Zimbabwe's economy is worsening

Zimbabwe’s economy is deteriorating after the swearing in earlier this month of a new Cabinet, which has technocrats and fresh faces.

At the same time, the parallel market – or black market – for foreign currency is imploding, prices in the country are spiking and business executives are complaining of increased delays in payment for crucial imports owing to foreign currency shortages.

President Emmerson Mnangagwa appointed a leaner Cabinet with 20 ministers, down from about 33 in the previous administration.

He said the new line-up of government department heads “has the capacity to deliver” solutions to a country where the economy has struggled, even after the exit of former leader Robert Mugabe who is blamed for the country’s economic woes.

The new Cabinet consists of technocrats such as Finance Minister Mthuli Ncube, an economist and former African Development Bank executive, as well as Mines Minister Winston Chitando, who was executive chairman of the Mimosa mine, which is owned by Impala Platinum and Sibanye-Stillwater in Zimbabwe.

The Cabinet has, however, not helped matters in the economy and business executives are fearing for the worst.

Denford Mutashu, who heads the Confederation of Zimbabwe Retailers, told City Press that the new administration had to hit the ground running to correct price increases.

“The real threat to the pricing situation in the country is the parallel market rate for forex, which has so far shot up from 80% to 90% for electronic funds versus the US dollar, [which makes foreign currency more expensive],” he added.

Mutashu was referring to the premium paid for local currency.

For instance, to get US$100 in local currency cash companies have to pay around $197, as of this week, from their bank balances.

The central bank takes foreign exchange earnings from exporting Zimbabwe companies and in turn credits their accounts electronically with local money.

“This is something that has to be corrected while at the same time the parallel market has become a major source of forex for businesses, but it has to be corrected,” said Mutashu.

Ncube said that he was working on solutions to tame the currency issue and the broader economic challenges.

There is a growing call for Zimbabwe to abandon bond notes, which is a quasi local currency, and instead rope in either the US dollar or the South African rand as the anchor legal tender.

Mutashu added that corporates in Zimbabwe were “expecting quick turnarounds” and for the new finance minister “to act more than he speaks”, especially on taming government expenditure and curtailing the ballooning local electronic funds, a factor that experts say is fuelling inflation, which is currently above 4%.

A forex crunch is hammering all industries in Zimbabwe, with chairman of the Grain Millers Association of Zimbabwe Tafadzwa Musarara saying the local milling industry is saddled with $87 million in debt for wheat, rice and salt imports.

The major risk is that the interest on the debt is accruing additional charges, which is “creating inflationary pressures towards product pricing” on the local market.

South African companies present in Zimbabwe include Tiger Brands, Pick n Pay, Anglo American Platinum, Sibanye-Stillwater and Standard Bank.

Nedbank and other international companies such as Standard Chartered also have a heavy presence in Zimbabwe and will be looking to the new administration for economic policy reforms.

Zimplats CEO Alex Mhembere said in an interview that “the key issue is to do with policy consistency” after the installation of a new government.

He said mining companies also had other issues that they want the government to address, such as “penalties in terms of export levy” on platinum.

“Forex is a big issue, but we are working well with the [Reserve Bank of Zimbabwe]. We need some of the forex to support our suppliers, some of those suppliers require forex. Some of our key suppliers have payment backlogs,” Mhembere said.

Investment experts expect fund flows into Zimbabwe to whittle down in the remaining months of the current year.

Christopher McKee, CEO of New York-based country risk specialist firm PRS, said via email that some global investors “have already postponed planned fact-finding visits” to Zimbabwe after the elections, whose aftermath was marred by violence.

Mnangagwa’s government claims to have notched up multibillion-dollar investment commitments since taking over power from Mugabe in November last year.

However, McKee advised that investor fund flows into Zimbabwe are set to “drop sharply in the second half of the year as potential investors reassess their faith in Mnangagwa’s ability to ensure a stable political climate”.

The Zimbabwean leader has indicated that he is optimistic that his new Cabinet will return the economy to growth.

However, the country’s economic growth for this year is also projected to dip below 1% and a forecast El Niño weather pattern has raised the spectre of a drought that could hurt the size of grain and other crops.

One finance executive, who wished to remain anonymous, said investors were waiting for the government to fix liquidity and forex issues before committing funds to investment programmes.

Mnangagwa has tasked his ministers with 100-day plans to foster economic growth amid growing demands for him and his administration to put in place policies that attract investment and promote economic growth.

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