Zimbabwe’s operating environment remains vulnerable

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HARARE – Zimbabwe’s operating environment remains vulnerable to both internal and external shocks that may have negative impact on key economic enablers, according to Fitch Solutions, a leading global economic research firm.

The research company in a summary report on Zimbabwe Country Risk, said the country remains vulnerable to factors such as adverse weather conditions that can impact agriculture and electricity supply, commodity price shocks, supply chain bottlenecks, still-low industrial productivity and hard currency shortages.

“While efforts to liberalise the currency regime are easing liquidity challenges and inflation gradually, policy uncertainty, risk of social unrest and the impact of capital controls continue to dampen sentiment,” said the company.

It added that businesses operating in the country will also face rigid labour market regulations, drawn-out legal disputes and onerous taxes particularly in the mining sector.

The mining sector has been paying workers in both local and foreign currency, resulting in challenges in taxation related issues.

The country’s economy is projected to grow 5,5 percent in 2022 underpinned by higher output in mining, manufacturing, agriculture, construction as well as the tourism sector.

However, the industry and mining sector has since warned that continued power cuts could derail first quarter 2022 targets due to lost production time, which will have a bearing on growth.

The Zimbabwe Electricity Supply Authority (ZESA) recently announced that there will be increased load shedding due to maintenance works at Kariba Hydro Power Station, one of its power generating
sites with capacity to produce 1 050 Megawatts.

Chamber of Mines of Zimbabwe president, Isaac Kwesu, said the increase in load shedding has a greater impact on the production side of the mining sector.

“Many businesses have reverted to alternative power sources such as fuel-powered generators which have become even more expensive to operate given the increase in global oil prices that has rippled to the local US-dollar pump prices due to power supply failures,” he said.

The Confederation of Zimbabwe Industries (CZI), has often highlighted that the issue of power has remained a cause for concern hence the industrial lobby group continues to engage the power utility on the issue.

That said, Fitch noted that Zimbabwe has significant human capital and vast resource potential that could drive economic development, contingent on the implementation of policies that support legal, fiscal and monetary policy reforms.

“This will be a long-term project intrinsically tied to improved governance and transparency, increased investment openness and meaningful re-engagement with multilateral lenders and the international community in the years ahead,” reads part of the report.

The research firm, in its recent report, also highlighted that Zimbabwe’s current account surplus is expected to narrow to 1,4 percent of Gross Domestic Product (GDP) in 2022 from 2,4 percent in 2021 as demand for consumer and industrial imports strengthens amid an uptick in economic activity.

Fitch Solutions, which is part of reputable global credit rating agency Fitch Ratings, said while the secondary income surplus will remain substantial given ongoing aid inflows, this will be outweighed by widening deficits in the services and primary income accounts as the tourism sector stages only a weak recovery, and profit remittances by mining companies rise.

The research firm said demand for consumer and capital imports will remain solid as inflation slows further, thus supporting spending power, and construction activity rises as the Government invests in infrastructure. – Business Weekly