eBusiness Weekly
Business Writer
The reforms that have been implemented by the Zimbabwe Government have so far been unpopular and have had adverse effects on the consumer base, leading UK-based research and risk management firm Fitch Solution said in its Africa Monitor report for the month of October.
The research and risk management firm said the current hyperinflation economic environment has been a drag on consumption.
Although Zimbabwe’s month-on-month inflation for September slowed to 17,7 percent according to Zimstat, the annual figure is estimated to have reached 353 percent.
The annual figure is, however, not official as Government, through the Minister of Finance and Economic Development, said annual inflation figures will only be released in February 2020 because prices are no longer measured in United States dollars, making the figures incompatible.
In September 2018, Zimbabwe was using a multi-currency system but has since adopted a mono-currency making price comparisons difficult, according to Finance Minister Mthuli Ncube.
“The change in the currency regime from multi-currency (system) to Zimbabwe dollar has definitely impacted on the base for calculation of (consumer price indices), and hence inflation,” said Minister Ncube.
Zimbabwe is nearing the end of its austerity measures under the Transitional Stabilisation Programme but not before disposable incomes have been ravaged by high inflation and a fast depreciating currency.
According to Fitch; “extremely high levels of inflation are weighing on consumer purchasing power, while an effective currency devaluation has led to elevated cost of imported consumables, on which a majority of Zimbabweans rely.”
“Households have been particularly hard hit by the recent economic collapse in the country. Consumers face a myriad of issues, ranging from hyperinflation, to basic commodity shortages and limited access to stable currency.”
The story of falling disposable income has also been corroborated by businesses including Zimbabwe Stock Exchange-listed Simbisa Brands.
In its year to June 2019 results, the quick services restaurant company said deteriorating economic conditions in the country “have resulted in erosion of consumer earnings which in turn have negatively impacted our sales volumes and seen a general trend of customer down trading.”
“Customer counts dropped 5 percent year-on-year as a result of the aforementioned pressure on consumers which has dampened consumer spend across the entire Zimbabwe consumer sector,” said Simbisa which expects challenges in the trading environment in Zim
babwe to persist.
Between February (when the Consumer Price Index was re-based following the adoption of the new currency) and mid October 2019, the food price index increased to 351,98 percent and, more specifically, the average price of bread has gone up by 800 percent.
As a result, outlook for the Zimbabwean consumer continues to deteriorate, according to Fitch.
In 2019, Fitch forecast private consumption to shrink by 3 percent year-on-year.
“The continued economic crisis will continue to threaten consumption and the lack of currency will be a downside risk to our forecast.”
The Vulnerability Assessment Committee (VAC) released this week also made the same assertion saying the broad increase in all food prices could result in a net reduction of the overall food intake.
“Furthermore, the broad increase in all food prices limits households’ ability to substitute to cheaper foods (a key coping strategy) and could result in a net reduction of the overall food intake.
“Given that consumption responses to rises in staple cereal prices tend to be limited as the demand for these goods is generally price inelastic, households are more likely to reduce consumption of other food commodities, such as fruits, vegetables and meats, increasing the risk of nutritional deficiencies,” reads the VAC report.
Fitch, however, sees an improved 2020 where growth is expected to return. Zimbabwe authorities are also expecting a 4,6 percent economic growth in 2020.
“Over 2020, positive growth will return, where we foresee private consumption growing by 2 percent year-on-year.
“But the lack of liquidity in the economy and hyperinflation will continue to threaten this outlook,” it said.
Minister Ncube is, however, fully aware of the ravages being caused by inflation telling parliaments early August that “the story of Zimbabwe’s inflation has visible scars in our lives and deserves proactive and appropriate attention.”
“However, it is common cause that inflation is triggered by (the) running of huge budget deficits, financed through monetisation — which creates high money-supply growth,” said Ncube, referring to the Government’s practice of printing large amounts of money.
The finance minister said Zimbabwe should rein in deficit spending and rebalance trade to prevent inflation.
“Attainment of a fiscal surplus, combined with a current account balance during the first half of the year, constitutes a firm road map to confidence-building much required by this economy,” he added.
