Zimbabwe. Economic Review

Transcription

1 Zimbabwe Economic Review May 2018

2 CONTENTS GENERAL INFORMATION... 2 Executive Summary... 2 Forecasts... 3 Trade Data Exports Gold Tobacco Imports Maize Imports... 6 Revenue Collections... 6 Budget Deficit... 6 Inflation... 7 Debt Debt Ratios External Debt Domestic Debt... 8 Performance of the Zimbabwe Stock Exchange (ZSE) ZSE Trajectory Leading up to Elections Energy Outlook Elections Electoral Bill Scenario Analysis Appendix Sources... 16

3 GENERAL INFORMATION Total Area km 2 Land km 2 Water km 2 Bordering Countries Natural Resources Botswana, Mozambique, Zambia, South Africa Coal, gold, nickel, chromium, asbestos, copper, iron ore, vanadium, lithium, tin, platinum group metals Agricultural land 42.5% Irrigated land km 2 Natural hazards Population (2017 est.) Population growth rate 1.56% (July 2017 est.) Age structure GDP GDP per capita GDP composition recurring droughts; floods and severe storms are rare 59.37% below 24 years (July 2017 est.) $17.11 billion (July 2017 est.) $2 300 (July 2017 est.) Agriculture (12.5%), Industry including mining (26.9%), Services (60.6%) Labour force million Source: CIA Executive Summary 2018 is a significant year for Zimbabwe as the country is headed for elections between July and August The country is on an unsustainable trajectory and post-elections, economic reforms should be exercised otherwise the country will fail to realise economic growth. The world is looking to the elections to provide direction for how to relate to Zimbabwe. The stock market has been on an upward trajectory, demonstrating speculative tendencies given the political uncertainty. Inflation will be contained, if the government does not print excess money and it exercises fiscal prudence. As elections approach, uncertainty is high. It is difficult to predict the outcome given the dominant young voter population and the clear choice for the voters. 2

4 Forecasts REAL GDP (ANNUAL % CHANGE) E 2018E 2019E 2020E 2023E WORLD - WB* WORLD - IMF** USA - WB USA - IMF CHINA - WB CHINA - IMF EUROZONE - WB EUROZONE - IMF MENA - WB MENA - IMF ZIMBABWE - IMF ZIMBABWE-WB ZIMBABWE AfDB* ZIMBABWE RBZ* BALANCE ON CURRENT ACCOUNT ZIMBABWE - IMF WB* - World Bank, IMF** - International Monetary Fund, AfDB*- African Development Bank, RBZ* - Ministry of Finance & Economic Development & RBZ (RBZ Monetary Policy Statement Jan 2018) Trade Data The Zimbabwe Revenue Authority (ZIMRA) has not been able to publish the trade data between December 2017 and January 2018 because the The Automated System for Customs Data (Asycuda) computer system crashed. According to ZIMRA, the upgrade of this system will be completed by June Due to the lack of data in January 2018, the research team decided to analyse data between February and April of 2017 and Exports According to data from Zimstat, exports between February and April 2018 increased by 23% from $781.6 million in 2017 to $964.5 million in In 2017, 78% of the exports went to three countries (South Africa (61%), Mozambique (13%) and UAE (5%)). In 2018, there was a small reduction in the percentage of the top three country exports to 77%. Only 50% was exported to South Africa while 16% was exported to the UAE and 10% to Mozambique. In April 2018, exports rose by 46% to $329.6 million compared to $225.5 million recorded in April Most of Zimbabwe s exports are going to three countries, but given the new political dispensation and reengagement with the West; destinations such as the European Union will likely trade more with Zimbabwe. 3

5 USD Value Exports: Feb-Apr 400,000, ,000, ,000, ,000, ,000, ,000, ,000,000 50,000,000 - Feb Mar Apr Source: Zimstat, 2018 The top six exports in 2017 and 2018 were made up of minerals and tobacco which translated to over 80% of total exports. Feb - Apr 2017 USD Value % of Total Exports Feb - Apr 2018 USD Value % of Total Exports Gold 186,187,187 24% Gold 311,653,537 32% Nickel mattes 130,156,002 17% Nickel mattes 158,011,782 16% Flue-cured tobacco 115,210,616 15% Nickel ores 110,959,566 12% Ferro-chromium 92,064,931 12% Flue-cured 106,063,969 11% tobacco Nickel ores 82,028,529 10% Ferro-chromium 68,213,850 7% Chromium ores 37,781,132 5% Chromium ores 26,000,951 3% Total 643,428,398 82% Total 780,903,654 81% Gold In April, gold exports rose by 106% to $125.6 million compared to $60.9 million in April The country s gold production has increased notably between February and April 2018 compared to the same period last year. Gold constituted 32% of total exports in 2018 compared to 24% in the same period the previous year. According to the Monetary Policy Statement delivered in January 2018, the Reserve Bank of Zimbabwe (RBZ) increased the gold support facility from $74 million (disbursed to 255 entities) in 2017 to $150 million. A Diaspora Gold Production Financing Bond was also issued to Zimbabweans living in the diaspora to finance gold production by small scale gold miners. Tobacco Between February and April 2018, Tobacco was the fourth largest export product with a value of $106 million. Data from the Tobacco Industry Marketing Board (TIMB), on the 21 st of May 2018 (day 40 of the tobacco sales), stated that a total of million kgs of tobacco had been sold. This was a 9.66% increase compared to the same period in 2017 where million kgs had been sold. The value of the tobacco amounted to $369.4 million which was an increase of 12.09% 4

6 compared to The average price stood at $2.90, a 2.2% rise compared to 2017 when the average price was $2.83. The forex inflows from tobacco and gold have helped to ease the foreign currency challenges the country is facing but there is still inadequate supply. 2.2 Imports Total imports between February and April 2018 went up by 34% to $1.724 billion compared to $1.29 billion during the same period in ,000, ,000, ,000, ,000, ,000, ,000, ,000,000 Imports 2017 vs Feb Mar Apr Source: ZIMSTAT, 2018 Total imports between February and April show a similar trend with peak imports in March. Top Imports 2017 (In $ 000) 2018 (In $ 000) Product February March April Total % of Total Imports Diesel 74,029 Unleaded petrol Maize (Excluding Seed) Electrical energy 41,173 14,333 18,080 66,078 59, ,915 35,197 31, ,647 19,054 15,011 48,399 14,968 13,654 46,702 Product February March April Total % of Total Imports 13.5% 84,453 78, , % Diesel 69, % 35,657 Unleaded petrol 3.7% 14,712 Electrical energy 3.6% Rice 12,617 47,390 40, ,099 14,713 31,067 60,492 8,565 13,265 34, % 3.5% 2.0% In 2017 and 2018, diesel and unleaded petrol were the top two imports. There was a 16% increase in diesel imports in 2018 (Feb-April) from $200 million to $232 million compared to

7 Maize Imports Maize imports in 2017 where over $48 million compared to $1 million in One scenario suggests that the imports of maize serves to reduce the average price of maize that the government effectively covers in the form of subsidies. Currently, the Grain Marketing Board (GMB) is buying maize from the farmers on behalf of government at the rate of $390. The price of landing maize from Zambia is between $180 and $220. Therefore, if the local price and the foreign price are combined, the effective price of maize will be between $285 and $305 which significantly reduces the deficit the government will have to cover. The country s trade deficit in April 2018 rose percent from $179 million to $214 million compared to the same period in Revenue Collections The Zimbabwe Revenue Authority (ZIMRA) reported that for the 1 st quarter of 2018, net collections stood at US$1.058 billion, which translates to 2.74% above the expected US$1.029 billion. Net revenue collections improved by 27.97% from $ million realised during the first quarter of Major contributors to revenue were Excise Duty (21%), Net VAT on Local Sales (19%) and Individuals (18%). The positive revenue performance is attributed to the ZIMRA s efforts in revenue enhancing projects and debt follow-up, a resolute stance on corruption as well as the increased use of electronic and mobile money in transacting. ZIMRA started the year with debt owed amounting to $3.93 billion, increasing during the first quarter of 2018 by $ million (7.21%) to $4.23 billion at end of quarter. High level discussions are going on for public enterprises debt and for set-offs where Government owes the private sector. According to the Finance Ministry s budget statement, the government is expecting revenues amounting to $5.07 billion. If ZIMRA continues with its efforts to improve efficiencies in collection, it will reach this target. Going forward, it is expected that net revenue collections will increase because of increased efficiency and improvements in the economy. Budget Deficit According to the 2018 National Budget, the framework will result in a reduced budget deficit of US$675.8 million by year end. Government is projected to be $5.74 billion. Given the unrest with civil servants junior doctors, nurses and teachers, the government has been pressured to increase salaries. It being an election year, it is expected that there will be fiscal rectitude which will lead to the overshooting of the budget deficit. The reserve bank has been creating money through the real time gross settlement (RTGS) to fund expenditure through treasury bills (TBs) and paying off maturing TBs. 6

8 Inflation Following the deflationary period that ended in January 2017, average inflation was 0.9% (yo-y) for From September 2017, y-o-y inflation rose sharply due to shortages of effects of parallel market premiums on foreign exchange because of forex shortages. Speculative tendencies also played a part especially the weekend of 23 September 2017, where panic buying became rampant in Harare Source: ZIMSTAT, 2018 Y-O-Y Inflation: Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr If the central bank does not engage in excessive money printing exercises to fund government expenditures, inflation will remain stable. The government s strategic grain reserves estimated to be at tonnes are expected to supplement the harvest in the 2017/18 agriculture season. This will help to keep the price of maize meal stable. According to the Food and Agriculture Organisation (FAO), maize production during the 2016/17 season was estimated at 2.2 million tonnes. In March 2018, 1.2 million tonnes of maize had been secured by GMB on behalf of the government. Given that it is an election year, government expenditure is expected to be high and it is expected that inflation will rise leading up to elections but will remain contained. Debt Zimbabwe s longstanding external arrears have made foreign financing scarce, causing fiscal deficits to be financed through domestic borrowing. TBs have been used by the central bank to fund government projects which has exacerbated the liquidity crisis in the nation. The debt overhang has resulted in lack of funding which causes low productivity, lack of competitiveness and confidence and it increases the country risk. In October 2016, Zimbabwe cleared its arrears to the IMF administered Poverty Reduction and Growth Trust (PRGT), allowing the country s PRGT eligibility to be restored and the declaration of non-cooperation to be lifted. However, the country should pay its arrears to the WB and AfDB to access fresh capital. 7

9 6.1 Debt Ratios According to the IMF, if external debt-to-exports is above 150% or external debt-to-gni is above 50%, it is a sign of debt distress. In 2016, the debt-to-exports ratio for Zimbabwe was 168% and the debt-to-revenue ratio was 192.3% (IMF, 2017). The external debt-to-gni was above 60% (WB, 2017). According to Zimbabwe s 2018 budget statement, the debt stock was projected to be $14.4 billion as at 31 December 2017 which is 74.4% of GDP. The IMF describes the domestic debt burden as significant when the nominal domestic debt stock to GDP ratio is above 15% - 20%. These ratios reveal that the country is not in a sustainable position to service its debts and there is need for debt restructuring, reforms and even the possibility of debt relief to restore the nation to sustainable debt levels. 6.2 External Debt By the end of 2016, Zimbabwe s external debt stood at $9.3 billion which was 58% of GDP (IMF). This debt was made up of $7.231 government debt (44.8% of GDP) which excludes the debt from State Owned Enterprises (SOEs), local government, non-financial public corporations, and transport projects which was close to $2 billion. Private sector external debt was $2.11 billion which was 13.1% of GDP. 6.3 Domestic Debt Due to lack of access to external debt, domestic debt has risen dramatically since Domestic debt rose from $442 million in 2013 to $4 billion. This made up 25% of the country s GDP. The debt was mainly funded through treasury bills and an overdraft facility at the Reserve Bank. An estimated $ million was channelled to Command Agriculture in 2017 and there is currently an estimated $ million cash in circulation which is why there is a liquidity crisis. Debt has exacerbated the dollar scarcity in the economy and crowded out the private sector and continues to do so in On the 19 th of April 2018, the International Monetary Fund (IMF) and the World Bank (WB) hosted annual spring meetings in Washington DC. There, Zimbabwe presented its debt and arrears clearance programme including economic and political reforms. This was following the ouster of Robert Mugabe and the failure of the government to implement the Lima Plan (2015) whose strategy was to pay all the arrears to the IMF, WB and the African Development Bank (AfDB) by June At the spring meetings, the government did not get a commitment for fresh funding from multilateral lenders. It is expected that any tangible engagement will take place post elections, given the outcome of the polls. If the elections are deemed free and fair, the goodwill is expected to bring in the required money and open lines of credit. If that doesn t happen, the country will experience a difficult period. Companies will not be able to replenish their stocks and weaknesses in balance sheets will begin to manifest. 8

10 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 USD Performance of the Zimbabwe Stock Exchange (ZSE) Market capitalisation on the ZSE peaked to $14.8 billion in October This was the highest peak since dollarization of the economy in February ,000,000,000 14,000,000,000 12,000,000,000 Market Capitalisation: ,000,000,000 8,000,000,000 6,000,000,000 4,000,000,000 2,000,000,000 - Source: ZSE, 2018 This increase in market capitalisation was driven by speculative tendencies and shares being a preferred store of value than money market investments. The first quarter of 2018 witnessed the decline in value of shares as the market self-corrected. In April 2018, the market gathered momentum as share prices rose. As elections approach, speculative tendencies are emerging. Foreigners have increased their participation in the buying of stocks. Foreign Buys on the ZSE % 70% 60% 50% 40% 30% 20% 10% 0% Source: ZSE,2018 9

11 This upward trajectory of foreign buys is driven by foreigners taking advantage of the discount rate which is given by fungible shares, mainly Old Mutual. The Old Mutual shares serve as a convenient way of bringing funds into the country at a discounted price to get a higher share price in USD terms. This is discount rate is called the Old Mutual Implied Rate (OMIR). In March 2018, foreign buys peaked to over 60%, meaning that local buys were around 35%. The Old Mutual Implied Rate as at 21 May 2018 Source: African Financials- On the 21 st of May 2018, the OMIR had risen to which is highly attractive for foreign investors. Given this exchange rate, the question is whether this pricing will be sustainable post elections. The market seems to suggest that the country will be forced to take on a new currency. 80% Foreign Sales on the ZSE % 70% 60% 50% 40% 30% 20% 10% 0% Source: ZSE,2018 Foreign sales on the ZSE have been declining as locals take advantage of the high prices and are opting to crystallise their profits. The OMIR makes the behaviour by foreigners and locals different as they are dealing with different rates of exchange. Foreigners continue to be stuck in the repatriation queue that is estimated to be 18 months which makes shares attractive. The 7% p.a. being offered for idle funds by government does not prove to be attractive enough. The notable trend is that investors would rather continue in the market as opposed of being stuck in cash. 10

12 Industrial & Mining Index Performance INDUSTRIAL MINING The industrial index witnessed a significant decline from November 2017 to March Its performance is like the trend of the market capitalisation, Alsi and Top 10 index. The companies that are being traded the most are part of the industrial index. ALSI and Top10 Index There was a rise in the ALSI and Top 10 indices in April This was driven by increased activity in the major counters on the stock market. Foreign investors tend to look at the market capitalisation and liquidity of the share before looking at the fundamentals of the company hence the concentration in larger firms. ALSI & TOP 10 Indices: Jan - Apr Jan-18 Feb-18 Mar-18 Apr-18 ALSI TOP10 11

13 USD 7.1 ZSE Trajectory Leading up to Elections Since the ZSE is on an upward trajectory, the question is how long it will last, given that it is partly driven by speculative tendencies. A look at the run up to elections in 2013 shows that stocks were on an upward trend up until July. Elections were held on the 31 st of July 2013 and in August 2013, the market capitalization dropped from $6 billion to $4.6 billion. The $6 billion peak was only surpassed in August ,000,000,000 6,000,000,000 5,000,000,000 4,000,000,000 3,000,000,000 2,000,000,000 1,000,000,000 - ZSE Market Capitalisation 2013 Source: ZSE, 2018 Although there is strong bullish activity, it is vital to be driven by fundamentals, not speculation given that the tendency before elections is to drive up the price of shares. Since there is uncertainty and high volatility in the market, even though shares are backed up by real companies, there is no telling how the market will perform. Trading has become condensed at the top end because of foreigners who focus mainly on liquidity and market capitalisation before looking at the valuation. Watching valuations carefully and what happens to reforms in terms of the economy post elections is vital. Energy In March 2018, the Kariba South hydro-power project was commissioned, adding 300 megawatts (MW) to the national grid. Daily national demand is estimated to be between and MW. The electricity has aided the reduction of imports in electricity since the country is still a net importer. Electricity imports in April 2018 were over $31 million and electricity continues to be a large import expense for the country. Outlook The economy is expected to be heavily reliant on what the politicians dictate since it is an election year. Government influence is significant going forward. It is evident that the current prices are not sustainable post-elections and the question is whether the country will be faced with its own currency. 12

14 When assessing Delta which is a proxy for consumer demand, its production volumes have increased nearing its 2013 peak volumes. Consequently, the company is struggling to source raw materials due to foreign currency shortages. Going forward, company balance sheets are likely to be impacted negatively by these foreign currency challenges. Post elections, there is need for economic reforms for companies to be able to meet demand and have access to foreign currency. 9.1 Elections Currently, the government is portraying the image that the upcoming elections will be free and fair. This has been witnessed by the invitation of foreign observers in the European Union (EU) and America to witness these elections. Post-Mugabe, there has been greater ability to speak out as the opposition of the Mnangagwa administration. The air waves have been opened to other media players with licences been recently awarded to Telone and Zimpapers. However, in some quarters, these reforms are not deemed as enough to allow for free and fair elections. There have been calls for the repealing of the Public Order and Security Act (POSA), the Access to Information and Protection of Privacy Act (AIPPA), the opening of state media to other political parties and the facilitation of the diaspora vote. These reforms are not likely to take place before elections. The recent ZANU PF primaries were mixed with many disruptions which saw re-elections in ten constituencies. Some well-known politicians such as Simbarashe Mbengegwi (Minister of public service in the president s office), Nyasha Chikwinya (minister of women s affairs) and Abednico Ncube (Matabeleland South provincial affairs minister) shockingly lost in the elections. The re-election in Norton saw the presidential advisor, Chris Mutsvangwa recovering from a previous loss after Langton Mutendereki decided to step down in the race. The chaotic primaries have not ignited confidence in the voting populace. The major opposition party, Movement for Democratic Change Tsvangirai (MDC T) camp has also been faced with its own wrangles. Following the death of Morgan Tsvangirai, Thokozani Khupe (former vice president of the party) broke away from the party due to a succession dispute and Nelson Chamisa assumed power. Chamisa seems like the major opposition in the 2018 elections. Electoral Bill In May 2018, the Electoral Bill sailed through parliament and is awaiting presidential assent for it to become law. The Bill seeks to give legal effect to the Statutory Instrument on the Biometric Voter Registration (BVR) that was undertaken by the Zimbabwe Electoral Commission (ZEC). Opposition parties have claimed that the amendments to the Electoral Act are not enough as greater reforms are required such as the agreement by all political parties on the printing of the ballot paper and the auditing of the voter s roll. However, compared to Mugabe, the Mnangagwa administration is more democratic which is also a welcome change. Scenario Analysis It is difficult to predict which political party will win the election. Competition is between the MDC Alliance coalition whose presidential candidate is Nelson Chamisa and the incumbent president, Emmerson Mnangagwa. An estimated 60% of the 5.3 million registered voters are below the age of 40. The question is whether the young population is tired of ZANU PF completely or there is promise in the new regime given the drive to ouster Mugabe. Chamisa, being 40 and part of the young generation has the advantage to be relatable but the question is whether the populace believes he is mature enough to lead. 13

15 SCENARIO 1: ZANU PF WINS PRESIDENCY If the elections are deemed free and fair and ZANU PF wins, there is no telling what the opposition s reaction will be. Since MDC Alliance is concentrated in urban areas, there might be some protesting by urban dwellers. If there are protests, they might be accompanied by violence. The police and army may be deployed to contain the retaliation but it is expected that the human rights of the populace will be respected to maintain goodwill with the rest of the world. Given somewhat peaceful nature of Zimbabweans, it is expected that the unrest will be contained in a matter of weeks with minimal violence and acceptance of the new president will soon follow. If this scenario manifests, it is likely that the country will go on to be welcomed into the Common Wealth and possibly have sanctions by the West removed. SCENARIO 2: MDC ALLIANCE WINS PRESIDENCY If Chamisa becomes the president and there is no retaliation from ZANU PF, the country will likely proceed to be integrated into the international community. However, tensions will probably rise and the question lies in how the army will react. The takeover in November 2017 by the military displayed the strength the military can exercise. How far the army is willing to display its power is unknown. The best-case scenario is that there is no retaliation and the worst case is that there will be an outbreak of civil war. This will cause unrest in the nation and subsequently, the economy will suffer. THE RESULTS WARRANT THE FORMATION OF A GOVERNMENT OF NATIONAL UNITY (GNU) If the results are not conclusive, the parties can decide to have a social arrangement through the formation of a government of national unity. This scenario will probably bring goodwill from the international community and a certain level of unification between the parties. However, key ministries such as finance, home affairs and justice and legal affairs will probably be highly contested between the parties. The GNU will serve to put in place checks and balances between the political parties. Unfortunately, this scenario does not pose long term stability. In five years time, the parties will be intensely battling it out to have control of government. Whichever scenario plays out, stability and economic reforms are crucial for the recovery of the country. 14

16 Appendix 1 Source: 2018 Budget Statement, Government of Zimbabwe 15

17 Sources African Development Bank (AfDB) African Financials African Forum and Network on Debt and Development (AFRODAD) Central Intelligence Agency (CIA) International Monetary Fund (IMF) Reserve Bank of Zimbabwe (RBZ) World Bank (WB) Zimbabwe National Statistical Agency (ZIMSTAT) Zimbabwe Stock Exchange (ZSE) 16

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