ZIMBABWE’S largest industry lobby group, the Zimbabwe National Chamber of Commerce (ZNCC), sees the economy growing by only 1,5% owing to deflation and drought.
Government has forecasted a 2,7% GDP growth, but its projections are always wrong
“The economy is expected to grow by 1,5 % in 2016 weighed down by the current El Nino induced drought, erratic power supply and high energy tarrifs, conservative lending by banks due to high non-performing loans, porosity of the Zimbabwean borders which is promoting smuggling and illicit financial outflows, lack of transparency in the mining sector particularly diamonds as well as a high settlement risk with government failing to pay suppliers,” ZNCC says in its 2016 Economic Outlook report.
“The 2015 economic year proved to be a challenging period for the business community and the nation at large; however 2016 proves to be tougher with the absence of robust economic reforms that can ensure stability to the deteriorating economy.”
“A target for the Zimbabwean economy to grow by 2,7% as stated by the minister in the National Budget presentation for 2016 will prove to be an over ambitious target with deflation posing to be a threat for the entire 2016 only to recover to a positive zone in the second quarter of 2017, hence investment spending will be constrained due to weaker producer prices.”
Inflation deceleration which however reflects price correction, weak aggregate demand, and tight liquidity, will result in bouts of positive inflation in the third quarter which will see negative inflation peaking into the last quarter of 2016, largely as a result of appreciation of the US dollar, which dampens import prices, it says
On the positive, the chamber said Zimbabwe could benefit from the continual engagement with the Bretton Woods Institute (International Monetary Fund and World Bank) amid general expectations the Staff Monitored Programme and the decline in oil prices, which is expected to remain subdued for 2016, will leave the cost of production at a modest level.
However, due to the drought that has affected agricultural output, resulting in the importation of grain to feed more than three million people in need of food aid, is expected to have an impact on the fiscus. This will erode the government’s ability to pay the US$1,8 billion debt and raise the import bill.
The report notes that in the manufacturing sector capacity utilisation will continue to fall. It is expected to close the year slightly above 31%, from 34,3% in 2015 and 36,5% in 2014, while deflation will persist in 2016 with bouts of positive inflation in the third quarter of the year which will see negative inflation peaking into the last quarter of 2016.
“The combination of deflation and depreciation of regional currencies also poses a threat to the manufacturing sector as the US dollar will continue to strengthen at the background of the United States interest hike,” it says.
ZNCC sees the South African rand remaining under pressure, closing the year at +/- 1:15 to the US dollar with both drought and local elections raising political uncertainty.
“The recent announced National Budget for South Africa 2016/17 is a contractionary budget with the aim of maintaining economic pace than growing it, which means SA companies will keep looking for new markets like Zimbabwe,” the report adds.
Currently, Zimbabwe is bearing the brunt of cheap imports flooding the market and crowding out locally produced products. This has seen industry shutting down or downsizing.
Tobacco will continue driving exports and contributing significantly after the plunge of international commodity prices with gold and platinum contributions declining from prior levels. However current account as a percentage of GDP will close the year at – 25%. The Ease of Doing Business will improve within the 10 point mark moving on an average 10 places upwards with FDI investment expected to reach the US$600 million mark. The World Bank’s latest report shows that Zimbabwe is now ranked at 155 out of 189 countries on the ease of doing business
In 2016, commodity prices are projected to rebound marginally, after large plunges in 2015, with the El Nino effect on weather patterns resulting in reduced yields.
The energy outlook for the economy is expected to improve as a result of new negotiated power deals. With the proposed tariff increase set to raise the cost of production while diminishing the competiveness of the economy.
“Unfortunately, we foresee the government effecting a 20% increase in tariff charges from the initially proposed 49% by ZETDC.
However, the improvement on energy out look is not sustainable given that we are importing electricity from Eskom at 13c/kWhr, emergency power at 18c/kWhr, and from Lunsenfwa at 8c/kWhr.
It is argued that the impact of reduced production at Kariba is US$236 million and the figure can balloon to US$300 million by December 2016 not forgetting that levels is at Kariba are less than two metres of generation water,” the report says.
“The service sector is expected to grow faster than the real sector due to informal sector growth. There has been a healthy growth in Zimbabwe’s nascent insurance industry with double digit growth expected in both the life and non-life sectors.”
However, the picture has not been rosy for the pharmaceuticals and health-care sector as global recession and migrant refugees in Europe pose a risk with funds from foreign organisations expected to dry up for the better part of 2016.
There is always an unusual negative correlation between dominance of the informal sector and diminishing formal jobs and the growth of the service sector.