2018: The highs and lows: Part 1

Harare – As the year comes to an end we look at some of the high and lows in business and general economy, which transpired in the year and further attempt to look at impact. 2018 began on a high with most if not all economic metrics pointing northwards, these being performance and sentiment related. The general public’s sentiment was generally positive as Zimbabweans capitalized on the ouster of Robert Mugabe who had been the sole ruler of Zimbabwe for 37 years amid recurring economic depression under his rule.

In his entire rule RGM failed to beat economic growth targets, mostly reaped high unemployment levels, high inflation and weak exchange rates due to fiscal indiscipline. The emergence of Emmerson Mnangagwa as his successor was welcomed both domestically and internationally. Confidence in the economy easily recovered to a 2 decade high as seen by the influx of prospective investors enquiring on various business opportunities mainly in mining and the subsequent promises to invest made in various economic zones. This romance was however to sharply plunge within month as post-election violence and a disputed election erased the gains.

 Production of key exports hit all-time highs

It was more than encouraging to realise record high production levels in at least 3 key commodities namely Gold, Tobacco and Diamonds. In the last quarter of the year, gold swept to its highest level ever recorded in the history of its production in Zimbabwe. At 32 tonnes as at November, gold is at an all-time and is expected to reach 34 tonnes by year end. The metal earns Zimbabwe at least 25% in net export receipts and its production in recent years has been stimulated by formalization of small scale mining, funding and relatively firmer global prices. It is however sad to note that production levels have since been coming off since October due to a worsening parallel exchange rate and inflationary pressure which has rendered the local currency equivalents way cheaper when compared to the US dollar. Producers are offered a 55% export receipts retention in USD while the remainder is settled in RTGS.

Tobacco which is the second largest exported commodity by value, likewise recorded an all-time high production in 2018  reaching 234 million kgs in August and was on course to breach the $1 billion export receipts mark. Driving the production levels were adequate funding and favourable weather conditions which impacted positively on yields. The commodity’s production is mainly financed by contractors, at 85% of the total. the last all time high was recorded pre 2000 when white commercial were the mainstay of local farming. The significance of tobacco is such that its receipts stabilizes forex requirements in the economy for at least 6 months of the year between March and August. Diamonds which were previously mired in controversies and shadowy activities rebounded with production levels peaking to a new all-time high.

The outperformance was not only limited to the extractive sectors of the economy but also to manufacturing and other sectors service sectors. Tourism reaped big and is presently at a record high level with the gains having extended to the hospitality sector. A look at ZSE companies’ performance over the year showed that at least 75% of the listed companies reported a growth in both production and revenue and a double digit growth in profit. Key corporations such as Delta and Econet emerged from a 5-year rout to report double digit growth rates in key matrices. The major driver of performance was a re-emergence in demand and improved consumer spend in line with economic growth. Delta particularly highlighted that spend improved on the back of improved activity in agriculture among other sectors. Econet’s voice income which had come off in successive quarters since 2014 finally recorded a year on growth in the half year period to September, again an indicator of resurge in demand on growing spend.

The outperformance extended to financial institutions, mainly banks which reaped big on government’s appetite for credit. As will be shown on the lows, this appetite which clearly reignited demand across board, was to be the biggest undoing of the year. However banks and related investment firms recorded record earnings in the period as both interest and non-interest income soared. The stock market likewise blew to the roof, with metrices such as index levels and turnover touching all time high levels. Turnover is closing in on a billion dollars in annual trades, a record never imagined in the history of share trading in Zimbabwe. Valuations have responded to the surging earnings but also mostly to the declining fundamentals in the economy which has driven the allure of monetary investments lower compared to safe haven stock market investments.

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