Consumer spending to remain under pressure
Consumer spending in the country is likely to remain under pressure this year as the combined effects of Covid-19, inflation and a tight fiscal policy weigh on discretionary spending, say analysts at IH Securities.
With salaries largely failing to track inflation, a significant segment of the population has been forced to curb on spending.
“Overall in 2021, it is our view consumers are likely to remain under pressure for at least the first quarter of the year due to lingering Covid-19 effects,” said analysts at the stockbroking firm in its 2021 Investment Strategy paper.
Data from the Zimbabwe National Statistical Agency (ZimStat) shows that the weighted average of prices of a basket of consumer goods and services, measured by the Consumer Price Index ( CPI), quadrupled over the course of the year with annual inflation peaking at 837 percent in July 2020 and the local currency continuing to lose purchasing power.
Total Consumption Poverty Line for an individual rose from $837,68 in December 2019 to $4 670 in December 2020.
According to IH, a number of factors from 2018 have combined to constrain consumers’ purchasing power. Hyperinflation in particular, emerged around 2018 after moves by the authorities to implement currency reforms, which eventually resulted in the ending of the multi-currency system and the re-introduction of the Zimbabwe dollar.
The emergent hyperinflation, which saw inflation hitting levels of over 700 percent by June 2020, resulted in a significant decline in the country’s gross national income per capita ( GNI per capita).
GNI per capita is the dollar value of a country’s final income in a year, divided by its population. It should be reflecting the average before tax income of a country’s citizens.
In terms of available data, Zimbabwe’s GNI per capita (current US$) in Zimbabwe was reported at US$ 1 354 in 2019, according to the World Bank.
“Zimbabwe’s Gross National Income per Capita has been on a downward trend from 2018 levels. Covid-19 saw forced unpaid leave, retrenchments and deterioration of the Zimbabwean dollar leading to constrained disposable incomes for the greater part of 2020 leading to weak demand,” explained the analysts.
“Consumer staples have displayed the greatest resilience as there is minimal substitution effects with rural households being more food insecure than urban households as per a Zimstat Covid Survey.”
The fiscal and monetary authorities have since stabilised the economy, particularly with the introduction of the central bank’s foreign currency auction system last June, which has resulted in the Zimbabwe dollar range-bounding at around 82 to the United States dollar for the greater part of 2020.
The official rate has since shifted to 83,75 to the dollar from this week’s auction.
To support the foreign currency auction system, the authorities have also implemented contractionary monetary policies. Such policies will likely keep price stabilisation intact, but a side-effect is continued drag on discretionary spending, which will be felt most by companies.