‘Inhibiting policies to weigh on operating environment’

Old Mutual Investment Group Zimbabwe (OMIGZIM), has said an increasingly fragile political environment and the associated threat of business inhibiting policy weighs on the pre-election outlook.

Zimbabwe is due to hold general elections this year and the period in the build up to elections is considered volatile as incumbent Governments may come up with populist policies that damage the operating environments.

OMIGZIM in its February 2023 economic brief said near-term downside risks are dwarfed by the economy’s medium to long term upside potential.

“Notwithstanding this, the overall environment still exhibits a noteworthy sense of endurance.

“Resultantly, the baseline view suggests a fragile stability, with muted, but real downside risks,” the investments group said.

OMIGZIM said the policy intent to stay the course on a tight monetary policy as well as international re-engagement efforts are encouraging, though their sustainability remain arguably compromised ahead of general elections.

It said the green shoots over the near term outlook are primarily hinged on primary output sectors such as agriculture and mining, as well as infrastructure and social services.

Earlier in the year, in January, the investment group said frozen political tensions could heat up around elections and the baseline view suggests turbulence, despite the current calmness.

The company indicated the real sector output is likely to maintain positive momentum from the prior year, supported by public and private spending on the infrastructure and primary output sectors.

However, an inherently fragile monetary policy anchors downside risks for the aggregate earnings outlook.

“Inflation has notably ebbed, yet we still ascribe strategies that guard against complacency,” OMIGZIM said.

Analysts believe economic activity is likely to be limited ahead of elections as investors apply a wait and see approach to strategic decision making.

As the country goes into elections this year and like in many jurisdictions, elections have a knock on effect on the macro-economic environment.

In most cases, governments increase their spending while companies and investors slow down on their investments.

“Looking at 2023, policy uncertainty will linger to be prevalent whilst political risk will be elevated ahead of the elections.

“However, opportunities will continue to present in business lines which are demand inelastic,” said Enock Rukarwa, an investment analyst.

Finance and Economic Development Minister, Professor Mthuli Ncube, in his 2023 National Budget statement last year, earmarked $76 billion for the 2023 harmonised elections to cover various activities, with $53 billion earmarked for the actual polling.

Anglo American Platinum Limited, a South Africa-based mining company, recently flagged three key material risks at its 100 percent owned Unki Mine including the political risk. According to its 2022 annual report, the company said it is prone to operational disruption due to social risks relating to community expectations and the political environment ahead of the 2023 elections.

Economist, Dr Prosper Chitambara, recently said from past experiences and even from other countries, electoral related spending has a destabilising effect on the macro-economy, but this differs from country to country.

“We expect that spending related to elections may result in inflationary pressures being generated,” he said, adding what is needed is the removal of inefficiencies in public spending.-ebusinessweekly