…Tough times for frail industries on the horizon
Zimbabwe’s economy could shrink by more than 10% this year because of the coronavirus crisis, several economists have warned, as surviving firms face a new business climate, economists and market analysts have projected.
Zimbabwe experienced a recession last year, recording a negative 6.5% gross domestic product.
Numerous indicators suggest severe stress pointing to a negative 10% gross domestic product this year.
Economists said the collapse of commercial activities is likely to be far more severe than the previous recession, economists told Business Times.
“It’s likely to be more than 10% negative growth this year,” economist John Robertson told Business Times. “We are an agriculturebased economy but we are battling in that area. There is also uncertainty on tobacco, which has been bringing in the much needed foreign currency.
But, we are in a difficult situation in that area too.”
Another economist, Daniel Ndlela said the United Nations Economic Commission for Africa predicted a -3.6% for African countries on average and projects to be more than that.
“I would multiply that by three because our tobacco season is not going to start. If it starts, China, the biggest buyer of tobacco, will not be there.
If the mining sector starts, things are going down as well. Things are also going down in strong growth countries like Rwanda, the rest, including Zimbabwe, are weak,” Ndlela said.
“So, for Zimbabwe, we are in a difficult space and I will go for a forecast of between 10 and 15%.”
The International Monetary Fund (IMF) has also predicted that the “Great Lockdown” recession would be the steepest in almost a century. In its revised forecast for Zimbabwe, IMF said the southern African country will shrink by 7.4% this year because of the coronavirus pandemic.
Earlier this year, IMF had projected a 0.8% growth. Several economies, especially in Europe, are slowly lifting lockdowns. But, the path from lockdown for Zimbabwe will be precarious, with uneasy companies, which are also aware that at least in the short-term, they will find it difficult to produce and fund salaries.
They expect financial damage from the freeze of business, meaning local firms are set for deepest downturn and sternest economic test yet. The pain will deepen as defaults cascade through domestic payment chains.
They are likely to ask for rent holidays and many other exemptions. Also, in the long run, local firms that survive this pandemic-driven crisis will also have to master a new environment as the crisis and the response to it accelerates.
Many firms are putting a brave face on it. In light of this, several corporate giants in Zimbabwe have signed up to support the fight against coronavirus.
Last week, Old Mutual Zimbabwe unveiled a free ZWL$2bn life insurance cover to benefit the country’s health professionals who are on the front line to fight the deadly coronavirus.
Zimbabwe has so far recorded 18 cases of the disease, which is also known as COVID-19 and three deaths. The cover, according to Old Mutual Zimbabwe chief executive officer, Sam Matsekete, will be for the initial six months and in the event of losing the life of a health worker, Old Mutual undertakes up to 12 times monthly basic salary to the surviving family of the practitioner.
The package will cover the lives of health professionals who battle to save the lives of Zimbabweans, for the initial period of six months from April to September 30, 2020 for free. Thereafter, it will be offered at a discount. “In this period of crisis, we have mobilised to work alongside those who are fighting the pandemic, which is why we have decided to make this practical gesture of support to our hospital staff, who are working to ensure adequate care for patients as well as universities which are innovating to produce key materials required to fight the pandemic,” Matsekete said.
“Unlike with the traditional cover offered, this is neither a product nor a policy and no premiums will be recovered on it during the six months free period. To qualify, health professionals have to register with Old Mutual to receive free cover for six months. Health professionals will be offered the opportunity to continue the cover beyond six months at a discounted cost.” Currently, many firms have only enough inventories and cash to survive for three to six months.
As a result, they have started to fire workers. Once exits from lockdowns start, it is expected that many firms will find it difficult to operate closer to full speed.
That means reconfiguring plant lines for physical distancing and remote monitoring due to the deadly virus. Also, the job of boards are likely not to be just to keep companies afloat, but also to assess long-run prospects.