Piggy’s Trading & Investing Tips: Powering growth

Kariba thermal power plants

THERE has been some news from different sources that Zimbabwe will start operating a new unit at the Hwange coal-fired power plant this coming March.

Piggy notes that this will indeed provide relief to individuals, households and businesses that have been negatively affected by the frequent power outages.

According to the reports, the new unit at Hwange will increase the nation’s installed capacity by more than 14% to 2 400MW. Zimbabwe has the capacity to generate up to 2 100MW but is currently generating about 1 000 MW.  The total demand for electricity is about 1 700MW, implying that there is a massive gap. The dwindling dam levels are subduing production at the 1 050MW Kariba Hydropower Plant (KHP) while the efficiency of the sole, decades-old coal-fired utility has dipped sharply over time.

These developments have come after power demand has surged in recent years due to higher mining and agricultural activity. Zimbabwe has had to import power from Zambia and Mozambique and the result has been an increase in the country’s import bill. The economics of central station generation is largely a matter of costing.

As with any other production technology, central station generation entails fixed and variable costs. The fixed costs are relatively straightforward, but the variable cost of power generation is remarkably complex. The fixed costs of power generation are essentially capital costs and land.

The capital cost of building central station generators vary from region to region, largely as a function of labour costs and regulatory costs, which include things like obtaining siting permits and environmental approvals.  Operating costs for power plants, include fuel, labour, and maintenance costs. Unlike capital costs, which are fixed, a plant's total operating cost depends on how much electricity the plant produces. A case in point is that most of Zimbabwe’s thermal power plants like the Munyati Thermal Power plant were 1946 and 1957 and have outlived their lifespan. This has become too uneconomic to operate due to high repairs and maintenance costs.

All in all, Piggy points out electricity shortages as one of the major factors weighing on Zimbabwe's growth prospects.

The government (MoF) projects the Zimbabwean economy to grow by 3,8% in 2023 (The IMF projects growth of 3,6%) driven mainly by mining, construction, agriculture and accommodation sectors. The projections are underpinned by key assumptions such as:

Favourable international commodity prices;

Normal to above normal rainfall;

Stable power supply;

Tight monetary and fiscal policies; and (

Continued use of the multi-currency.

However, Piggy foresees significant productivity constraints associated with (i) capital constraints, (ii) policy shifts and (iii) electricity shortages. As a result, Piggy estimates GDP growth in 2023 to be modest at c2.5%. 

Zimbabwe has been experiencing severe electricity load shedding averaging 12 hours per day. This level of power outages was last witnessed in 2019 during the height of acute foreign currency shortages amid repeated breakdowns of thermal plants, a back-to-back drought causing dam levels to plummet, austerity measures, and abrupt re-introduction of the ZWL.

Energy supply constraints can cripple productivity and capacity utilisation across Zimbabwean industries. Limited supply of electricity implies there are technological inefficiencies in the country, and this will have an adverse effect on total output.

This thesis is also supported by the Cobb–Douglas production function, which shows that output in an economy is a function

Technological progress,

Capital deepening


In conclusion, energy supply constraints also speak to some of the country-specific risks affecting businesses operating in Zimbabwe. 

As a strategy, Piggy recommends investors on our market to take positions regional plays as well as export-oriented businesses that offer geographical diversification. Some interesting names include ART Corporation, Tanganda Tea, Hippo Valley, Simbisa Brands, Padenga Holdings, Seed Co Limited and Seed Co International.  Learn more about investing and trading by joining a PiggyBankAdvisor WhatsApp Group (+263 78 358 4745).

Matsika is the head of research at Morgan&Co, and founder of piggybankadvisor.com. — [email protected]/ [email protected] or +263 783 584 745.


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