2023: Interesting challenges for investors in Zimbabwe lie ahead

LISTENING to presentations from the Davos World Economic Forum, one message that is coming out of both the International Monetary Fund (IMF) and the World Bank is that the world is still to recover in any sustainable way from serious economic challenges.

A still-continuing Covid-19 pandemic – although significantly less intense than its variants during the first two years – as well as aggregate supply shocks, a fast-unfolding climate crisis, and lack of any meaningful multilateralism have been some of the main reasons for the delay in both global economic recovery, and putting it on a much-needed resilient, inclusive, and sustainable path, especially for those in the global South.

Having a global vision helps us understand that there are economic problems that transcend borders and the mechanisms used to solve them have consequences in different geographies.

We are into a new year and there are renewed expectations and hopes for better things to come. For those of us who invest in Zimbabwe, however, it will not be an easy year to navigate.

When deciding to make an investment, analysis must be carried out beforehand – what kind, how deep, what variables to look at, etc. In short, we have to look at what events to watch out for in order to obtain the desired result.

It is best to analyse what happened in 2022 in order to apply strategies that yield good results for those who choose to place their savings.

Undoubtedly, inflation was the prevailing theme around the world: the United States, the Eurozone, Japan, China, Brazil and other major economies produced consumer price indices that had not been seen in recent economic history. A separate issue is Zimbabwe, which has flirted with chronic high inflation for a long time.

In the United States, the world’s leading economy, the outlook of economic recession is not clear; although the first half of 2022 showed some contraction, the performance was not repeated in the second part of the year, and this was reflected in the labour market and the purchasing managers’ index (PMI). 

In the first, special attention should be paid to the unemployment benefit claims – the number of people filing the documentation to obtain the benefit for the first time, which as of August produced 18 weeks with a better performance than the market anticipated.

The second concept – the PMI – is an economic indicator that surveys purchasing managers at manufacturing companies: it fell in the first months but rebounded in the third quarter and then fell in the fourth quarter.

The US Federal Reserve is constantly seeking to converge on a 2% inflation rate, using the benchmark interest rate to do so, yet it is still not achieving the desired results. At the last Fed meeting, the consensus on the benchmark rate was that there would be no cuts during 2023 and that the 2% inflation target should be reached by 2024. So, we can expect further increases but of a smaller magnitude this year.

Moving onto the Eurozone, the region has not yet managed to fully reverse the effects of the Covid pandemic and has started to suffer the onslaught of Russia’s invasion of Ukraine war. Whether it was printing money or increases in fuel and commodity prices, the consumer price index reached 9.2% in 2022.

China keeps reminding us that Covid and its aftermath may take a long time to abate. The country tightens and relaxes its policies regarding the management of the epidemic and this has an impact on global aggregate supply. The opposite performance was shown by inflation, which declined year-on-year to 1.6% from 2.8%.

For Africa, 2022 marked a commercially turbulent year owing to domestic and international economic deterrents. Issues such as food and energy inflations were partly catalysed by the Russia-Ukraine conflict taking place on the other side of the world. The cost of living, food insecurity, energy scarcity and more became major crises in numerous regions across the continent, and these complications seem persist.

Looking at our trading partner, South Africa, whose President Cyril Ramaphosa was given a greenlight for another term in office by his party the ANC, rolling power cuts are severely impacting the country’s growth and increasing the risk of recession.

The economic costs associated with electricity outages — known as load-shedding — have reduced GDP by 1 to 1.3% annually since 2007, estimates have shown. Had load-shedding never occurred, the country’s economy could be 17% larger than it is today. Economists have estimated losses of between 1.5 billion rand and 4 billion rand (about US$87 million to US$232 million) per day.

The country’s growth outlook in 2023 is not “impressive,” as also been admitted by South African Finance minister Enoch Godongwana this month, blaming electricity supply challenges for a lower-than-forecast 1.6% growth in 2022 and weakening investor confidence. “We can have the best policy on paper, but if we can’t provide electricity, it is useless.”

This is the same story with Zimbabwe which is facing an acute energy crisis, continued three-digit inflation, three-digit interest rates and an unstable local currency.

For an investor in Zimbabwe, therefore, what conclusions can be drawn as we navigate 2023? Firstly, we need to be aware of the global context when making investment decisions. Having a global vision helps us understand that there are economic problems that transcend borders and the mechanisms used to solve them have consequences in different geographies.

Let us leave the international level and look at the local context. Zimbabwe ended 2022 with a consumer price index whose year-on-year variation was 243%. Additionally, the year was characterised by ad hoc policies on all fronts. Interest rates were set at a record 200%, discouraging both borrowings and constraining spending.

The challenges for 2023 revolve around the upcoming elections and the uncertainty that this democratic act generates in society as a whole; on the economic front, inflation, currency and the accumulation of reserves will remain on the table, as well as the management of public debt in local currency.

Also to note, the domestic situation could improve or worsen due to the impact of the international environment; we are not “disconnected” from the outside world.

Nevertheless, it is possible to invest and find the right opportunities for each investor profile. If investors believe that inflation will continue to be the theme this year, they will find some peace of mind in assets whose issuers do not depend on financing because if interest rates continue to be high, credit remains expensive; and in instruments that index the invested capital to indices that accompany the increase in the price level.

If their expectations are based on a reactivation of economies, they will look for assets linked to industrial production, manufacturing and mass consumption.

Meanwhile, investors seeking to dollarise their portfolios will find options in issues by private companies whose core business generates hard currency revenues and in issues of domestic foreign currency-linked government securities and gold coins. 

Finally, let us not forget that, being an election year, there will be an electoral trade, that is an investment opportunity for those betting on a certain political outcome. The stakes are high and investors are on the lookout.