Gold exports to offset consumer spending slump
REVENUE from gold mining and remittances from the Zimbabwean diaspora will offset the potential reduced consumer spending from any adverse economic conditions, which may affect consumer-facing companies, analysts say.
They also contend that significant inflows from Zimbabweans living and working outside the country would help sustain consumer demand.
In its latest Zimbabwe Consumer Sector Report, equities research firm IH Securities said consumption trends and economic growth in 2024 were expected to be overshadowed by weak performance in the primary sectors, mining (except gold) and agriculture.
Gold is Zimbabwe’s single largest export while agriculture is one of Zimbabwe’s main economic drivers, providing sustenance and livelihood to hundreds of thousands of workers.
“Whilst the outlook for consumer spending might be weak based on the above, we believe there might be pockets of liquidity considering that 58 percent of mining sector workers are associated with gold which . . . is primed for a better year, based on elevated prices.
Gold has achieved multiple record prices so far in 2024. In March, the spot price hit a record US$2 160 per ounce. Not long after, gold’s price hit an all-time high at US$2 265 per ounce to kick off April.
More recently, gold peaked at US$2 435 on May 20, a new milestone.
“This might point to more resilient bottom-of-the-pyramid liquidity, added onto the US$2 billion in remittances that the country receives annually,” IH said in the report.
According to the report, in the mining sector, mineral revenues are forecast to fall 10 percent in 2024 on depressed mineral prices while the agricultural sector is expected to decline by 4,9 percent this year, weighed down by the impact of the El-Nino-induced drought.
“Given the limited room, we expect that consumption will likely be geared toward essentials,” said IH.
It noted that despite the expected conditions in the current year, some of the companies operating in the space have in the past three cycles invested in increasing capacity and enhancing efficiencies to better position themselves to service the market.
IH said Delta spent US$100 million to alleviate supply-side constraints whilst Innscor sunk US$157 million towards capacity building, product extensions, and introduction of new categories.
Dairibord has also announced a pipeline of US$24 million in capital expenditure programmes. The group commissioned capex investments of US$4,1 million during 2023 to improve efficiencies and increase working capacity.
“Volumes as of 1Q24 have resultantly seen a 2 percent uplift,” IH said.
IH said consumer-facing companies that have established direct routes to market into the US dollar-rich informal sector such as Innscor and Delta had weathered the tough conditions better than most sectors,” reads the report.
It said 2022 and 2023 had been relatively strong years from an underlying productivity perspective, particularly in primary sectors, that is, mining and agriculture.
It revealed, this has been reflected, in its view, in sales volume growth in consumer-facing companies which suggests healthy bottom-of-the-pyramid liquidity.-herald
