, after it had dawned on them that an upswing in the market was not likely to happen, at least in the short to medium-term.


On the other hand, the fall in the price of Dawn, from $52 a week ago to $35 yesterday, coming soon after the announcement through a cautionary statement of the discontinuance of negotiations with other parties, which had been subject of previous statements, could well be construed as evidence that speculators are still in the market. No matter how hard they may be burnt, they will always be around looking for opportunities and one can emphathise with the unfortunate “investor” who bought at the top!

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