SECURITIES firm Morgan & Co forecasts significant productivity constraints for Zimbabwe in 2023, driven by capital constraints and electricity shortages.
NATHAN GUMA
In its outlook for 2023, the firm predicted a drop in Gross Domestic Product to 2.5%, a 1.3 percentage point drop from the 3.8% envisaged by Treasury, further downgrading from 4.6% projected in the November 2022 supplementary budget.
“As Morgan & Co Research, we foresee significant productivity constraints associated with capital constraints, policy shifts and power outages.
“As a result, we estimate GDP growth in 2023 to be at 2.5%. Zimbabwe has been experiencing severe load shedding averaging 12 hours per day. This level of power outages was last witnessed in 2019 during the height of acute foreign currency shortages amid breakdowns in thermal plants.
“Clearly the turbulence of 2022 weighs heavily on our investment outlook for 2023, with implications ranging from inflation, interest rates earnings valuations to investor sentiment,” read the outlook by Morgan & Co.
On capital constraints, Morgan & Co said the country is likely to further face constraints due to credit-default risk. According to the Zimbabwe Country Economic Memorandum published by the World Bank in 2022, labour productivity growth has remained depressed over the past two decades.
“In fact, Zimbabwe’s labour productivity level over the past decade has been ranking second to last among 17 lower-middle income country economies (LMICs) in Sub Saharan Africa (SSA).
“Zimbabwe has gone through episodes of economic recessions and the political environment has not changed given that international isolation, competitiveness, corruption and a colossal debt overhang remain. The ministry of Finance projects the economy to grow by 3.8% in 2023 while the International Monetary Fund (IMF) projects 3.6%, driven mainly by mining construction, agriculture and accommodation sectors.
“However, 2023 is an election year for Zimbabwe and it will be characterised by volatility. We note that 2022 was a volatile year for equities with an environment of higher inflation and higher interest rates putting downward pressure on valuations. Equity price-to-earnings multiples also weakened.
“This underperformance was largely a result of a raft of measures introduced by the government to curb both the resurgent inflation and the runaway parallel market rates.
The list of headwinds facing the economy include elevated inflation pressures, policy uncertainty due to elections and restrictive monetary policy,” the firm said.
Morgan & Co Research also forecast inflation spill, with an assumption of money supply growth at a monthly average of 13.44% up to December 2023, and inflation averages of 175%.
“A sharp increase in international food and oil prices has started to feed into domestic consumer prices. Unplanned government expenditures as the country moves into electioneering mode should also drive the growth in the Zimbabwean dollar money supply. We therefore envision a rapid deterioration of the exchange rate in 2023.
“Waning confidence in the local currency will also trigger full dollarization (above 90%) as the general population will regard monetary amounts not in terms of the local currency, but in terms of a more stable foreign currency (USD). There is no evidence that most of the process are being quoted in United States dollars while most households and individuals prefer to keep wealth in non-monetary assets (real estate and commodities) or in relatively stable foreign currency,” according to the report.
The firm said the economic, political, and climatic and health-related shocks in Zimbabwe will likely lead to brain drain throughout 2023 and beyond, which will have direct implications for productivity and the swiftness of an economic recovery.
According to the 2022 census report, a total of 908 914 people emigrated from Zimbabwe at the time of the census. 84% emigrated for employment reasons while 9% and 5% emigrated for family reasons and education respectively.
