eBusiness Weekly
Business Writer
Financial services giant, Old Mutual Investment Group Zimbabwe, with tentacles across a broad spectrum of the economy, believes the Zimbabwean economy is on a growth trajectory, according to its Economic Brief for the first quarter to March 2022.
The financial services behemoth has operations in property, insurance, banking, and owns equity in the manufacturing sector, renewable energy among others, giving it a wide view of the economy and making its comments about the economy valid.
And according to Old Mutual Investment Group Zimbabwe (Old Mutual), the local economy is on an upward trajectory.
This growth, according to Old Mutual, is being driven by strong performance in 2021 of major sectors including agriculture and mining and election spending.
Lands, Agriculture, Fisheries, Water and Rural Development Minister, Anxious Masuka, is on recording saying the agriculture sector grew by 36,2 percent to US$8,19 billion in 2021. This is ahead of Treasury’s projection of a 34 percent growth rate.
A report by the World Bank released on April 13, 2022, says the country’s mineral exports expanded by over 51 percent in 2021, again in line with Old Mutual’s view.
The strong performance in mining and agriculture resulted in increasing volumes by manufacturers, Old Mutual said.
“The economy is on an upward trajectory as witnessed by increasing volumes by manufacturers, due to growth in demand.
“Growth is being driven by strong performance in 2021 of major sectors including agriculture and mining and election spending,” reads part of Old Mutual’s Economic Brief.
However, despite the upward trajectory, Old Mutual also sees headwinds ahead.
“Going forward, monetary policy will continue to reflect macroeconomic vulnerability as evidenced by the recently increased interest rates,” the financial services giant said.
Sensing macroeconomic vulnerability, the Reserve Bank of Zimbabwe recently put up interest rates.
Following a meeting of the Monetary Policy Committee (MPC) on the 1st of April, the RBZ put up its Bank Policy Rate from 60 percent to 80 percent per annum.
The Medium-Term Bank Accommodation Facility Interest Rate was reviewed upwards to 50 percent per annum from 40 percent.
In putting these measures in place, the central bank said it remained focused on inflation reduction amid “resurging inflationary pressures and foreign exchange parallel market activities.”
Old Mutual believes the central bank’s policies are inadequate and won’t solve the problems bedeviling the economy.
“These measures are unlikely to result in satisfactory and sustained stabilisation of prices given foreign currency shortages.”
Instead, “foreign currency shortages will persist amid increased dollarisation”.
“The interbank rate is increasingly being alienated in the market given the growing and unsustainable divergence with parallel rates.”
The official exchange rate is currently pegged at $155,14 to the greenback as of Wednesday this week but on the parallel market, the exchange rate is anything between $300 and $360 or more.
In the quarter under review, “the local currency depreciated by 23,70 percent from 108.67 to 142.42 largely due to foreign currency shortages”.
“This points to inevitable dollarisation to stabilise prices,” according to Old Mutual.
Prices in the economy, driven by both exchange rate instability and rampaging international food prices, of which Zimbabwe has a strong import appetite, have been on an upward trajectory for a while.
Just this week, the price of bread went up by 30 percent to $352 from $270 following a similar increase in the price of flour to $ 215 000 from $164 523.
A week ago, the Consumer Council of Zimbabwe said the cost of living had gone up by 17.9 percent in March 2022 again signaling inflationary pressures prevailing in the economy. For the quarter under review inflation stood at 19.82 percent.
In reaction, Old Mutual has adopted a defensive strategy with the likely aim of protecting both shareholder and policyholder value.
“Our strategy to year-end will zero in on green shoots from selected companies, while overarching positions remain defensive and long term in nature,” it said.
