HARARE- Official figures released by ZIMRA, a mandated national revenue collection entity, shows that production in the economy improved in the second quarter of the year.
Zimbabwe’s treasury does not publish quarterly economic performance reports particularly focused on national production and hence the ZIMRA figures provide the closest estimates to the implied national production levels.
Within the revenue collection numbers, value added tax on local sales as a tax head is isolated as a proxy to national production. Value Added Tax on local sales is assessed incrementally and is based on the increase in value of a product or service at each stage of production or distribution. VAT is collected by the end retailer and is usually a flat tax.
The latest numbers show that Zimra collected $430 million in the second quarter period of the year up from $222 million in the first quarter. The first quarter performance was however a decline from an outturn of $227.1 million in the final quarter of 2018 which in turn followed another decline in the third quarter of 2018. These collections were before adjustments were made for inflation to show the real movement in volumes or production (revenue collections)
Applying official CPI levels in respective quarters between October 2018 and June 2019 on a base period of September 2018 (GDP deflator) gives a mixed performance. For the fourth quarter of 2018 and the first quarter of 2019, VAT collection came off in real terms.
The successive quarterly decline (2 straight quarters) loosely imply the economy went into recession in early 2019. Using the same official data, the economy rebounded in the second quarter as VAT collections on local sales went up to near fourth quarter 2018 levels after deflating.
However given the reality on the ground it is very difficult to be believe a narrative which implies that production is on the rise. Since the second quarter of the year, demand has tightened while production challenges have worsened against the prior year. Power outages has meant reduced plant running time and therefore less production.
The shortages in forex have remained escalated and therefore constraining raw materials importation. The emergence of higher inflation and the debasing of the currency militated to grossly reduce the value of incomes and thus the purchasing power of the consumer. This erosion could only mean less consumption for consumers, less demand for retailers and less production for manufacturers.
3 of the biggest companies on the ZSE namely Econet, Cassava and Delta have all spoken out on the implication of these economic challenges on their production, sales volumes and ability to deliver. In an update to shareholders last week Delta said power outages were constraining production while weaker incomes was impacting on demand.
The beverages maker went on to report a 57% decline in lager beer volumes. Lager is Delta’s largest revenue driver. Econet has likewise come out charging on the power crisis, detailing the implication of power cuts on delivery.
Although the economy runs wider beyond these entities, it is apparent that ripple effect of the present challenges are wider and possibly affect all players in the economy one way or another.
Another shortfall in the numbers is that the CPI measure used as a deflator is one that is officially computed by ZIMSTAT. The statistics have often been criticized as under-stated. Some estimates of inflation run close to double the present rate of 157% as officially supplied.
Relying on an understated inflation figure would therefore overstate the real GDP growth as measured by the VAT collections on local sales. In the second half of the year, the effect of budgetary revision will likely filter. The government will soon unveil a revised budget which will increase spend by at least $5 billion from the initial budget.
Although the figure may not be sufficient to restore demand to dollarization levels, it will to some extend help stimulate demand. This will however depend on the performance of prices as measured by inflation. The surge in prices has been a function of exchange rate movements, which lately is exhibiting further runaway pressure.
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