Download 2015 Quarter 1

2015 Quarter 1
Inflation – The Zimbabwe National Statistics Agency (ZimStat) reported a fifth straight month of y-o-y deflation during March. The country’s consumer price
index (CPI) declined by 0.03% m-o-m during the month to also record an eight consecutive m-o-m decline. As a result, Zimbabwe recorded deflation of 1.2%
y-o-y in the cost of the benchmark consumer basket during March. The Reserve Bank of Zimbabwe’s (RBZ) Quarterly Economic Review December 2014
shows that the central bank expects y-o-y deflation throughout 2015.
Growth – The RBZ has reported a contraction in activity in the mining (-2.1%) and manufacturing (-4.9%) sectors during 2014. Were it not for the significant
jump in farming activity (+23.4%), the agriculturally-dependent country could very well have fallen into stagnation. The central bank reported overall
economic growth of 3.1% last year – the lowest reading since the country’s economic turnaround in 2009.
National development plan – An International Monetary Fund (IMF) team visited Zimbabwe from February 25 to March 9 to conduct the first review under
the country’s Staff Monitored Programme (SMP). The Fund commented that Harare has made progress “in implementing their reform programme, meeting all
quantitative targets and structural benchmarks” for the first review. In addition, the IMF praised Zimbabwe for stepping up reengagement with creditors
towards securing external debt relief, actions taken to restore confidence in the banking sector, as well as progress in clarifying its indigenisation policy.
OPPORTUNITIES
STRENGTHS
Zimbabwe was once the bread basket of Southern Africa, and has scope to
significantly increase its agricultural production over the long term.
Large mineral reserves offering long-term investment potential – dependent on
political issues, of course.
The government is re-engaging multilateral organisations and creditors, which
has led to (slow) progress towards external debt relief.
Imports: the agricultural and manufacturing sectors are producing significantly
less food products and durable goods than consumers are demanding.
The multi-currency regime keeps inflation intact, and offers stronger buying
power for Zimbabweans at a time that the SA rand is weak.
Production of tobacco (the country’s largest export by value) increased by
30% p.a. during 2009-14, and with a positive long-term outlook.
The country’s literacy rate is amongst the highest in Africa, offering
Zimbabwe the human resources to further its economic recovery.
Despite a myriad of uncertainties in the country, healthy foreign direct
investment (FDI) into the mining sector has been seen since 2009.
VULNERABILITIES
WHAT IS BEING DONE?
Policy uncertainty following the putsch of moderate Zanu-PF leaders in late- Some parts of the government are actively courting foreign investors, while
2014/early-2015 is a key obstacle to faster GDP growth as it curtails FDI.
other elements counteract this with anti-Western statements.
Highly dependent on imported food & consumer goods – some 75% of these There is little chance for the manufacturing sector to be resurrected anytime
goods sold locally are acquired from the South African economy. Industrial
soon. Its constraints are structural (e.g. cheaper goods imports from Asia) and
capacity utilisation dropped to only 36.3% during 2014.
are unlikely to change over the medium term.
Government finances are handled on a cash basis due to a lack of domestic and Re-engagement with the IMF will (hopefully) over the medium term translate
external borrowing opportunities as well as no direct budgetary aid since 2009. into a better financial relationship with past / future development partners.
The banking sector is under pressure from rising levels of non-performing
The central bank has set up a special fund to buy up to $700m in bad debt loans (NPLs), steadily climbing from 11.5% (of gross loans) in September
$65m has been realised so far. The RBZ continues to review and (where
2012 to 20.5% in September 2014.
applicable) close down troubled banks.
MEGA TRENDS
Population
13,771,721 (July 2014 est.); Age 15 - 64: 58%
Population growth rate (%)
4.36% (2014 forecast)
Life expectancy at birth
Total population: 55.68 years; male: 55.4 years; female: 55.97 years (2014 forecast)
HIV/AIDS
Adult prevalence rate: 14.99%; People living with HIV/AIDS: 1.4 million (2013 est.)
Adult literacy rate (age 15 and over can read
Total population: 86.5%; male: 88.5%; female: 84.6% (2015 est.)
and write)
Urbanisation
Urban population: 32.7% of total population (2013); Urban population growth: 2.5% (2013 est.)
Population below national poverty line
72.3% (2011 est.)
Unemployment rate
10.7% (2011 est.)
Employment (% of total)
Agriculture: 71.8%; Manufacturing: 7.6%; Services: 20.6% (2011 est.)
Labour participation rate (% of total
population ages 15+)
86.5% (2013)
Business languages
English, Shona, Sindebele
Telephone & Internet users
Main lines in use: 304,162; Mobile cellular: 13.63 million; Internet users: 2.55 million (2013 est.)
Sources: CIA World Factbook, World Bank, UNESCO, Trading Economics ITU, UNAIDS, UNDP, ZimStat & NKC Research
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Total
Zimbabwe
Corruption Perceptions Index 2014 (1 least, 175 most corrupt)
Doing Business 2015 (1 best, 189 worst)
Global Competitiveness 2014-15 (1 most, 144 least competitive)
Economic Freedom 2015 (1 most, 178 least free)
HDI Ranking 2013 (1 most, 187 least developed)
189
144
124
178
187
175
156
0
Source: NKC Research
175
156
171
20
40
60
80
100
120
140
160
180
200
Risk environment / Risk outlook
Sovereign Risk Ratings
S&P
Fitch
Moody’s
N/R
N/R
N/R
Zimbabwe is not currently rated by any of the three major rating agencies. It is unlikely that a rating will be requested over the medium term.
Infrastructure
Diversity of
the Economy
Dilapidated,
severely limited
spending
Quite diverse
GDP Growth
Key Balances
Continued
Still
populist policies
functioning, but
result in much
fragile
uncertainty
Strong during
2009-12
Small fiscal
Volatile but still Low, social Limited, targets
deficit, large
healthy in
spending mostly set as part of
current account
mining sector
from NGOs
IMF SMP
deficit
Zimbabwe Stock
Exchange (ZSE)
Primary Listed
Companies
74
(Source: Bloomberg)
Capital Market
Development
Stock Market
Socioeconomic
Development
Continuity
of Economic
Policy
Banking
Sector
Sovereign has issued
Treasury bills sold until
debt to compensate
end-2008, short- and
companies for financial
medium-term debt
losses under pre-2009 instruments again issued
government
from early-2013
Foreign
Investment
Forex
Reserves
Daily Trading
Volume
4.7 million shares
(Source: Bloomberg)
Liquidity
Market Cap
Dominant Sector
Reasonable
$4.2bn
(Source: Bloomberg)
General industrials
Liquidity
Maturity Range
Municipal Bonds
Corporate Bonds
Negligible
91-day to 5-year
N/a
N/a
Macro-economic overview
Zimbabwe’s primary sector includes the important farming sector and mining industry. Agriculture is focused on cash-crops of tobacco, cotton and edible
produce, with small-scale operators representing the majority of farmers. In turn, the mineral sector is the largest recipient of foreign investment. The
secondary sector has a small manufacturing component and a waning industrial sector. Tertiary sector activities include a burgeoning informal retail sector, a
struggling banking system, and recovering tourism activities.
The Reserve Bank of Zimbabwe (RBZ) added the Australian dollar, Chinese yuan, Indian rupee, and Japanese yen to the multi-currency system in January
2014. However, this failed to boost liquidity in the cash economy - the value per capita of money in circulation and deposited at banks was about 10% of that
seen in South Africa. The central bank's next step was the introduction of so-called 'bond coins' (named after a $50m government bond sold to cover the costs
of minting) from mid-December 2014. The tokens were on parity with US dollar coins and ranged from 1c to 25c, with 50c coins set to be released during Q1
of 2015. The 50c units were introduced late in March. Some $20m worth of bond coins will eventually be joined by $30m worth of imported South African
rand coins. Some retailers have already adjusted some of their prices lower, with the increased supply of small change allowing them to e.g. reduce prices on
goods from $1 to 90c. This has added to the country’s deflation trend.
The World Bank Doing Business 2015 survey ranked Zimbabwe 171st out of 189 countries, one place stronger than the 172nd ranking in the previous edition.
Zimbabwe recorded a 40 position improvement in its ranking in the Getting Credit pillar, rising to the 104th position most recently. The country scored three
out of 10 on the ’depth of credit information’ index from zero previously, while credit bureau coverage increased by 2.1 percentage points to 5.7% of the adult
population. Credit information going back more than two years can now be accessed online by banks and financial institutions. Spectip Investments has been
working on rolling out credit bureau services since 2009 and announced in early April 2015 that it is now offering these services to individuals, public
institutions and private companies.
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Economic Structure as % of GDP
2014 Estimate
Source: NKC Research
Agriculture/
GDP
12.2%
Service/GDP
57.2%
Industry/GDP
30.6%
Tobacco auction floors officially opened on March 5 to the sound of protesting farmers complaining about the drop in prices paid for their produce. Sales at
the country’s three auction houses were temporarily halted as merchants paid an average of only $1.50/kg compared to a mean of $2.57/kg seen on the first
day of the 2014 selling season, The tobacco auction season started a few weeks later than usual due to the impact of adverse weather conditions (unusually
heavy rainfall during December) delaying the maturity of tobacco crops and the drying process. Given the negative impact of the weather, the Tobacco
Industry and Marketing Board (TIMB) is currently looking at a crop of 190,000 tonnes this year from a figure of 222,000 tonnes announced at the start of the
year. By the end of March, average auction prices were 15% lower compared to the same period in 2014.
Real GDP Growth & Net FDI/GDP
3.5
12.0
Source: NKC Research
10.0
3.0
8.0
2.5
6.0
2.0
4.0
1.5
1.0
2.0
2009 2010 2011 2012 2013 2014E 2015F 2016F
GDP Growth (y-o-y, %) (lhs)
Net FDI/GDP (rhs)
The IMF requested Harare to publish by mid-2015 the necessary clarification on its indigenisation and economic empowerment policies. This would “lower
uncertainty about the regulatory framework and contribute to a more business-friendly environment. This step would go a long way toward allaying
perceptions about the security of investments and property rights, providing legal transparency and predictability, and reassuring markets that investing in
Zimbabwe is safe,” according to the Fund. (The International Property Rights Index 2014 ranked Zimbabwe 93rd out of 97 countries and 21st out of 23 African
states). The State gazetted amendments to current legislation early in January that stipulate that the period for compliance with empowerment rules is now
open for negotiation. This process will henceforth be conducted by individual ministries relevant to the sector where the applicable company operates. On
paper, this certainly gives some more clarity about indigenisation.
Exports ($ bn)
Imports ($ bn)
2014E
2015F
2016F
Petroleum products
Road transport vehicles & equipment
Main Imports: % share of total
2014E
2015F
2016F
Petroleum products
25.83
19.08
15.94
Road transport vehicles & equipment
8.55
7.10
6.60
Mineral & chemical fertilisers
8.33
10.77
13.00
Cereals (maize, rice, wheat)
6.00
6.72
8.18
Main Exports: % share of total
2014E
2015F
2016F
Gold, diamonds & platinum group
metals (PGMs)
30.83
29.21
23.26
Tobacco
24.33
26.89
23.67
Nickel ores & concentrates
11.67
11.05
9.98
Ferro alloys (incl. chromium)
9.50
11.00
10.68
Mineral & chemical fertilisers
Cereals (maize, rice, wheat)
Gold, diamonds & platinum group
metals (PGMs)
Tobacco
Nickel ores & concentrates
Ferro alloys (incl. chromium)
Source: NKC Research
0.0
0.5
1.0
1.5
2.0
Zimbabwe is ranked 158th out of 178 countries by the Heritage Foundation in its assessment of ‘trade freedom’. In a recently released case study entitled ‘NonTariff Barriers at Beit Bridge’, the South African Institute of International Affairs (SAIIA) indicated that trucks crossing the specific border post between
South Africa and Zimbabwe experience approximately three days of delays in traversing the boundary. This pushes up the cost of non-durable goods by
around one percentage point per day. The poor quality of human and physical infrastructure at the border is a big issue: a mere two lanes of road travel in each
direction at the busiest border crossing within Southern and Eastern Africa. (Also, trucks share a lane with passenger buses). Other issues include electricity
outages (customs processes are done electronically without backup power), confusion over paperwork processes, taxis and hawkers blocking roads, and a lack
of harmonisation between the two countries’ tax and customs authorities. The SAIIA recommends 1) a road lane dedicated to commercial traffic; 2) a redesign
of the transport and economic infrastructure to ensure that taxis and traders do not interfere with commercial traffic; and 3) an upgrade of the hardware used by
the South African Revenue Service (SARS) and the Zimbabwe Revenue Authority (Zimra) for scanning trucks and goods. Medium- to long-term needs
include a harmonising of customs software.
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Current Account & Budget Balance
(% of GDP)
-15.0
-1.0
-20.0
-1.5
-25.0
-2.0
-30.0
Source: NKC Research
-2.5
2009 2010 2011 2012 2013 2014E 2015F 2016F
Current Account/GDP (lhs)
Budget Balance/GDP (rhs)
The government’s stock of domestic debt increased significantly over the past year as the State issued more Treasury bills to supplement its revenue. The
central bank indicated a 51.6% y-o-y rise in net credit to the government during January 2015 to $544m. The jump in domestic debt confirms the tight fiscal
situation that Zimbabwe finds itself in. Zimra aimed to collect $542m in taxes during the first two months of the year but fell 14% short of this target. The
organisation is reportedly owed some $1bn in unpaid taxes. Meanwhile, on the expenditure side of the fiscal coin, the State is under pressure to find a solution
to its heavy wage bill. Minister of Finance Patrick Chinamasa was during March quoted by the Financial Gazette as saying that the government is prepared to
take steps to reduce the heavy burden that public sector employment remuneration is having on the fiscal budget. The minister indicated that, at the behest of
the Public Service Commission, the Ministry of Finance has been holding meetings towards finding a way of reducing the wage bill, though details are limited
as recommendations have yet to be put to the cabinet.
Average CPI (% change, y-o-y)
7.0
Source: NKC Research
6.0
5.0
4.0
3.0
2.0
1.0
0.0
-1.0
2009
2010
2011
2012
2013
2014E 2015F 2016F
Zimbabwe’s benign price pressures are associated with several factors, including a weak economy (resulting in almost no demand-side pressure on prices),
thin liquidity in the cash economy (due to a shortage in hard money), the strength of the US dollar-dominated multi-currency regime (when purchasing goods
from South Africa), as well as staple food prices below those seen late in 2013. Zimbabwe experienced food price deflation throughout 2014 with the food &
non-alcoholic beverages index (accounting for a third of the CPI) declining by an average of 3.1%. The Famine Early Warning Systems Network (FEWS
NET) Southern Africa Price Bulletin December 2014 indicated that maize grain and maize flour retail prices were during H2 of 2014 below the previous
year’s levels in most major towns and cities. FEWS NET's Zimbabwe Food Security Update December 2014 report indicated that an above-average cereal
crop translated into below-average staple food prices and that maize grain prices were 23% lower y-o-y at the time of the report’s publication.
CONTACT DETAILS
KPMG
NKC
NKC Independent Economists CC
Brian Njikizana – designation is Partner
Tel +263 430 2600
Email [email protected]
12 Cecilia Street Paarl, 7646, South Africa
P O Box 3020, Paarl, 7620
Tel: +27(0)21 863-6200
Fax: +27(0)21 863-2728
Email: [email protected]
GPS coordinates
S33°45.379'
E018°58.015'
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such information or opinions.
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