Gloomy outlook for 2023

PHILLIMON MHLANGA / LIVINGSTONE MARUFU / TATENDA CHIKARA

Projections by industry captains and economists have shown an uncertain outlook for Zimbabwe’s already ailing economy heading into 2023 as headwinds persist.

Power cuts, the collapse in real incomes due to high inflation and exorbitant interest rates, potentially hitting aggregate demand the hardest have been flagged as pointers to a gloomy year ahead amid fears some companies may fail to reopen come January.

“The outlook is gloomy, anyone who is seeing or thinking of any bright prospects for next year, clearly that person will be in another country not in Zimbabwe,” economist Gift Mugano told Business Times.

“In Zimbabwe, the projections are very gloomy,” he added.

He said the budget outlay in the 2023 National Budget will be a destabilising factor as some ministries got excessive funding, which are unproductive, particularly the Ministry of Finance and Economic Development, the War veterans ministry and the President’s Office.

“The Ministry of Finance and Economic Development’s job is to allocate resources but are holding billions of dollars. It tells you that this money is staged for some unaccounted expenditure, which will find itself into the black market and will cause destabilisation.

The Ministry of Women Affairs Community, Small and Medium Enterprises, among many are getting low votes.”

Mugano said the electricity crisis was a menace and a blow to industry.

“The studies that are available show that companies which are using diesel generators to power their plants, the cost goes as high as 30 cents per kilowatt hour, which is 10 times the current tariff. You cannot develop an economy like that. We will see some companies beginning to close down because the electricity costs will be about 30% of the total costs,” he said.

“So, the moment you factor in those fundamentals and cost drivers, you will be out of business. And you cannot compete given that you will be facing an economy with high inflation, a runaway exchange rate, macroeconomic instability, with a population, which is largely in extreme poverty. You can’t drive sales, and demand will be subdued.”

The high interest rates of 200%, Mugano said, are a thorn in the flesh and going to affect the agriculture sector big time.

“We might have good rains but we might have a challenge of low output, because it’s going to be difficult for farmers to borrow money where there is no electricity, where there is risk of climate change, where there are low yields to cover the costs from a productivity point of view. So, it’s a big challenge,” he told Business Times.

Another economist Prosper Chitambara warned that the unscheduled rolling power cuts will hammer industry and commerce as companies resort to expensive diesel-powered generators.

“It will cripple businesses as they will be forced to resort to generators, which are expensive to run, a situation which will trigger high costs of production,” Chitambara said.

He added: “We hope as per government promises that by year end Hwange Power Station unit 7 will be able to add 300 megawatts to the national grid before year-end and that unit 8 will also be able to add another 300MW next year.”

The Consumer Council of Zimbabwe acting director Rosemary Mpofu said the power outages have “seriously affected consumers’ livelihoods by way of having to opt and budget for other sources of energy such as gas, firewood, charcoal seriously affecting their budgets”.

Zimbabwe National Chamber of Commerce president Mike Kamungeremu said the business confidence reflected by firms was generally negative for the upcoming year.

“In fact, the general pessimism shown by business confidence indicators reflects that stakeholders in industry and commerce have no confidence in the government’s macroeconomic stabilisation policies in the coming year,” he said.

The Confederation of Zimbabwe Industries president, Kurai Matsheza, said the confidence levels are “very low across all the economic segments as businesses are finding it difficult to operate under this challenging environment”.

The Chamber of Mines of Zimbabwe also painted a gloomy outlook.

“Key risks to the outlook for 2023 identified by mining executives include fragile power supply, high-cost structure, foreign currency shortfalls, unstable tax framework, and capital shortages,” it said in a State of Mining Sector report 2022.

It said survey findings showed that the profitability prospects for 2023 are subdued compared to those recorded for 2022.

Most executives reported that their profitability will be weighed down by the anticipated high-cost structure driven by the increase in energy cost, royalty, and taxes, the Chamber said.

“Most mining executives are expecting power supply shortages to persist, and electricity tariffs to increase. The industry expects the electricity cumulative demand to increase by 20% in 2023. Also, most mining executives expect the tax regime to worsen in 2023 citing increased royalties and other charges as well as the possibility of unresolved problematic tax issues to persist,” it said.

Mugano said the Russia-Ukraine war has adverse effects and will haunt the economy through “fertiliser, fuel and of course food, which is going to affect Zimbabwe going forward”.

“This is a real challenge which is also going to underpin our economic projection.

So, from where I sit, I won’t be surprised if inflation hits 400% by June next year. I won’t be surprised if the exchange rate hits ZWL$1500:US$1 by mid-year.”