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Slow but Notable Revival From Economic Slump

IT is beyond doubt that the events that have unfolded in the country over the past few months have helped to paint a new picture of the country.

 


Notable milestones include the signing of the Global Political Agreement, review of the fiscal policy which was subsequently followed by the launching of Sterp, liberalisation of the economy, full dollarisation, the government’s 100 day action plans and the investors conferences that have been held by both the government and private players.

 

The launch of Sterp was arguably instrumental in changing the fortunes of the country. Policies enunciated in the document were largely welcomed by many and they somehow helped to reduce the cloud of uncertainty that hung over the economy. Dollarisation of the economy, though it wiped off working capital for many companies, provided some stability to the economy.

Hyperinflation was brought under control with monthly inflation figures from January to May this year below 0%. The negative monthly inflation is a result of downward adjustments in prices of most commodities.  
The improved outlook on the economy has also resulted in foreign investors becoming significant participants in our economy, particularly on the stock market.
Since the equities market resumed trading US$12,6 million worth of shares have exchanged hands. Most trades are taking place in the heavyweight counters and it is believed that offshore investors could be strategically positioning themselves ahead of the economic turnaround. The rationale behind buying the blue chip stocks is that these companies are expected to recover faster than others. Participation of foreign investors is also a sign that the investment community has possibly discounted the level of risk attached to the country.
Furthermore, the tobacco-selling season which commenced on May 7 is progressing very well. To date 38,5 million kgs have been sold realising US$114,3 million. In comparison 29,7 million kgs had been sold over the same period last year at a value of US$94,3 million. The improvement possibly stems from the various lines of credit that were pledged towards the sector. These have enabled merchants to procure the gold leaf from farmers at favourable prices. Current prices may have also encouraged farmers to grow more tobacco this season. Tobacco seed sales at 247 460 kgs represent a 67% increase from last year.  
Another sector that has benefited immensely from the current dispensation is mining. The favourable policies have seen some mining houses resuming operations after more than a year of inactivity. As the operating environment worsened in 2008, several mining firms stopped business and engaged into what they termed care and maintenance. Many could no longer sustain operations due to lack of funding with several being owed money by the Central Bank. The positive policies undertaken this year include liberalisation of the sale of minerals and allowing producers to retain all their sale proceeds. This has motivated some to start producing again. Over and above these, the availability of credit lines for the sector has enabled players to recapitalise.
Some of the liquidity filtering from the tobacco sector has helped to revive other sectors, particularly the retail and manufacturing sectors. Tobacco farmers, who are being paid mainly cash and to a lesser extent transfers into bank accounts, have been rather generous with their money with some literally going on a spending spree. While some are preparing for the next season through buying inputs, others are spending their newly found riches on furniture, clothes and used cars.
Besides the tobacco farmers, others that have seen an improvement in their disposable income are mine workers. These together with the embassy staff and NGO employees have been the major drivers of aggregate consumer demand in the country. The majority of people in employment work for the government and earn monthly allowances of US$100 each. If this amount is to be doubled, the impact on aggregate demand in the economy will be huge. Increase in disposable income will result in expanded capacity utilisation in the economy.  
All of the above has been achieved at a time there is limited liquidity in the economy. It therefore implies that more can be achieved if the country can secure more funding. Under Sterp, the Finance ministry believes that the country requires US$8,3 billion to reconstruct the economy. The IMF believes that the country needs US$45 billion over the next five years to return the economy to optimum levels.
Now that investor confidence levels are slowly creeping up with each passing day, it is necessary to source the required finances to turn around the economy. Sadc member states have proved that they lack the capacity to support the turnaround programmes in the country.
Funding from multi lateral institutions like Afrexim and the PTA bank is far from the required amount. European and American countries are on the other hand still sceptical about the idea of giving the country budgetary support. This means that the country should seriously consider selling some of its assets to generate some cash. Whilst the cash needs are urgent, caution is required in privatising the assets if the country is to fully benefit from it.  

 

BY KUMBIRAI MAKWEMBERE

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