Economic environment remains volatile

Listed companies have warned that the economic environment remains volatile and hyperinflationary despite stagnation of both inflation and exchange rate in the short term.

The stability followed Treasury’s raft of measures aimed at taming exchange rate fluctuations and curb speculative behaviour including the suspension of payments to Government contractors, agencies and departments.

Following the Government interventions, inflation began to decelerate to 25,6 percent in July and 12,4 percent in August before reaching 3,5 percent in September 2022.

Authorities have resolved to maintain a tight monetary policy stance in response to rising inflation and exchange rate instability, but the country remains vulnerable to global inflation shocks that present downside risks to the country’s inflation outlook.

In addition to that, of late the country has witnessed relative stability in the foreign currency exchange rate and this may result in equilibrium between the WBWS rate, interbank and the alternative rate.

Sugar manufacturer, Hippo Valley Estates, said that despite the gains, the operating environment remains challenging due to uncertainties on the exchange rate and liquidity situation in the economy.

“While efforts continue to be made to liberalise the currency regime to ease liquidity challenges and inflation gradually, policy uncertainty and the impact of capital controls continue to hamper economic turnaround,” the company said.

The company said that it will continue to pursue value preservation strategies in the environment where unemployment remains high, with the bulk of the population managing on the back of informal businesses and agricultural projects.

General Beltings, a company that is engaged in the manufacture and distribution of rubber and chemical products while operating through two segments namely; Rubber and Chemical, said that following the significant strides by the Government to contain the Covid-19 pandemic, the Russian Ukraine conflict presented a new crisis in the global economy.

It said the unprecedented protraction of the conflict unleashed new challenges, which among others included constrained logistical flow of traffic, grain shortages and resource protectionist policies resulting in global price increases.

“Consequently, these price increases introduced imported USD inflation to vulnerable economies in the sub region which included Zimbabwe whose economy was already blighted with soaring exchange and inflation rates.

“To counter the effect of these headwinds, a raft of policies was implemented to tame both the runaway exchange and inflation rates.

“It is expected that in the long run these interventions will have a stabilising effect on the exchange and inflation rates obtaining in the economy,” the company noted.

It noted that the business suffered immediate shocks in reduced working capital, debtor default and increased import costs.

“However, the company pursued its strategy of continuously delivering a commensurate value proposition to its customers through a product offering that competes with world players.”

Getbucks Microfinance Bank, a player in the country’s financial services sector said that liquidity challenges coupled with the increase in the minimum lending rates will see most businesses shifting their operations from local currency to foreign denominated currencies.

Listed resource counter, RioZim Limited, said that despite the positive strides in the free flow of economic activities, the operating environment remained bedevilled with structural challenges throughout the period, most notably amongst them were acute power shortages, spiralling exchange rates, unreasonable pricing distortions and huge foreign currency inadequacies.

It noted that despite the various mitigating initiatives put in place by the Group to counteract these challenges, the impact of these factors had a significant negative effect on the operating and financial performance of the Group.

“Consequently, the Group recorded a net loss for the six-month period.”

AXIA Corporation said the Zimbabwean economy was not spared by the global effects as it is also impacted by the spill-over effects of these geopolitical tensions.

“The second half of the financial year brought about concerns of instability as inflationary pressures were being felt on the back of the volatile exchange rate,” it said.

The company noted that since June 2022, the Zimbabwe economy has witnessed shock therapy through the measures taken by fiscal and monetary authorities. However, it noted that the lack of clarity in the legislation relating to the currency of payment of certain taxes creates uncertainties and poses business risks especially in an environment where there are material disparities in the exchange rates.

Economists who spoke to Business Weekly concurred with the companies concerns indicating that some of the measures are more or less stop gap measures that are not long term, hence will at some point will falter.

“The measures would have brought some stability, but there is a clear lack of fundamentals to bring sustained economic stability in the market,” said Victor Bhoroma, an economist.

He said the market stability will only be brought about by market determined foreign exchange, serious reduction in money supply and reforms to foreign exchange retention schemes such as that the Reserve Bank of Zimbabwe (RBZ) does not print money to reimburse exporters.

Investment analyst, Enock Rukarwa acknowledged that the government has ushered in the right mix of measures to anchor exchange rate volatility and inflationary pressures, but strategically what is now key is the sustainability of the measures going forward, regularly such measures should be reviewed with a view to achieve completeness

“Religious application of the working formulae should be adhered to, refining weakening joints to guard against diminishing marginal returns of the policy use,” he said.-ebusinessweekly