Brace for tougher 2024, business leaders warned
BUSINESS should brace for a tougher 2024 on the back of projected El Niño phenomenon that will negatively impact on the agriculture sector and dent the country’s electricity generation capacity, key sectors that are the backbone of Zimbabwe’s broad-based inclusive economy, according to economists.
The first half of 2023 was highly volatile, characterised by hyperinflation, exchange rate volatility, and electricity challenges, while the second half was stable on both inflation and the exchange rate due to a number of measures instituted by the Government. These measures included interest rate hikes, starving the economy of RTGS dollars through gold coins and suspending payments to contractors.
Experts believe the El Niño drought years of moderate to severe crop failure always pose a major challenge to national food security, macroeconomic stability and economic growth in general.
Economist, Farai Mutambanengwe, told Business Weekly that 2024 will be “pretty much” similar to 2023, as the environment was most likely to continue to be difficult from a business perspective.
“We saw increased taxes coming through from the 2024 National Budget, and there will be an expectation that there will be a drought, so economic activity is going to be subdued,” he said.
He added that there has not been much in terms of correction of previous areas of concerns by businesses, hence the status quo was likely to continue.
“Issues such as the 10 percent margin on pricing, foreign currency availability, the parallel market premium and a number of other issues need to be resolved; hence, there is not going to be much of a difference going into 2024 compared to what there was in 2023,” said Mutambanengwe.
Electricity shortages have been a major issue for industry during the year as they resorted to using generators, which ultimately increased the cost of production.
However, the recently commissioned Hwange Units 7 and 8 are expected to reduce the electricity burden as the power supply is projected to improve.
Economist, Dr Prosper Chitambara, said while 2023 has had its fair share of positives and negatives, the economy ended up performing better than what people had initially expected in terms of growth for this year.
However, he said next year is going to be more difficult than this year, especially due to the projected El Niño effect, which is going to affect agriculture production, which in turn affects industry and the rest of the economy.
“So the diminished agriculture production means more inflationary pressures in terms of food pricing, as the Government has to then spend more money to mitigate that through social protection in importing food, and that is going to affect the current account and trade situation.
“If there is less rainfall, it means diminished hydroelectric generation, which will have an impact on businesses and the economy; therefore, I think we need to brace for more challenges, but we hope the economy registers positive growth,” he said.
The Government has since projected economic growth to slow to 3,5 percent in 2024, a decrease from 4,5 percent in 2023, as agricultural output is expected to suffer from depressed global growth
and the predicted erratic and below-average rainfall caused by the El Niño weather pattern.
Agriculture economist, Dr Reneth Mano, said because agriculture remains the backbone of Zimbabwe’s broad-based inclusive economy and livelihood security, El Niño poses a major challenge to national food security, macroeconomic stability and economic growth.
“The business community and government are therefore advised to plan for the worst while praying for the best outcome in terms of agricultural production, food security and the rationally expected slowdown in GDP growth”.
Mano noted that for the domestic milling and stockfeeds industry, the Government has already started allowing duty-free imports of maize for the private sector, which is set to rejuvenate the milling industry and ironically reduce the cost of meal.
“For the stock feed industry, additional policy measures for the drought year are for the Government to additionally start allowing for duty-free imports of soyabean meal in order to reduce the pressure on food price inflation by reducing the domestic cost of stock feed and livestock production,” he said.
Victor Bhoroma, an economist, said the prospects for a drought will impact food security and agricultural productivity, which will mean that food inflation is going to be elevated.
He said the impact of imported inflation, where Zimbabwe has to import various agricultural commodities to produce food, is going to affect prices or the inflation rate in the country.
“The importance of water in power generation at Kariba Power Station and the excruciating power cuts happening across the country are going to get worse in 2024.
“This means the prospects are not as high, but despite that, Zimbabwe will record a positive economic growth rate because our economy is also anchored on the raw commodity exports sector,” he said.
He said gold, platinum, chrome, nickel, and lithium remain bullish on the global market; hence, mining exports are going to sustain and provide a resilient economy going forward.
“Despite the negative impact of the business environment, especially the monetary policy, the growth in exports and diaspora remittances will remain key to driving domestic demand,” said Bhoroma.
Another economist, Vince Musewe, said key issues faced by the business sector include a lack of consistent power, poor water management, and high operating costs.
He said these cannot be addressed in a budget statement alone but by better economic management.
“No economy can perform at its full potential without getting the politics right. That will remain a challenge going forward,” he said.
However, Confederation of Zimbabwe Industries (CZI) president, Kurai Matsheza, said industry wants the upcoming year to be a good year, certainly better than 2023.
“But there are headwinds in our way, particularly the projection of a heavy drought, so if agriculture does not perform well, it is going to filter into manufacturing.
“But with the trend in commodity prices for minerals, we hope it will reverse, and with the commissioning of Hwange Units 7 and 8, we hope electricity will be much more stable than in 2023,” he said.
He highlighted that industry also welcomes the extension of the multi-currency system to 2030, which brings stability to planning.
“Engagements with the IMF staff-monitored programme, we hope at some stage it becomes a work programme, with some credit lines opening up that will help us as an industry,” said Matsheza.