ZIMBABWE’S economy has been under immense pressure post-election, with the local currency further haemorrhaging and the power crisis situation worsening, pointing to a gloomy future ahead.
The country held polls on August 23 and 24.
President Emmerson Mnangagwa, who was declared winner, has been struggling to steer the ship, especially on currency exchange rate and electricity.
Year-to-date, the interbank rate has weakened by 723%, while the auction rate has weakened by 647% over the same period, according to Inter Horizon Securities.
Inflation remains high at 17,8%.
The electricity situation is getting severe after the power utility, Zesa Holdings, announced a 16-hour daily load-shedding schedule last week. It blamed technical faults at Hwange Power Station and scheduled maintenance on one of the units for causing power cuts.
Industry, one of the key drivers of the economy, has started to feel the heat. Nash Paints, the country’s fastest growing paint-makers, has whittled down production by over half after enduring eight days of blackouts.
Industry officials said the government needed to act swiftly on the power crisis and exchange rate volatility.
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“On the negative side, we have seen power shortages. Load shedding has become more and more apparent and our companies are affected by the lack of power. The other issue is that fuel prices went up, which affects the performance of the companies,” Confederation of Zimbabwe Industries president Kurai Matsheza said.
He hoped that the issue of the electricity situation would be addressed “very soon”.
“The impact is there as I said, when you look at the fuel increases and the electricity challenges you also look at the mining houses themselves. The inflow of US dollar in our economy compared to last year is down and disposal income is reduced.
“The monetary policy committee met and they lowered the interest rate from 150% to 130%. Those are positive developments and obviously it takes time to filter into the performance of the company.”
Economist, Prosper Chitambara said the exchange rate has been under a lot of pressure after the elections on account of growing demand for the US dollar and a pick-up in economic activities.
“Government payments have also been done in Zimbabwe dollar terms which could also have resulted in the depreciation that we have seen of the local currency,” he said.
“The fact that Zimbabwe dollar payments have to be converted by economic agents into USD puts pressure again on the exchange rate. Obviously, going forward, l think there is going to be a bit of pressure on the exchange rate on account of those two factors.”
Chitambara said the outlook depends on what happens in terms of money supply, adding if there is huge money supply injection into the economy, the local currency will continue depreciating.
Association for Business in Zimbabwe chief executive officer Victor Nyoni said the confusion on which currency to use in the future creates problems for the business sector.
“The performance of our local currency has actually been bad ever since and we noticed that after the elections there was a clear decline in terms of even interest in using local currency,” he said.
“The US dollar is dominating the transacting system in Zimbabwe. We have actually seen the Zim dollar losing value again. Before the elections it was trading at around US$1: ZWL$4 000 and now, officially it is around US$1: ZWL$6 000. We can see that depreciation of the currency is going further.
“What it means is that the transacting public has no confidence in the Zim dollar currency. As businesses we have encouraged the government to further pay attention to the issue of local currency to see if we come up with a better approach to it.”
Nyoni said the use of the US dollar was not good for the economy as it makes exports and goods expensive.
“What we have seen in terms of the local currency performance is that it was not going to do better anyway. Our thinking is that we must further think until we get to a point where we then say the local currency is completely there.
“We are fully aware that there is no country anywhere in the world that has functioned without the usage of its own currency, as businesses we have said currency is just a mirror of the activities taking place in the economy,” he said.
He added: “We need to ensure that the production sector is improved. Without it, there can never be any meaningful introduction of local currency. We have encouraged the government to stop the printing of money.”
Industrialist Golden Muoni said since the government has extended the use of multi-currency to 2030, the country will start recording an uptick in foreign direct investment.
“We are going to see maybe some foreign direct investment and domestic investment, given that the issue of the currency has been put to rest. As you are aware, banks stopped the borrowing towards elections and it was just more of a risky assessment.
“And then they started borrowing again after the elections. Now elections are over, we need to go on the ground, start working. Given that we are in a global village, there are other challenges which are in the global village.”
Zimbabwe’s banks have held back on fresh lending in the past few months, cautious that the tenure of the multicurrency system will come to an end in 2025.
After that, loan repayments from borrowers would be in the free falling domestic unity, they fear. However, the government last week announced the extension of the multicurrency system to 2030.
But market watchers were cautious this week that banks may hold back on lending for some time.
Japhet Moyo, secretary general of the Zimbabwe Congress of Trade Unions, bemoaned labour force informalisation, saying the majority of workers are now employed as casual workers or just on fixed term contracts.