Harare-  For Zimbabwe, 2023 is set to be a turbulent year, yet again, as a looming global recession is set to rock developing economies. This compounded by the sheer lack of fiscal and monetary policy coherence, chronic inflation, and a skyrocketing exchange rate could culminate into one of the worst presidential election cycles. Economists use several indicators to determine likely economic outcomes including, inflation, exchange rate, money supply etc. In this piece, we’ll focus on three key indicators.



Headline inflation in January declined marginally from 243.8% in December to 229.8%, while month-on-month inflation also decreased from 2.4% to 1.07%. At first glance, this paints a seemingly positive adjustment and trajectory considering that annual inflation and month-on-month inflation have marginally declined since September 2022. However, upon closer inspection and analysis, the indicators tell a different story.

The RBZ’s argument, based on the governor’s recent statement is that the country’s de-dollarisation was on course. This statement is easy to analyse. That is simply not true. In fact, the opposite is true.

Annual inflation peaked at 255% in November last year, making it the highest inflation rate in the world. At the time renowned John Hopkins professor, Steve Hanke used the ppp method to place Zimbabwe’s inflation rate well above 500%. At the height of currency volatility last year, the RBZ resolved to raise the benchmark lending rate to 200%, also the highest in the world.

Zimbabwean economist, Gift Mugano has an interesting take on the trajectory of inflation in 2023. Based on his evidence, I am inclined to agree. Mugano believes that we have actually deepened dollarisation. The main drivers of dollarisation are chronic inflation, 200% interest rate, excess liquidity caused by Treasury and domestic export retention as well as high export retention.

“With a 200% interest rate, businesses have switched to USD loans since it has virtually become impossible to pay back loans fourfold,” he said. Individuals were also forced to acquire USD loans, drastically increasing the demand for the greenback.

According to the economist, “The 20% domestic export retention and 40% export retention compels RBZ to print ZWL in exchange for the 20% domestic deposits and 40 percent export receipts. The RBZ does not have a budget set aside for this. This drives up money supply. “In August and September 2022, money supply rose by $708 bn excess liquidity driven by the treasury”, he articulated.

In the last five years, the country’s national budget rose from ZW$8.1 billion [2019 budget] to ZW$4.5 trillion [2023 budget] which amounts to a 55 000% increase and, according to Mugano, this has wreaked havoc as witnessed by massive exchange rate spikes, inflation and loss of ZW$.

“Inflation, de-dollarisation can only happen when the country attains single digit inflation and exchange rates are stable. This will cultivate a productive culture which is key to supporting the local currency. This is missing. We have chronic inflation and volatile exchange rates.” Mugano also said the deepened dollarisation can be seen in the sudden decline of allotment from the RBZ’s auction system.

“The auction system allotment is an interesting one, 2022 imports surged to above US$8.2billion (exceeding 2021 imports by US$1 billion) but the USD allotted to firms declined from US$42 million per week to US$11 million,” he said.

“So, imports are increasing but forex given by the RBZ to firms to support imports is falling. It tells you one thing firms are now relying on their own generated forex from local sales to meet their import requirements. This means that we have deepened dollarisation.


Exchange Rate

The Zimbabwe dollar is currently trading at ZWD$1,200 to the USD on the black market, and ZWD$796 on the interbank market. After a period of relative stability, emanating from the introduction of the gold coins and the suspension of payments to contractors, it quickly became clear what treasury identified as a humongous problem exacerbating the exchange rate premium, the contractors.

At least that’s what the monetary authorities have expressed. Following the resumption of the payments, it was in full view that the government is the bigger driver of the exchange rate disparities.

Excessive liquidity driven by treasury – without going far, in December 2022, treasury irresponsibly made last-minute payments to Ministries and government departments’ requests thereby putting the rate into disarray. The Treasury could have staggered these payments during the course of the year. This compounded by the payments of contractors has seen the exchange rate skyrocket.

That is not even the scary part. Instead of fixing the problem, which is the lack of access to forex, for both contractors and ordinary individuals, the central bank has resorted to Twitter shaming black market participants. This discounts the basic premise of behavioural economics which states that human beings are rational most of the time. Rationality is to use the black market to maximise individual utility and organisational profits.

Stock Market

The current market capitalization of the ZSE is ZW$2.88 trillion which is quite admirable in its own right. However, considering the current economic landscape/climate, a USD-denominated bourse is significantly more attractive than the ZSE. This migration is yet another form of denouncing the local currency in favour of the greenback. Stockbroker, FBC securities says "the VFEX has remained largely stable as it has not been susceptible to abrupt policy changes and currency volatility. Its launch was part of efforts to attract global capital, restore foreign investor confidence in Zimbabwe's capital markets and assist companies raise foreign currency capital.

"The bourse has experienced rapid growth in recent months and apart from attendant value opportunities, policy arbitrage has also been pivotal in attracting migrations," said FBC.

The VFEX platform offers a number of incentives, including tax exemptions on capital gains and the ability to repatriate funds which have been a challenge in previous years. Investors benefit from the ability to move capital and dividends freely, low transaction costs, tax incentives and minimal currency risks.

Activity on the VFEX increased notably in 2022 as listings increased and thus raising foreign currency liquidity in the formal market, available for trading purposes.

Turnover volumes advanced 1,500% year to 31 December 2022, while turnover volumes grew 1,702% from US$25,736 to US$463,855. Market capitalization increased 118% over the year from US$259,7mln to US$566 mln.

By the end of the year 2022, there there were eight counters trading on the bourse, with a handful of pipeline migrations from the ZSE platform. The bourse now hosts Padenga Holdings Limited, Caledonia Mining, Bindura Nickel Corporation, Simbisa Brands, Nedbank ZDR's, Seedco International, National Foods and the Karo Bond. This year we expect Axia Corporation and Seedco Limited to also migrate to the VFEX early this year.

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