eBusiness Weekly
Nelson Gahadza and Theresa Mhazo
Economic experts have said whilst government intervention on the economy has been encouraging lately, policy missteps and inconsistency remain in place distorting an enabling environment for businesses to thrive.
They believe the year 2023 will be characterised by mixed economic circumstances taking a que from the contractionary stance by the Central Bank and 2023 harmonised elections.
Those who spoke to Business Weekly said economic activity is likely to be limited ahead of elections as investors apply a wait and see approach to strategic decision making.
The country goes into elections this year and like in many jurisdictions, elections have a knock on effect on the macro-economic environment.
In most cases, governments and opposition parties increase their spending while companies and investors slow down on their investments.
“Looking at 2023, policy uncertainty will linger to be prevalent whilst political risk will be elevated ahead of the elections. However, opportunities will continue to present in business lines which are demand inelastic,” said Enock Rukarwa, an investment analyst.
He said companies should strive to maintain volume growth and inflation proof balance sheets as the economic environment will be surrounded by uncertainties.
The operating environment is at the moment faced with unrelenting power cuts, currency volatility, high inflation and suffocating interest rates, which are all disruptive to economic stability and growth targets.
Despite these challenges, the Government believes the economy is on the right trajectory and set targets would be achieved.
Government is banking on stability that has been endured for the past four months due to its measures on inflation and exchange rate.
While the inflation rate has slowed down, it remains elevated at 243 percent year on year. On the other hand, the different exchange rates nearly converged late last year but have since started to have significant difference margins (73 percent) from December 2022 to current.
Economics Professor, Gift Mugano, said the outlook for 2023 remains depressed on the back of spillover effects of the challenges the country had in 2022.
He said key among them is high inflation levels which create negative sentiment and perception among economic agents as we carry over the 2022 burden into 2023.
“Naturally people and businesses will continue with their speculative tendencies to save against the inflationary pressures or erosion of their income and shrinking companies on the back of high interest rates and inflation,” he said.
Prof Mugano said in 2022 a number of companies were using alternative sources of power such as generators, which operate at high cost.
“Therefore, to date there is no immediate solution on power especially if we are building the argument on reduced levels of water at Kariba Dam.
“Experts in the energy sector are saying to have enough rains that can fill up Kariba, it will take up to April or May, meaning almost half of the year we will be having continued power outages which will affect production as well as winter wheat farming,” he said.
Prof Mugano said the high interest rates of 200 percent are a thorn in the flesh of many businesses because to pay back loans at 200 percent you are paying three times the principal amount.
“There is no business that makes such margins which can guarantee that kind of return which will give a business the capacity to pay back,” he said.
He indicated that businesses have already taken positions to convert their ZWL loans into USD loans and that means the economy has moved into full dollarisation.
“What it does is, we have new risks arising from that such as competitiveness challenges, creation of artificial USD because when these loans are restructured into USD loans and new notes are given out, banks are charging interest rates and bank charges.
Therefore, in 2023, this will continue to have depressed demand because when you are dollarised, demand goes down, imports go up because of lack of competitiveness and we will have a widening balance of payment,” he said.
Another economist, Dr Prosper Chitambara, said this year, the economy is going to slow down with the Government already having forecast 3,8 percent growth.
From my perspective, the growth target will even be lower than the Government’s target to maybe between 2 and 3 percent because of the various uncertainties.
“With respect to agriculture, last year output declined which then affected the rest of the economy,” he said.
He added that other challenges included the Russia – Ukraine crisis and this year they would be compounded by the upcoming elections.
“In an election year, normally public spending increases and that can have a destabilising effect and the power outages is a major issue hence growth this year will be much more subdued.
Confederation of Zimbabwe Industries (CZI) in its recent report, said Government efforts should be centred on removing constraints for business operations as a way of making business attractive for financing.
“The policy environment should ensure that the ease of doing business is prioritised, which would see the removal of all policy constraints that threaten the smooth operations of business,” said the industrial representative body.
Bard Santner Investors, in an overview of the real estate sector in Zimbabwe, said it is very likely that current macroeconomic challenges will remain for the foreseeable future.
“Although government plans to spend $1 trillion (about US$1 billion) on infrastructure in 2023 look promising, economic stability is likely to materialize in 5 to 10 years, the interim being years of policy consolidation by government and anchoring regulators,” it said.
The firm said the greatest hurdles to the country’s property market are hyperinflation, currency depreciation and a dearth of long term financing.
“Most landlords are grappling with high debtor balances as many businesses have failed to consistently pay their rentals over the last few years,” it said.
Another economist Vince Musewe said it is most likely that the economy is going to see a surge in money supply as election funds are spent on campaigns.
