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Econometer Global Capital

Econometer Global Capital

Wednesday, 22 January 2020 11:01

Government’s intervention on ZESA


The government will deploy significant funding to the country’s power utility, ZESA, as part of efforts to extricate the troubled company from a crisis.

Finance Minister Mthuli Ncube said, the government has decided to pursue a proactive strategy in helping ZESA. Under the new plan, the government will inject fresh capital into ZESA in the first quarter of 2020.

However, Ncube did not disclose the magnitude of the funds to be disbursed to support ZESA raising red flags on whether the government is really committed to solving the matter and if they really have capacity to do so.

ZESA, which is choking under the weight of huge foreign debts, has been failing to maintain most of its ageing thermal power stations. This at a time the country’s main source of power, the Kariba Hydro Power Station is operating at under a third of its installed capacity due to a severe drought, coupled with obsolete infrastructure at its power plants.

Zimbabwe has a daily peak demand of 1,800 megawatts (MW) but according to the ZPC (Zimbabwe Power Company) generation is slightly over 300 MW from its five power stations.

The Kariba power plant, which has over the years been the biggest and most reliable source of electricity for Zimbabwe, has capacity to generate 1 050 MW but is now generating an average of less than 400MW.

 Hwange the second largest source of power is currently generating 147MW out of the 920MW capacity. Other power stations Bulawayo, Munyati and Harare which have capacities of 90MW, 120MW and 25MW respectively are currently unproductive.

This has resulted in local firms, who have now turning to diesel powered generators. The manufacturing sector is relying much on this most popular alternative, generators are expensive to run with diesel prices having shot up this week to ZWL$19.55, yet still limited in supply. Most companies have minimised their operating hours which has curtailed their production capacity.

The government licensed over 30 independent power producers (IPPs) and the only challenge is country risk. People are not able to attract any financing for these projects stalling progress on getting proposed projects off the ground as heavy capital outlays are required.

Zimbabwe is facing acute foreign currency shortage which is one of the main reasons why IPPs are failing to implement their projects. Some of the IPPs, who were given licences five years ago, are yet to add electricity on the country’s national grid amid concerns that they could be holding onto the licences for speculative purposes.

Previously, the government expressed frustration over the failure by IPPs to implement their projects, years after they were licenced to construct power stations.

According to official statements, ZETDC lost about US$524 million between 2009 and 2018 because of operating with a non-cost reflective tariff. The tariffs back then were pegged in US dollars at around 9.86 cents per kilowatt hour against a cost of around 11 US cents per kilowatt hour a year.

Based on the latest ZETDC tariffs, it is only customers who buy more than 200 units who pay a cost-reflective tariff. (See graph at the top)

Therefore, the power authorities can only depend on corporates, industry and some mines paying in foreign currency to cover the loss emanating from the situation.

Zimbabwe is currently facing its most severe power crisis in decades, with manufacturing companies and households going for up to 18 hours a day without electricity, putting the country’s economy at risk of further decline.

Despite it being an austere measure on ordinary citizens, charging the cost-reflective price is vital to ensuring that ZESA operates efficiently and autonomously.

ZSE in lackluster performance: Foreign investors desert ZSE

 Foreign investors are continuing to sell off Zimbabwean stocks amid erosion of currency values as well as struggling entities.

The local bourse was one of the institutions in the region to be hit by a foreign currency drought following the shock abandonment of the multi-currency system in June this year.

After the decoupling of the greenback from the local currency, Zimbabwe witnessed a return of the interbank foreign exchange market in February 2019 with the opening exchange rate pegged at ZWL$2.5 per US$1.

Dollarisation had made Zimbabwe a safe haven for both local and foreign investors. But the policy shift, particularly the return of the Zimbabwe dollar and bottlenecks faced by foreign investors in repatriating dividends back home dealt a huge blow on the gains the ZSE had achieved.

In just seven months after since that policy change in February 2019, the Zimbabwe Stock Exchange (ZSE) Industrial Index has registered 57% gains to 774.55 points, with most counters rising on the back of the monetary changes.

Clearly investors were taking positions adopting a wait-and-see attitude. But in USD terms, the picture was less positive with the overall market value of the ZSE down 75% to US$1.98 billion

Just two years ago the ZSE was Africa’s top performing stock market in United States dollar terms for the first six months of 2017.

At the time Local investors were buying into the equities market as a hedge against currency uncertainties and shortages as most cash-rich Zimbabwean companies and individuals failed to access their cash locked in banks due to foreign currency shortages.

Hedging against economic upheavals seemed prudent then but as it stands, the exchange has become a club of a handful stocks that only determine the movement of the bourse but also the pace.

Looking closely at a five year period, comparing the current USD prices of the stocks we can conclude that most of the blue chip counters like Delta, Innscor and Econet are now trading below their 5-year lows that were predominantly witnessed in 2016.

The year 2019 was characterized by rising inflation, relatively tight fiscal measures with liquidity challenges, power outages and low capacity utilisation. These factors compounded to the unattractiveness of the local bourse and in our view, this trend is expected to continue into the New Year.

Notably, the ZSE advanced 57% in the period February 2019 to September 2019 but has not really brought a smile on investors as statistics showed that during the same period under review the bourse lagged behind both inflation and exchange rates. ZSE average monthly return is at 4% relative to 14% and 40% for inflation and exchange rates respectively

On the upside though, we foresee a rally as negotiations between President Emmerson Mnangagwa and opposition leader Nelson Chamisa take shape and probably usher in hope for a nation that was in despair throughout the year.

Wednesday, 18 December 2019 13:21

Ncube, Mangudya should park egos in 2020

As the curtain comes down on the year, one cannot stop pondering on what the future—yes the immediate future has in store for long suffering Zimbabweans. As Econometer Global Capital, we consistently sifted through Zimbabwe’s political economy, attempting to unpack why a country that has so much potential appears to be sliding back.

In our analyses, issues relating to ruinous government policy and confusion relating from inconsistencies were played out. Another issue that we would validate that appears to have put Zimbabwe on the tenterhooks is the cold war between monetary and fiscal authorities. Put differently, we are of the view that cohesion between pronouncements (which can be interpreted as policy) between Finance minister Mthuli Ncube and Reserve Bank of Zimbabwe governor John Mangudya has been minimal.

Ideally the central bank chief, while he reports to the Finance should operate the apex government independent of his boss. Ncube’s predecessor Patrick Chinamasa, a lawyer by training gave Mangudya greater latitude to run the central bank independently. There were consequences, some of which Ncube says he wants to undo.

The increasingly visible policy differences between Ncube and Mangudya have had some results. The outcome has seen policies being quickly reversed, confusing contradictions in public statements and politicians and experts siding with either of the two.

The unilateral measures by the Treasury which include abolition in June of the decade-old multi-currency system that allowed the use of the greenback and the South African rand within the country, was widely seen as a reflection of lack of unison between the central bank and the Finance ministry.

Since the introduction of the bond notes in 2016 which according to the RBZ, were at par with the dollar, Mangudya maintained this fallacy in his bid to avoid unsettling the markets. While removing this parity made a lot of economic sense it resulted in carnage that authorities are battling with. Many argued that Zimbabwe was not ready to introduce the monetary reforms citing the absence of key fundamentals that can support a domestic currency.

In his 2020 National Budget, Ncube announced that government would scrap subsidies on maize and wheat imports. This move which dovetails with IMF-prescribed structural adjustment programmes was expected to push the price of the staple and cause political instability.

 Barely a month after the Budget and a few days before the Zanu PF annual conference, President Emmerson Mnangagwa announced that government would subsidize the two agricultural commodities, a development that was seen as a reprieve to consumers. The policy inconsistencies cannot get any worse than this.

For now, Zimbabwe’s economy continues to be hamstrung by rising inflation, foreign currency shortages, high unemployment and rolling power cuts. Going into the future, we urge monetary and fiscal authorities to harmonise their policy pronouncements and put Zimbabwe first instead of their egos.

Zanu PF concluded its annual conference at the weekend where the state of the economy and corruption within government were some of the issues topping the agenda.

The conference ran under the theme “Mechanise, modernise and grow the economy towards vision 2030”.

President Emmerson Mnangagwa’s administration is facing a myriad of socio-economic problems which include rising inflation, unemployment, investor fatigue and a restless civil service.

An underperforming economy remains the elephant in the living room. During the election campaign trail, Mnangagwa promised to transform the economy, build energy plants, create unemployment and strengthen the pillars of governance.

On a scale of 10, we would argue that overall the government has achieved three out of 10.

During the year 2019, Zimbabwe implemented a raft of reforms in its quest to contain government expenditure and normalise relations with international financial institutions such as the International Monetary Fund, the World Bank Group and the African Development Bank.

Literature shows that pursuing such a path comes at a price—social spending suffers and populist policies are jettisoned. For a party that promised milk and honey before the June 2018 general elections, Zanu PF finds itself in an insidious situation that may affect the core of the party.

The state of the economy is however secondary to the optics of the opposition party MDC led by Nelson Chamisa, which challenges Mnangagwa’s legitimacy. This has been a source of a major political impasse that has had socio-economic ramifications.

Interestingly during the conference, the Chinese government weighed its support on the ruling party. Put differently, the world’s second largest economy boldly stated that its interests are safeguarded under Zanu PF.

So the question is “Where does that put the MDC?” The opposition party needs more friends than foes now—China included.

Zimbabwe’s politics has been highly toxic. It’s a winner takes all game. The ruling party enjoys more than two thirds majority and has made it clear that any talks that could push for a coalition government with the opposition party are not welcome. Many Zimbabweans who voted for both Zanu PF and MDC Alliance may not agree with this hawkish approach.

An era of sloganeering has taken Zimbabwe backwards. Intolerance has not been a common word in Zimbabwe and national interest has been defined along partisan lines.

As the ruling party approaches the half way mark since the 2018 elections, party leaders should reflect on the manifesto, park egos and renew hope to millions of Zimbabweans.

The Second Republic that many hoped would carry this responsibility has largely been unsatisfactory. Is Zimbabwe facing a leadership crisis? History or probably the future will and can tell.

Monday, 09 December 2019 09:48

ZSE in lackluster performance


Zimbabwe economic woes continued to mount after foreign participation on the local bourse declined by 45 percent in November. Latest figures obtained from the Zimbabwe Stock Exchange (ZSE) show that foreign purchases dropped to $19 million in November from $34 million.

 Foreign investor participation slowed down when government introduced the mono-currency system which outlawed the multicurrency system which had been in place since 2009.

As the economy floundered blue chips on the ZSE have also taken a knock. PPC, National Foods and Delta Corporation have experienced one of their leanest periods after EBIDTA, revenues and volumes plunged in the period ending September. Delta for instance recorded a 48 percent decline in lager beer volumes during the half year period ending September from 1.04 million in prior comparative period.

The decline in sales speaks to low buying power or rather low consumer income that has been wiped out by rising inflation which is estimated to be hovering at 400 percent per annum.

At 175.66 percent, Zimbabwe’s annual inflation reached its peak in June, the highest in 10 years and keeps trending upwards.

The ZSE reflects on the performance of the economy and its current performance makes Zimbabwe an unattractive investment destination.

Just this week President Emmerson Mnangagwa told delegates attending the Zimbabwe National Chamber of Commerce Energy survey that local firms should push to export at least 20 percent of their volumes. On paper, this export oriented thrust could be a panacea to the foreign currency problems the economy is facing.

But a lot of housekeeping issues need to be addressed. For instance, Zimbabwe requires a permanent solution to the ongoing energy crisis. Secondly the country’s politics is just toxic. News that the ruling party wants to amend the Constitution to remove presidential terms send the wrong signals to both domestic and foreign investors. What Zanu PF needs now are policies and reforms that project the party as democratic and keen on reforms.

Anything short of this will affect the ongoing reengagement efforts with the international community and any prospects of turning around the economy.

Thursday, 05 December 2019 08:51

Take heed, Mr. President

zim power generation 5 dec

Source: Zimbabwe Power Company 

The Zimbabwe National Chamber of Commerce has launched its Energy Sector survey at a time the economy is going through turbulence.

Just when many thought the onset of the rains would improve generating capacity at the country’s largest hydro-powered station, its dark city again. The country’s power utility is supplying electricity for less than 6 hours every day. This has had serious socio-economic problems.

As Zimbabwe faces erratic fuel supplies, business has been left in limbo. In fact most of the companies interviewed said they had registered up to a 50 percent cut in output and in monetary terms firms could be losing up to ZWL$2.5m in potential revenues. For a country headed for recession this is shocking. The survey also came in as a profit warning for government as it revealed that most companies were this year expected to record losses or marginal profits.

Zimbabwe is battling high levels of unemployment and rising inflation among other economic challenges and the low business activity resulting from the power crisis could lead to more cuts as most companies will find it unviable to rely on alternative sources of energy.

President Emmerson Mnangagwa and other senior government officials are expected to grace this launch. But the question is “What’s next?” According to the African Development Bank, Zimbabwe requires nearly US$35 billion to fund its infrastructure projects including energy. For a country with a huge debt burden, attracting concessionary funding for such projects requires much more than rhetoric. It should go beyond the Zimbabwe is open for business mantra.

The energy sector requires huge capital and that capital can only be secured when Zimbabwe ticks a few boxes on its Doing Business rankings. The journey has just begun and the restoration and deepening of bilateral relations can improve the country’s prospects of securing concessionary funding or other viable funding models.

Public Private Partnerships and Build Operate Transfer arrangements are but some of the options that government can promote in its quest to improve generation capacity. Unlike major oil producing countries like Nigeria that can rely on the commodity to generate power, Zimbabwe needs cleaner and sustainable sources of energy that will help industry flourish.

It is our hope that President Mnangagwa who has distinguished himself as a listening president will adopt some of the recommendations made in the ZNCC survey to ensure that the economy can tick again.

In the absence of this, any hope of rebooting agriculture, manufacturing or mining will remain distant.


Tuesday, 03 December 2019 07:37

MPC raises red flag on money supply growth

Broad reserve supply 2

The Reserve Bank of Zimbabwe Monetary Policy Committee (MPC) held its third meeting on 29 November 2019. The Committee met and deliberated on a number of issues including the potential monetary implications of the 2020 National Budget and the liquidity situation in the economy.

One of the take-away points from the meeting was the country’s expansionary fiscal policy which is expected to pile inflationary pressure on the economy.

The Committee noted that the 2020 National Budget has a potential expansionary impact on money supply, which limits the scope for tightening of monetary policy as required under the Bank’s disinflation programme. Concerned with the expected money supply growth, the Committee directed the Bank to re-calibrate the reserve money targeting framework.

On this point we raise the red flag. As Zimbabwe struggles to access concessionary funding, government appears to be relying on Treasury Bills to finance its projects. The summer cropping season will largely be funded from government coffers as most banks will take a cautious approach in funding agriculture. The remarks by the MPC not only reflect on its autonomy but also give signals on whether or not government will in the short term defend the value of the local unit which this week was trading at 24:1 against the United States dollar on the parallel market.

The Committee also noted that monthly inflation for November 2019 is projected to decline further and therefore resolved to maintain the policy rate at the current level of 35%.

The central bank is set to overhaul the country’s inefficient interbank foreign exchange market, as authorities push for the harmonisation of the exchange rate regime.

The Reserve Bank of Zimbabwe (RBZ) has, for the first time since the inception of the interbank market in February this year, admitted that there was serious abuse of the system by the banks.

The interbank foreign exchange system effectively devalued the local currency which was initially pegged at par with the United States dollar but the model was ditched in February.

The foreign exchange policy, however, has failed to deal with the economic crisis. Zimbabwe is still gripped by serious shortage of foreign currency. Apparently, businesses have long been calling for the overhaul of the market claiming there was abuse in the system.

 But, foreign currency has not been available forcing them to turn to the alternative market where they pay high premiums. In turn, they pass the cost to the long-suffering consumers.

While the measures seek to restore market confidence, we still believe that Zimbabwe has no fundamentals that justify a domestic currency.

The fundamentals include a minimum of foreign exchange reserves equivalent to one year of import cover, which we believe are currently less than one week’s import cover.

The other fundamentals are that Zimbabwe should have a balanced and sustainable government budget, high consumer and business confidence, a sustainable level of inflation, and a healthy job market. All these have not been met. 

Month on month inflation Oct

Government has plans to overhaul the country's interbank foreign exchange market amid concerns that the current system is fraught with irregularities.

For central bank authorities, the move is an admission that the interbank market which was introduced in February is not very efficient.

Nearly 10 years after the introduction of the multicurrency system, the adoption of the interbank foreign exchange system effectively devalued the local currency which was initially pegged at par with the United States dollar.

While the liberalisation of the foreign exchange market was a step in the right direction, we continue to argue that the decision was ill-timed and not backed by the right fundamentals.

The fundamentals include a minimum of foreign exchange reserves equivalent to one year of import cover, now said to be less than one week’s import cover, according to credible sources at the central bank. Mangudya did not respond to enquiries on the foreign exchange reserves yesterday.

 The other fundamentals are that Zimbabwe should have a balanced and sustainable government budget, high consumer and business confidence, a sustainable level of inflation, and a healthy job market. All these have not been met. 

The foreign exchange policy has failed to deal with the economic crisis as Zimbabwe’s current account remains in a precarious position. The greenback has remained an elusive commodity and increasingly some formal businesses are relying on the parallel market to meet their foreign currency demands.

The official rate on the market as at close of business yesterday the interbank rate stood at 16:1 against the black market rate of as much as 22:1 against the greenback.

According to the central bank some banks are selling foreign currency at ZWL$30 for US$1, which on one hand speaks on manipulation of the system and supply side gap on the other hand.

From February 22, 2019, to October 11, 2019, cumulative interbank purchases amounted to a lowly US$173 million, while total sales amounted to US$165 million.

With the new interbank market, the government expected it to provide significant positive effects on the economy and domestic production, which is currently very low.

Zimbabwe’s economy has been on a serious downturn in the past two years - being ravaged by hyperinflation, cash shortages, and fuel and electricity shortages.

The southern African nation has also missed several of its macroeconomic targets. The government has been targeting an economic growth rate of 3.1% by the end of 2019. But there is economic recession, and the economy is expected in fact to contract by 6.5% this year. There is runaway exchange rate volatility when the government was targeting inflation to be around 5% by year-end. With annual inflation hovering around 400 percent, a rebound in 2020 is highly improbable. Let us go back to the basics.

Tuesday, 26 November 2019 08:09

Of accounting boobs and the aftermath

developmental support by country 2

Source: Ministry of Finance & Development Partners

Last week China rebuked Zimbabwe after Harare understated Beijing’s financial support to the southern African nation.

Zimbabwe stated that it had received US$3.6 million in development support from China from January to September. China disputed this figure saying it had provided US$136.8 million during the period under review and that does not include the other bilateral support such as the expense of expert assistance and the embassy’s aid to vulnerable groups.

Left with an egg on her face, Zimbabwe through the Information ministry promised to “establish the common accounting position” regarding the matter. A few days later Finance minister Mthuli corrected the position.

But the question is ‘was Ncube error by default or not’. If one takes the conspiracy theory and Zimbabwe’s current international affairs, the answer could be ‘yes’ the error was designed to undermine China’s role in Zimbabwe. The next logical question would be why?

Ever since his appointment as Finance minister, Ncube has bragged on how he has ticked the bosses in pursuit of Zimbabwe’s economic reform agenda. In other words—he has taken every opportunity to remind Zimbabweans how Brettonwoods institutions like the International Monetary Fund and the World Bank have been pleased with Zimbabwe’s reforms, notwithstanding the hardships that many have endured.

Austerity measures introduced late last year and cuts on public expenditure among other raft of changes to the public finance management system are but some of the measures which institutions prescribe on developing countries in debt distress. Zimbabwe has been in this road before and appears to be retracing its steps.

Zimbabwe defaulted its payment of arrears owed to international financial institutions such as the World Bank, International Monetary Fund and the African Development Bank in 1999 and new allies had to come to its rescue at the turn of the century.

China, at the turn of the millennium renewed relations with Zimbabwe to counterbalance western isolation. It became the biggest buyer of flue-cured tobacco from Zimbabwe, invested in multi-million dollar infrastructure projects such as the upgrading of the Joshua Mqabuko Nkomo airport and provided military hardware to Harare.

Unlike the western bloc, China has over the years adopted a policy on non-interference on domestic affairs of sovereign states. The latest accounting boob became a first. We are of the view that the world’s second largest economy sees a shift in Zimbabwe’s foreign policy under the Zimbabwe is open for business thrust. This shift would translate in western countries positioning for natural resources in Zimbabwe. It is a reality that that there is no morality in foreign policy—that is helping a friend for the sake of it.

The international political system is about interests—a contestation of finite resources mainly exploited from the developing countries often known as periphery nations.

On the flip side, last week’s bleep could also be taken as just an error. After all to err is human. The world is watching.


Source: Ministry of Finance 2020, Budget Growth Projections

Finance minister Mthuli Ncube announced the 2020 National Budget on Thursday and many are still reconciling its main takeaway points.

No game-plan for energy

Turning to the capital-intensive energy sector, Ncube said government has budgeted ZWL$8.4 billion for the expansion of Hwange Thermal Power Station which has been on and off the grid during the greater part of the year.

 In our view, Hwange thermal is not only environmentally unfriendly but also long overdue to be mothballed. The frequency of breakdowns on the country’s second largest power station calls for an immediate action to build a new plant. But the question is who will finance the project. The Chinese are now overstretched and may not be ready to commit. With exports falling, pressure on the little foreign currency reserves will escalate in the coming year as government will continue to rely on imports from the region. While we acknowledge that Kariba hydro may return to near optimal levels by mid-December, we are of the view that the current power crisis will continue in the coming year due to underperformance of other plants.

In the past government has splurged millions into projects that turned out to be monumental blunders. Thanks to cronyism, the Dema emergency diesel power plant is lying idle and no one seems to care.

Smart command agric not necessarily smart

Ncube said agriculture will this year be financed by the private sector. He said Command Agriculture, an import substitution scheme bankrolled by government would be abandoned for a new model he termed smart agriculture. Reading in between the lines, one can see that government remains the main benefactor of the programme given that it will act as guarantor due to issues relating to security of tenure for newly resettled farmers.


We anticipate high default levels due to both internal and external factors. Firstly farmers understand how emotive the land question is and how government would want to paint a rosy picture. So in the event of defaults government will just assume the debt as domestic debt. Secondly, Zimbabwe generally has low yields per hectare and agriculture is generally not commercially viable for most farmers.

Early New Year’s present?

Mthuli Ncube announced government’s plans to cut value added tax (VAT) from January to stimulate consumer demand amid indications that the economy will this year contract by up to 6.5 percent.

The Finance minister also proposed cutting VAT to 14.5% from 15% effective January 2020. He also proposed lowering the corporate income tax rate to 24% from 25%, a development that reflects on the low compliance levels by companies.

Looking closely at the budget, we can conclude that the fiscal statement presented was expansionary as government comes in terms with the reality of a floundering economy. Treasury has no budgetary support to finance a litany of projects such as agriculture, new subsidies on basic commodities among others. In light of this we expect fiscal deficit to GDP to be in the 10 percent range.