Agric rebound douses the flames
OLD Mutual Investment Group this week predicted that output from Zimbabwe’s struggling economy will rebound this year following a good agricultural season.
But a relentless Covid-19 onslaught remains the biggest obstacle to ongoing recovery efforts, the group said in its review of first quarter economic developments.
At the end of March, Zimbabwe had recorded 36 882 Covid-19 cases.
is was significantly higher compared to 36 089 in February, but confidence has been building up across the country as the government scales up its vaccination programme to eliminate damaging hard lockdowns that pulled back gross domestic product (GDP) growth in 2020 following sustained work stoppages.
e country’s GDP fell by 4,1% in 2020. But the Ministry of Finance has projected a 7,4% rebound this year, riding on the return to production by industries.
In its report titled Quarterly Economic Brief 2021 the group said much of what would happen this year would be dictated by how the pandemic would unfold.
“Roll out of vaccines globally has improved world economic recovery prospects,” Old Mutual said.
“Downside risks to recovery include delays in procurement and rollout of vaccines and third waves of Covid-19. Locally, vaccination has been ramped although it is likely to take longer to achieve herd immunity. Output in Zimbabwe is expected to expand in 2021 on the back of a good agricultural season. However, the pandemic is likely to cloud the pace of the recovery. Restrictions have since been eased to level 1. Reliance on lockdowns to slow down infections is not sustainable in the medium to long term,” it said.
“e US government and the European Union extended targeted sanctions on Zimbabwe by another year. e United Kingdom introduced its first targeted sanctions on the country since Brexit. Zimbabwe’s relations with the international community, especially with western countries have remained sour, notwithstanding the second republic’s aggressive international reengagement efforts in the past two years,” said Old Mutual.
All sectors of the economy are expected to register positive growth in 2021, with the agriculture and mining sectors expected to record the highest growth rates of about 11% each, and tourism (6,8%) and electricity (10%).
Tobacco output projections for this season range from 184 million kg to 210 million kg with the bulk of the produce expected to come from contract farmers.
In order to enhance their US dollar earnings from the anticipated US$500 million inflow, tobacco farmers engaged the Reserve Bank of Zimbabwe for an upward review of foreign currency retention ratios.
Farmers wanted to retain between 70% and 80% of forex earnings from 50% for the prior season.
Earlier in the year, the central bank had set foreign currency retention ratios for all exporters at 60% in sync with the policy thrust to standardise retention ratios.
However, tobacco farmers argued that retaining only 60% of foreign currency earnings is unviable as most of their costs are US dollar denominated.
In addition, parallel market rates are being applied for local currency denominated expenditures.
“Several farmers are saddled with USdollar loans which they are struggling to repay. ere is a need to address these structural issues to incentivise the growing of tobacco in the future,” Old Mutual said.