Industries throw caution as IMF cuts economic growth forecasts

ZIMBABWE’s economy will grow by 3,1% this year, International Monetary Fund (IMF) data showed this week forecasting annual inflation, estimated at 240% last month, to drop to double-digit levels by December.

The IMF’s forecasts fell within the ranges of Harare’s southern African peers — South Africa, Zambia and Botswana — which are expected to grow by between 3,1% and 7,6% in 2021.

But in Harare, industrialists urged caution, saying following a tough first quarter highlighted by foreign currency shortages and depressed demand, growth would remain subdued in 2021.

The 3,1% forecast announced in the World Economic Report was a significant cut from a 4,2% growth projected in October, but enough to give under-fire authorities desperately needed courage to press ahead with Reserve Bank of Zimbabwe (RBZ)led reforms that have been credited for calming a volatile exchange rate and an inflationary rage.

The fund said Zimbabwe’s annual inflation would drop to 49,4% by year-end, which is much higher than its October 2020 prediction of 3%, and ahead of the RBZ’s prediction in February that the rate would tumble below 10%.

The central bank also placed 2021 gross domestic product growth at 7,4%.

The economy will see further sluggish growth of 4% in 2022, the World Economic Report said.

But business leaders told businessdigest that to achieve those growth targets, Harare must act on foreign currency shortages and review all growth inhibiting factors holding back industries.

“There was a lacklustre recovery which is quite U-shaped,” Christopher Mugaga, chief executive officer at the Zimbabwe National Chamber of Commerce, said.

“It’s an economy trying to open up but it's very heavy because the prospects of a third wave cannot be discounted going forward. I think growth prospects will remain very subdued.

“We can have green shots here and there, especially the services sector and consumer industry but if you look at the manufacturing sector itself it’s very slow. It’s going to be a very difficult 2021 but relatively better than 2020,” Mugaga said.

The forex crisis has provoked the resurgence of the pressures that affected industries under hard lockdowns last year, including importation of raw materials.

The lockdown drastically affected businesses, with the tourism and hospitality sector being the hardest hit, as reported by the Rainbow Tourism Group, Zimbabwe’s second biggest leisure chain, which last week reported significant declines in occupancy rates for the year ended December 31, 2020.

“Then there is an observation that the economy is run on the basis of regulation far away from economic forces,” chief executive officer at the Association for Business in Zimbabwe Victor Nyoni said.

“The gap between the informal market rate and the official rate has been widening. Obviously someone out there must be buying forex from the black market.

“Government needs to do more in creating a conducive environment for doing business in Zimbabwe. The government must deal with the opaqueness on how the auction system gets funded.

“This will address the concern by many that the auction system is unsustainable as it depends more on factors outside the known demand and supply forces,” Nyoni added.

The IMF said the sub-Saharan region will grow by 3,4% in 2021, as the Covid-19 pandemic continues to hold back economies.

“The pandemic continues to exact a large toll on sub-Saharan Africa (especially, for example, Ghana, Kenya, Nigeria, South Africa). Following the largest contraction ever for the region (-1,9% in 2020), growth is expected to rebound to 3,4% in 2021, significantly lower than the trend anticipated before the pandemic,” it said.

“Tourism-reliant economies will likely be the most affected. Pandemic-related restrictions on international travel and a more general fear of traveling are expected to have lasting effects on income from exported services.”