V-shaped Zimbabwean economic recovery not expected

Prof. Mthuli Ncube

Contrary to the Government’s expectations of a quick rebound in economic growth this year, several local stockbroking firms expect Zimbabwe to experience a sluggish GDP growth rate in 2021.

In his 2021 National Budget Statement, Finance and Economic Development Minister Mthuli Ncube projected the country’s economy to grow by 7,4 percent this year, a rebound from an economic downturn of 4,1 percent in 2020.

Minister Ncube premised this positive growth rate on several assumptions including an improved agricultural season, firming mining commodity prices, a stable local currency and increased investments from both private and public sectors.

Minister Mthuli’s positive projections in agriculture and mining are indeed realistic following above normal rainfall received in the 2020/21 season as well as new investments and bullish international commodity prices for most minerals mined in this country.

However, while broadly agreeing with the Government’s projections in the two sectors, stockbrokers are of the view that there are other risk factors that might prevent the country from achieving a V-shaped recovery as suggested by Minister Mthuli’s 7,4 percent growth projection.

Rather the stockbrokers expect the country to experience an L-shaped recovery.

While a V–shaped recovery is characterised by a quick and sustained recovery in measures of economic performance after a sharp economic decline, an L-shaped recovery is characterised by slow return of businesses investment activity, and a sluggish rate of growth in economic output.

In their 2021 Economic Outlook reports released this week, three leading Stockbroking firms in the country, Imara Edwards Securities, IH Securities and Morgan & Co said risks of worse growth outcomes in 2021 remain sizeable.

Economic views and opinions of stockbrokers are significantly valued by portfolio investors both local and foreign and are also used in decision making by foreign direct investors.

Imara Edwards Securities, which is the oldest and probably the biggest stockbroking firm in the country, says economic uncertainties that characterised 2021 are “sizable and will remain so for some time”.

Imara noted that while upside risks, stem from the possibility that the government will commit to a reform programme prompting an upturn in foreign investment, risks are more tilted to the downside and failure to address structural constraints makes the current ‘stability’ fragile.

“Both fiscal and monetary policy will have to balance the need to boost the economy against the need for debt sustainability, external stability, and longer-term credibility, in our view.

“We believe that navigating such a complex policy challenge will not be easy and will require discipline and external support,” Imara said.

While Zimbabwe authorities can commit to policy discipline, chances of getting external support are very slim if any.

Imara reckons the country will have to tap into its potential and the resourcefulness of its people if the country is to find its way back to a path of sustainable and inclusive development.

“In this context, the need for transformative reforms to promote resilience is more urgent than ever, particularly in the areas of revenue mobilisation, trade integration, competition, transparency and governance, and climatic shocks mitigation,” Imara said.

Another stockbroking firm, Morgan & Co is of the view that a full V-shaped recovery (implying immediate revision to pre-crisis levels) is a bit elusive.

Rather the brokerage firm expects an L-shaped recovery where the economy will only grow by 3,1 percent in 2021 compared with government projection of 7,4 percent.

Morgan and Co’s projected GDP growth rate is, however, inconsistent with its expectations elsewhere where it projects average year inflation of 338,5 percent and approximately 100 percent depreciation of the local currency. Morgan & Co is of the view that the official exchange rate will continue to lag the parallel market and maintain a gap of c20 percent — 40 percent.

“This means that inflationary pressures will remain while the year-on-year inflation number will be in the triple digits,” the brokerage firm said.

Analysts at IH Securities (IH) are, however, a bit optimistic and expect to see a marked improvement in bottom of the pyramid liquidity and some proliferation of the consumer demand in hard currency.

“Similar to last year we believe that given the informal base of the economy, business activity will begin to recover as consumers are forced to focus on livelihood given minimal social safety nets.”

IH noted bright prospects in the agriculture and mining sector.

In agriculture the brokerage firm believes the 13 percent increase in area planted for cash crops in the 2020/2021 season will drive foreign currency allowances in the sector which will have a trickle down into the rest of the economy. In turn, there won’t be aggressive price increases in 2021 resulting in cost of living beginning to flatten out.

IH expect the good agricultural season to have a positive impact on the manufacturing sector.

“We believe manufacturing, as the primary consumer of agricultural goods in the country, will post a recovery in 2021, driven by an expected bumper agricultural season and an 18,8 percent growth in the electricity and water sector with power challenges potentially becoming a non-threat going forward.

IH, however, agrees with the other brokerage firms when it comes to the monetary space.

“Our view is that a fragile stability will be maintained within the monetary space, however we are concerned with current divergence between auction rate and parallel rate — we believe to maintain equilibrium there should be a further devaluation of the auction rate,” IH said. – Herald

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