Inflation, elections threat to economy

31 Dec, 2021 - 00:12 0 Views
Inflation, elections  threat to economy

eBusiness Weekly

Business Writer 

Analysts and industrialists have identified inflation, exchange rate volatility, drought, Covid-19, and the upcoming 2023 harmonised plebiscite as major factors that could present significant risk to the country’s economic growth prospects in 2022. 

The country continues to experience persistently high inflation that has eroded consumers’ disposable incomes and firms’ spending power on investments.

Traditionally, polls in Zimbabwe are characterised by heavy unbudgeted spending on capital projects and social safety nets and protection programmes for the poor as political gladiators move to attract the electorate to vote for their parties’ candidates.

The massive spending has already started and indications are it will escalate beginning 2022 until end of voting in 2023. Previous polls have also seen significant spending of donor money by some civic organisations on election related programmes.

Annual inflation closed the year 2021 at 60,7 percent, narrowly missing the Government’s end-of-year inflation projection of 58 percent. However, the Government had to revise its year-end inflation forecasts several times from the initial 10 percent to 58 percent.  

“Runaway inflation is a more significant risk in 2022 (than the pandemic),” said analyst Walter Mandeya of Trigrams Investments.

“The last two or so waves of the Covid-19 virus have typically had short-term negative effects on growth, a pattern we expect to continue as Government has not imposed tight lockdown measures in the last two (waves).”  

“Inflation will eat into wages and reducing demand,” said Mandeya, adding that the “Reserve Bank of Zimbabwe might be forced to raise rates again in an effort to tame inflation.” 

The central bank responded to mounting concern about rapidly rising prices in late October 2021 by increasing the Bank policy rate from 40 percent to 60 percent and the Medium Term Bank Accommodation (MBA) Facility interest rate from 30 percent to 40 percent. 

Inflation has risen sharply this year “driven mainly by the resurgence in the volatility of the parallel market exchange rate”, the RBZ said in justifying the rate hike. 

“Our economic outlook stands and falls with the inflation outlook. Should we see runaway inflation as high as this year, then consumers and businesses will not be left with much to deploy into consumption and investments and this could weigh on demand and subsequently derail economic growth,” said Mandeya. 

Pending elections, exchange rate volatility, and climate change represent major risks, according to Christopher Mugaga, CEO at Zimbabwe National Chamber of Commerce. 

“I think it’s a reality that we are behind a curve when it comes to climate shifts. We continue relying on rain-fed agriculture when times have changed. Climate unpredictability worldwide has increased frequency of dry spells, impacting negatively on agriculture yields.” 

This, Mugaga feels, is a major risk going into 2022.  

Confederation of Zimbabwe Industries president, Kurai Matsheza, is also worried about a “poor or not so good agricultural season”.  

“The performance of Zimbabwe is heavily dependent on agriculture and hence any poor performance of this sector will filter through the broader economy,” said Matsheza. 

While the 2021/22 agricultural season is projected to receive normal to above-normal rainfall, the rains were late and farmers lost out on planted crops.

Some might not have the capacity to replant and the result, among other factors such as hunger and use of scarce foreign currency to import grain, could see reduced economic growth.

In his 2022 National Budget Statement, Finance and Economic Development Minister Mthuli Ncube based his 5,5 percent GDP growth projections, in 2022, on a 5,1 percent growth in the agricultural sector. This is now under threat from drought. 

Just like Mugaga and Matsheza, Dairibord Holdings chief executive officer, Anthony Mandiwanza, has similar concerns on drought, but like Mandeya added the Covid-19 pandemic and inflation pressures on both the domestic and international front as major risks concerns.  

Rising energy and food prices have fuelled higher inflation in many countries. These global factors may continue to add to inflation in 2022, especially high commodity food prices. 

This has particularly negative consequences for households in low-income countries, Zimbabwe included, where about 40 percent of consumer spending is on food.

Matsheza also shares same fears as Mugaga and Mandiwanza that the “currency question and availability of same will remain a huge risk element as most businesses require some level of forex for smooth operation”. 

“As 2022 is a year before 2023 elections we all hope political temperatures won’t rise to the extent of making the operating environment unsafe for all businesses and individuals,” Matsheza added.  

CZI CEO Sekai Kuvarika, who also identified electricity supply, currency instability, and inflation as major concerns said the solution to all this is to resolve the currency conundrum.  

“This is the central issue to all challenges. When you do problem analysis on various (challenges) it leads back to currency,” she said.  

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