IN 2019, business confidence hit its lowest in 10 years as companies gave a gruelling account of the operating environment and how it affected their financial and operating performance. Key factors that dampened companies’ performance in 2019 included a depreciating exchange rate whose magnitude of decline was next to none on a global level. Zimbabwe’s newly introduced Zimbabwean dollar lost about 85% against the US dollar between February and December 2019.
In September, which was the worst month, the currency depreciated by 30%. A depreciating currency was the single largest driver of inflation given that prices remain largely pegged to the US dollar equivalent.
Therefore other key factors included skyrocketing inflation which closed November at 480%, the second worst outturn globally. Companies had to cope with constant price revisions while consumers had to adjust in terms of expenditure given that incomes were recovering at a much slower rate to inflation resulting in the loss of purchasing power. Companies’ sales volumes were therefore hit hard, as 94% of the 59 companies listed on the ZSE reported a sharp contraction in volumes on waning demand.
The lack of adequate cash and forex resources ranked high among the major determinants of adverse companies’ performance during the year. The country continued to grapple with limited forex balances thus impacting ability to import key inputs of production. Electricity, fuel and key agricultural imports such as maize, wheat and soya bean remained in short supply. Depleting hydro-power generation at Kariba sharply impacted production across industry, while low supplies of diesel and petrol hampered production and productivity. Business singled out power shortages as the biggest driver of production underperformance. Some companies were forced to rationalise workforce and cut production hours factoring the limited electricity downtime.
Forex challenges also meant companies remained with huge external exposure to foreign creditors a phenomenon, which affected their ability to replenish.
A recurring drought has equally been singled out as a major factor affecting companies’ performance in the period under review. The 2019 drought was recorded as one of the worst in over 50 years pushing at least five million into poverty while stoking fears of a full blown food crisis.
A poor harvest would consequently drive agriculture output down. Agriculture typically anchors Zimbabwe’s economy together with mining and the duo collectively accounts for over 50% of GDP. The net impact of a weak agric produce is a slowdown in gross national product. In 2019 all sectors of the economy including agriculture recorded negative outturns resulting in negative overall GDP outturn.
The economy is expected to contract by about 10% in 2019 largely weighed by agriculture and mining. Agriculture, its value chains and sectors feeding from it such as food processing manufacturing account for the largest share of employment numbers in the country and its negative performance means significant incomes loss and a tapering in demand for goods and services in the economy.
All companies therefore agree that the environment was tough in 2019 owing to some factors outside of the companies control and largely in government’s control. The significant monetary reforms escalated in 2019, had a larger bearing on other factors save for drought. Companies believe that a stable currency would have ensured business growth and this implies a preference for the debunked US dollar against the unstable Zimdollar.
That most prices are still pegged in US dollar also indicates that companies have a preference for a solid currency. On the backdrop of companies’ projection of a sustained negative outturn in 2020, business confidence levels thus hit a 10-year low in 2019. Most companies are planning against a sustained economic underperformance at least into 2020. Government, however, sees a rebound in the ensuing year catapulted by an expansionary policy as well an assumed good agriculture season.
Gwenzi is a financial analyst and managing director of Equity Axis, a financial media firm offering business intelligence, economic and equity research. — email@example.com