• Elections fever is triggering more panic to companies
  • During elections, government implements hawkish monetary policies that brews inflationary pressures
  • In 2018 to June, broad money increased by 41%

Harare- As 2023 global growth prospects remain anaemic and the risk of recession in other large economies continues looming due to trade wars between the world's largest economies, USA and China, and geo-political tensions caused by Russian imperialistic aggression on Ukraine, the business community remain convinced that the Zimbabwean situation will be tougher than expected given an already polarised political and economic setup. On a global scale, the International Monetary Fund (IMF), expects around a third of the global economy to enter a recession in 2023 and it has cut its forecast of global GDP for the year to 2.9% from 3.2% in 2022. In a world of 'poly-crisis', how can companies pivot to resilience, while staying profitable and sustainable? 

The Zimbabwean economic environment is a field of contestation as far as political and economic policies are concerned. In a statement accompanying the full year ended 30 September 2022, ZSE-listed largest corporation by market capitalisation Delta Corporation said, “The Zimbabwean operating environment is expected to remain complex and challenging in the face of difficult choices on economic policy, the unfolding global supply constraints, rising inflation and uncertainties of the COVID-19 pandemic and the country gears for a general election in 2023.”

Other big industrial players which concur with Delta Corporation include but are not limited to Econet Wireless Zimbabwe, Innscor Africa, RioZim, Ariston and Seed Co Limited. Other likely headwinds pointed out by the industry include an aggressively tightened monetary policy system and power outages which however, are likely to be dealt with at the national level as Kariba Dam water levels are set to improve before the end of the summer while Units 7 and 8 of Hwange Power Station are set to be added to the national grid earlier this year. 

However, businesses face a key "triple threat" in 2023, due to the upcoming presidential general elections which are set to upset the Zimbabwe dollar liquidity, continued high prices of key inputs and weakening demand due to continued disruptions in global supply chains and an aggressive monetary policy stance as well as policy inconsistencies leading to an influx of Zimbabwe dollar liquidity. Among the triple threats, election fever seems to be the toughest of all. 

Zimbabwean elections are usually infested by retrogressive and reactionary monetary policies that wound the economy both at macro and micro levels. During elections, the government resorts to the cranking machine, bypassing RBZ’s degree of independence thus, influencing RBZ to pump more money into the system to fund especially the security personnel. Security personnel plays a crucial role during ZANU-PF elections and are blamed by the international community for political harassement of opposition members, political arrests and selective application of the law in favour of the ruling party. For the security personnel to do all this, they need to be cushioned. 

Both the military, police and the courts played crucial roles in the 2002 elections, 2008, 2013 and 2018 elections respectively where the then MDC-A Party led by Nelson Chamisa lost in a controversial constitutional court ruling chaired by former Chief Justice, Luke Malaba. Zimbabwean elections are characterised by bountiful reports of assaults on the government critics and this was rife in 2008 re-run elections when ZANU-PF refused to hand over power to the opposition party of the time. That affected the country’s risk index thus, waning business sentiment in the country. Due to political violence especially during elections, major companies shut down causing shortages of basic commodities, and unemployment hence, affecting consumer purchasing power. 

When President Mnangagwa took power in 2017 through a coup and in 2018 through a controversial election that waited for up to 2 weeks to announce Presidential results, 96 companies have been reportedly shut, twenty companies closed in the month President Mnangagwa took over in November 2017, and 13 the following month. The largest number of closures was in May 2018 due to election panic as quoted by the Sunday Times (https://www.bitlylinks.com/r1Z5dT06s). According to The Standard published on March 10 2019 (http://bitly.ws/AeZ3) , over 50 companies closed operations since President Emmerson Mnangagwa came to power in November 2017, throwing thousands of people out of employment. 

FDI inflows declined from US$0.94 billion in 2018 to US$0.19 billion in 2020 due to Second Republic’s political toxicity.  

In 2023, due to exorbitant borrowing rates ,weak demand is expected to rock exerting a significant drag on business activity. Elevated borrowing costs retard companies’ revenue performance hence growth capacity.  

Of these, policy inconsistencies are a key factor ahead of elections that will threaten the competitiveness of the nation’s producers and run the risk of diverting supply chains and business activity away from the country. 

Companies further face a risk of downside policies due to excessive political influence on economic issues. As I predicted last year in my article dubbed Hawkish or Dovish: A look into Mangudya’s monetary stance, I said the RBZ and Finance Ministry will shy off the aggressive monetary stance and loosen the bolts as high ZWL liquidity will be a necessity to fund government’s election campaigns.

In the latest Monetary Policy Statement released by the Central Bank on the 2nd of February 2023, Repo Rates were slashed by 50 percentage points, from a higher of 200% to a lower of 150%. The government has been spreading utterances of a tight money supply stance but the parallel market is saying otherwise. Since November 2022, Parallel Market Rates soared from a lower of 850 to a higher of 1200 by January 2023 which proves that RBZ was not sleeping pumping more money into the market: fewer US dollars being chased by a pool of Zimbabwe dollars.

Further, a slash of interest rates means government, which is the biggest holder of the Zimbabwe dollar assets will be able to borrow more and fund its suppliers though at a cost of renewed inflationary pressures. Policy inconsistency has already begun. It is not surprising that the monthly reserve money will be increasing at an increasing rate up to the election month. 

The 2018 Zimbabwe Auditor General report shows that in 2018, the latest previous election year, transactions worth US$5.8 billion were made with financial irregularities ranging from unsupported expenditure, excess expenditure, outstanding payments to suppliers of goods and services, transfers of funds without treasury approval among other issues. This constituted about 82% of government expenditure for the year. The result was renewed inflationary pressures in 2019 and 2020 respectively leading to the dumping of the Zimbabwe dollar. 

Based on history, Zimbabwe has a record of printing more money, upsetting the principle of balance between supply and demand mostly to fund government initiatives towards elections.

From June 2017 and June 2018 towards an election period, RBZ increased broad money by 41% from US$6.5 billion to US$9.1 billion with a month-on-month increase of 6.84%. However, the following year was catastrophic associated with shortages of fuel, core food staffs like bread and a year-on-year inflation rate which soared above 500%.

According to the latest MPS, Broad money (M3) grew to ZWL2 338.26 billion by end-December 2022, compared to ZWL1 119.70 billion recorded in June 2022. The Zimbabwe dollar-denominated deposits also rose by ZWL548.08 billion between June 2022 and December 2022. 

To make it a triple threat in 2023 is the geo-political tension in Eastern Europe between Russia and Ukraine which is heavily weighing on Africa, through disruption of supply chains and climate change which is impacting weather patterns. Zimbabwe is a net importer of fertiliser, wheat and fuel mostly imported from Russia and Ukraine. Due to geopolitical tensions, to be most affected is the agricultural sector, one of the key drivers for GDP trailing behind mining. Companies within the agricultural sector will feel the pinch as well as those in the transport sector due to a record high fuel prices. 

How may companies prepare in such times?

I will equate Zimbabwe’s 2023 situation to a recession. Therefore, I will take how various companies globally do to survive in a turmoil economic environment and use Delta Corporations, Zimbabwe’s largest company by market capitalisation as a case study. 

During difficult times like this, companies respond differently depending on their strengths and weaknesses to deal with threats and maximise opportunities. The best way is to be a transformational manager, than a continuity manager. In preparation for an economic crush in 2023, Twitter, Amazon, Google and Tesla laid down thousands of workers to cut expenditures. Meta, Alpha Media Holdings and Ariston Holdings also cut the number of employees during the years 2019 to 2023 when Zimbabwe registered a hyper-inflated environment. 

With Zimbabwe in recession in 2019 and a global recession in 2020, Delta Corporation remained productive and profitable though profits declined in 2020 due to the COVID-19 pandemic. Delta responded to the COVID-19 pandemic through hybrid operations and increased automation of processes. In this way, a few workforce with the help of artificial intelligence ensured productivity. 

Delta further employed cost-cutting strategies to deal with production costs and expenditure, diversification and acquisitions as well as increasing US dollar borrowings to sustain productivity. 

Between 2018 and 2019, Delta’s finance charges plummeted by 258%, from ZWL5 million in 2018 to ZWL21 million in 2019, a year of recession. This means Delta borrowed more to sustain operations as its inventory increased from ZWL66 million to ZWL128 million in 2019. In 2020, finance charges further soared by 100%, from ZWL110 million to ZWL160 million in 2020 meaning the company did not cease extending its credit lines to sustain operations in a cash-stripped environment coupled with forex shortages and exchange rate disparities. To cement that, the results further show that Delta incurred less monetary loss during the recession than in other periods meaning it capitalised more on US dollar sales and US Dollar credit lines. 

Through the accumulation of loans and profits, Delta finalised the 100% acquisition of United National Breweries in April 2020 and increased its shareholding stake in Afdis to 50.1% in 2019, thus, increasing competitive advantage and economies of scale. UNB is the leading brewer of traditional beer and owns the Chibuku brand in South Africa. As a result, the company shelved a 19% increase in operating income and a 10% increase in revenue despite a 9% decrease in profit after tax. However, the liquidity ratio remained firm at 1.2 meaning the company was able to finance its obligations in a recession and move forward. In 2019, the liquidity ratio was firmer at 1.2 as well. With the acquisition of Schweppes Zimbabwe, Delta has killed the competition in the drinks and alcohol market by 86%. 

With increased automation, a monopoly in the beverages sector in Zimbabwe and diversified footprints beyond, Delta corporation survived headwinds propped by the 2018 elections and a global recession in 2020. The same strategic management tactics can be employed by various companies to survive the triple threat. 

 Equity Axis News