Uncertain outlook knocks off business confidence

Business confidence has deteriorated this year, compared to last year as an uncertain economic outlook ratchets up concern, a survey by the Zimbabwe National Chamber of Commerce (ZNCC) reveals.

According to a Business Confidence Survey conducted by ZNCC, the majority of business stakeholders (77 percent) considered the general domestic economic situation in 2022 to have deteriorated from what the environment used to be in 2021.

The survey noted only 15 percent of stakeholders viewed the general economic situation in 2022 to have improved when compared to how the situation was in 2021.

“Generally, and across all nine economic variables upon which surveyed stakeholders were asked to provide their comparison between 2021 and 2022, on average 69 percent of respondents indicated that the situation had deteriorated in 2022 when compared to 2021,” reads the Survey Report in part.

The pessimism from the business community is expected to continue into 2023 with a larger percentage of the businesses “expecting a worse economic situation in 2023 compared to those expecting otherwise”.

According to the survey, 59 percent of business stakeholders expect the country’s general economic situation to deteriorate while 18 percent expect it to improve.

Similarly, about 61 percent and 53 percent respectively expect profitability and ease of doing business in 2023 to deteriorate compared to 17 percent and 11 percent who are optimistic.

The pessimism in business confidence came from the decline of all component indicators since they all have a negative Business Confidence Index (BCI).

This showed that, at the time of the Survey, the firms and stakeholders in industry and commerce had no confidence in the Government’s macroeconomic stabilisation policies in the coming year 2023, and on the international and domestic economic recovery, the survey report reads in part.

However, post the survey, which was conducted from June up to November 2022, Government, through the 2023 National Budget Statement, announced a raft of measures meant to stabilise the economy.

Presenting the Budget, Finance and Economic Development Minister Mthuli Ncube said; “The overriding objective of the 2023 Budget of entrenching macroeconomic stability will accelerate economic transformation by promoting a conducive business environment that facilitates savings and investment, as well as enable long-term planning.

“Strong collaboration and complementarity between fiscal and monetary policy measures seek to entrench macroeconomic stability, with additional measures being implemented to keep market liquidity under control and accelerate the disinflation path, with the broad objective of achieving single-digit inflation and a stable exchange rate,” he said.

On its part, the Reserve Bank of Zimbabwe, through its Monetary Policy Committee has promised to review the interest rates in the first quarter of 2023 as dictated by inflation developments; as well as to further liberalise the foreign exchange market.

The Committee unanimously agreed to stay the course of a tight monetary policy until the first quarter of next year.

However, according to the ZNCC survey, “firms have no confidence at all that the general domestic economic situation will improve as the BCI is a negative 52, a perception figure which falls in the pessimistic range”.

“Whilst Zimbabwe is open for business, the sentiment situation in 2023 will be discouraging, with a BCI value of -45.

“These negative expectations on investment situation imply that the desire to have more investments will remain a pipedream unless government institute radical measures which address the various factors that make Zimbabwe a difficulty operating business environment,” reads the Survey in part.

Consumer confidence is also expected to be low, with the financial muscle of consumers and buyers anticipated to be low in the coming year than it is.

The variable demand for goods and services has a negative BCI of 43.

“The expected deterioration in demand for goods and services will result in the sales situation in 2023 being depressed when compared to the situation in 2022, with a BCI Index value of negative 29 in 2023.

This implies that firms in the production and/or supply of goods and services are pessimistic of their next year’s sales when compared to the current sales situation in 2022.

In its latest trading update, Zimbabwe Stock Exchange-listed entity, Truworths said its unit sales for the first quarter to October 9, 2022 fell by 55,1 percent as cash sales were negatively affected by the severe shortage of ZWL as a result of the tight monetary policy.

“Sales and profitability continue to be adversely affected by the restrictive pricing laws, which negatively affect competitiveness against the unregulated sectors.

“The environment remains uncertain in particular the sustainability of the Bank Policy rate of 200 percent and tight ZWL liquidity,” reads part of the trading update signed off by CEO Themba Ndebele.

The ZNCC Survey revealed that the business pessimism is mainly due to the general elections which, judging from previous general elections in the country, is maybe associated with policy reversals thus making the business environment more risk, the report’s findings show.

“The business community is afraid of the spike in government expenditure associated with election business cycles.

“Surveyed stakeholders are afraid that any populist policies are highly likely to sustain the current inflationary pressures further fueling the depreciation of the local currency both on the official and parallel markets,” reads the Survey Report in part.

However, one indicator that tends to capture a change of direction early, is capacity utilisation and it averaged 63 percent in 2022 which is significantly higher than the average utilisation rate of 47,5 percent recorded in 2021.

A total of 1, 136 accounting for 67 percent of respondents indicated that capacity utilisation increased in 2022 when compared to 2021, while 19 percent reported that capacity utilisation remained unchanged.

Respondents said capacity utilisation was driven by the existence of readily available markets, ease of access to or availability of foreign currency at the auction system as well as the use of digital systems.-ebusinessweekly