Zim’s GDP per capita rises

10 Aug, 2018 - 00:08 0 Views
Zim’s GDP per capita rises

eBusiness Weekly

But still lags behind regional peers …Consumer spending projected to rise going forward

Tawanda Musarurwa
The standard of living in Zimbabwe has improved significantly with gross domestic product (GDP) per capita rising from $1004 last year to the current $1112, according to World Bank and the International Monetary Fund figures.

GDP per capita measures the country’s economic output relative to population and is obtained by dividing GDP by total population, making it the best measurement of a country’s standard of living. The country’s GDP per capita has over the past few decades largely reflected a constrained economic growth.

According to global economic indicators aggregator, TradingEconomics.com, GDP per capita in Zimbabwe averaged $1073,64 from 1960 until 2017, reaching an all-time high of $1 348 in 1998 and a record low of $593, 10 in 2008 (at the peak of Zimbabwe’s worst period of hyperinflation).

But with relatively better economic outturn in the last few years, the standard of living in Zimbabwe has gradually improved in line with President Mnangagwa’s vision of becoming a middle income country by 2030 with a per capita income of $3500 or more.

The World Bank has already admitted Zimbabwe can be a middle-income state in a decade.

In an interview with Bloomberg on Thursday in Nigeria’s capital Abuja, World Bank Vice President for Africa, Hafez Ghanem, said with a new president elected this week, Zimbabwe is a country with huge potential and can easily become an upper middle income country in a very short time and depending on the type of programmes, it can be achieved in 5 to 10 years.

“It’s a country with huge potential…Zimbabwe has some of the most educated people on our continent, we have human capital and we have natural resources,” said Ghanem.

Ghanem advised the incoming government will need to attract investment, deal with debt and return to the international financial system to recover and grow.

Analysts at equities firm IH Securities, argue that despite the prevalence of some weak economic fundamentals, consumption should continue to rise going forward.

“Zimbabwe’s GDP per capita remains well below peer Sub Saharan African countries,

despite rising from $1 004 (last year) to $1 112 (this year). The country’s consumer sector was, however, constrained dating back to dollarisation which has slowly been worsening the liquidity position of the country, with 2017 facing the worst cash crisis since the hyperinflation era.

“Consumer spending will largely be driven by consumption in rural areas with agriculture projected to grow 10, 7 percent in 2018.  Furthermore, rising income levels in rural areas would trickle down to urban agri-value addition businesses, and thus increasing the average customer spend in urban areas as well,” reads part of the analysts’ report.

GDP per capita figures still lag

However, Zimbabwe’s GDP per capita does not fare well in terms of regional comparisons.

“Consumption still remains relatively subdued in Zimbabwe despite recent growth as a result of a net income per capita, which falls well below peer SSA countries. Unsurprisingly, given low per capita income, consumption expenditure per capita too falls in the lower range of comparables,” says IH Securities.

“Zimbabwe’s consumption per capita is however, closer in comparison to peers which is explainable by the low savings culture in Zimbabwe, where consumers spend most of their income and save very little,” it says.

Growth in the Zimbabwean economy over the past few years has been on the back of positive performances in the mining and agriculture sectors.

The agriculture and mining sectors are projected to grow by 10, 7 percent and 6, 1 percent, respectively, in 2018

Consumer spending on the rise

A key consequence of the improving economy is consumption within the economy. But consumption itself can act as a main driver of economic expansion.

Analysts at Akribos Research Services say Zimbabwe already has significant “pent-up” aggregate demand.

Aggregate demand is typically defined as the overall demand for goods and services in an entire economy, and is commonly said to equal the gross domestic product (GDP) of an economy.

“Total aggregate demand in Zimbabwe, in our view, is set to slightly increase on the back of a release in the pent-up demand obtaining in the economy. Consumption fell from 80, 59 percent of total GDP in 2016 to expected 76, 42 percent in 2017 due to declining disposable incomes and rising unemployment rates.

The decline in consumption was also a result of increased caution by consumers, household and business, in the face of heighted uncertainty,” said Akribos in its Zimbabwe 2018 PlayBook.

“The 2018 budget will likely pacify most consumers’ fears and compel them to take their foot off the risk pedal. Total consumption, which is made up of household and business expenditure (including NGOs expenditure) on goods and services, was circa $500 million in 2017 and 2018 may witness a slight increase on this number.  Our view is that the 2017 level had a constraint which will not be available in 2018 and this will lead to increased consumer spending.”

The Zimbabwean economy is expected to grow by at least 4, 5 percent this year.

Insofar as GDP and aggregate demand have the same basic calculation, it is only expected that they should rise concurrently.

“To appreciate the expected expenditure by Zimbabwean consumers on goods and services, we isolated the NGOs expenditure to arrive at $14, 35 billion for 2018, 7, 45 percent higher than the 2017 estimate of $13, 35 billion.

This suggests private consumption is expected to increase in 2017/2018 period with average expenditure per capita increasing 5, 89 percent to $863, 00 as we expect GDP per capita to increase in line with economic growth.

“These trends in consumer expenditure will likely see Zimbabweans shift their spending to discretionary goods and services which include insurance products,” say analysts at Akribos.

“Our expectation is that the spending spread throughout 2018 and skewed towards the second half of the year as an increase in disposable income lags GDP growth and policy clarity will be more established.

“The second half of 2018 will likely see the return of a more adventurous consumer than the Zim economy has witnessed since 2013.  There is huge pent-up demand which we believe will become real demand in the next few years beginning in 2018.”

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