eBusiness Weekly
Economy Uncensored with Tapiwanashe Mangwiro
With a turbulent economy, you will not fault the contrasting gross domestic product (GDP) growth projections from different monetary authorities. Treasury, however, is the outlier in these projections and has its ‘valid’ arguments for its huge projections.
The International Monetary Fund, the World Bank and the African Development Bank, have projected the local economy to grow by 2,5 percent, 3,6 percent and 2,8 percent respectively.
In November 2022, Treasury projected a 3,8 percent growth but in March 2023 revised it upwards to 6 percent.
Finance and Economic Development Minister, Mthuli Ncube, stated that Zimbabwe’s GDP growth prediction of 3,8 percent is an underestimate, and growth should be closer to 6 percent, citing improved agricultural performance and increased electricity availability.
To back its assertions, Government expects to harvest 2,3 million tonnes of maize this year, a 58 percent increase from the previous season, due to a favourable rainfall season.
The mining sector is expected to grow by 10,4 percent in 2023 on the back of anticipated favourable international mineral prices, as well as increase in investment, especially in exploration, mine development and mechanisation.
Zimbabwe has seen a stable supply of electricity in the past eight weeks which is being touted as a plus due to the increased production at Kariba and the coming on board of Hwange 7 & 8.
This means the industry is in full swing both day and night in production.
Construction has been on a positive trajectory with cement and brick manufacturers saying the country is on a positive trajectory in the sector. Vital infrastructure (dams and roads) have been commissioned and thus contributing to growth.
Tourism and transport sector have also registered significant growth with the former getting back to pre-Covid-17 numbers.
According to the World Bank, renewed domestic and external shocks, inflation surge, erratic rainfall, electricity shortages and Russia – Ukraine war are, however, adversely are affecting economic and social conditions.
The IMF whilst giving its projections said; “Real GDP growth is expected to decline reflecting a slowdown in agricultural and energy outputs owing to erratic rains and rising macroeconomic instability, amidst a recovery in mining and tourism.
Uncertainty remains high, however, and the outlook will depend on the evolution of external shocks, the policy stance and implementation of inclusive growth-friendly policies.”
Who is closer to the truth?
Positive outturn is a possibility given positive developments in the mining and tourism sectors, however, restrictive factors such as high cost of borrowing, liquidity constraints, policy missteps and perennial power shortages continue to present risks to the attainment of this projection.
However, the IFIs are closer to the true 2023 growth projection because Treasury is basing its growth targets with an outrageous projection of 58 percent growth in maize production.
Such a projection is out of the park as maize production grew by 6 percent and this year rains were unevenly distributed leaving some regions with no rains.
Electricity problems have persisted in the country for the most part of the first half, denting production timelines and abilities of companies to increase output.
As a result of these power shortages, according to the Zimbabwe National Statistics Agency, the first quarter 2023 volume of manufacturing index was 289,5, reflecting a year-on-year percentage decrease of 14,8 when compared to 339,6 recorded in first quarter 2022.
The quarter-on-quarter comparison shows a 42,5 percent decrease in the index from 503,7 recorded in the fourth quarter of 2022.
Inflation and aggregate demand are a problem in the country, with month on month inflation currently sitting at 75 percent due to the rapid depreciation of the local currency.
This has left value being eroded and with salaries lagging the erosion of value citizens have been left to scratch their wounds for basic needs. As a result, this has left the economy reeling from depressed aggregate demand which will lessen growth of output in the industry.
The tight monetary stance has also strained aggregate demand in the economy and if sustained it is going to affect economic output growth in the long run.
The tight monetary stance is going to exacerbate the already dire growth situation since growth is already going to be lower than it was last year.
High interest rates mean companies cannot borrow to finance their operations as the money is deemed expensive. This will lead to companies scaling down their operations and leaving capacity utilisation at risk.
Industry capacity utilisation is likely to decline exacerbated by the power outages experienced in the first half and the high bank policy rate which has undoubtedly grown to limit borrowings on part of companies and increasing inflation.
Considering all the factors on the ground and with it being an election year, I believe Treasury is wide off the mark with their projections.
Tapiwanashe Mangwiro is a resident economist with the Business Weekly and writes this in his own capacity. @willoe_tee on twitter and Tapiwanashe Willoe Mangwiro on LinkedIn.
