1998 SOUTHERN AFRICA ECONOMIC ... - National Treasury

Z I M BA BW E
E C O N O M I C O V E R V I E W
I n t ro d u c t i o n
The thriving agricultural sector and rich natural re s o u rc e
e n d owment in Zimbabwe has created an env i ronment that is
c o n d u c i ve to the development of a comparative ly dynamic
m a nufacturing sector. In the Southern African context,
Z i m b a b we ’s industrial base is second only to South A f r i c a .
A compre h e n s i ve re form programme initiated in 1990 has
sought to create a dere g u l a t e d , m a r ket driven economy in
Z i m b a b we.The liberalisation of the economy has stimulated the
p a rticipation of the private sector in the economy, and there by
i n c reasing the role of the manufacturing sector.
Recent Macro-Economic Developments
The growth of the economy, is fo recast to have decelerated to
an estimated 3.7 percent in 1997, d own from the original
estimate of 4.5 perc e n t . The decline is mainly attributable to
n e g a t i ve growth in the agricultural and mining sectors, e s t i m a t e d
at 2 percent and 6 percent re s p e c t i ve ly. The fall in the
agricultural sector was mainly due to excessive rains,resulting in
l owe r-than expected average yields of major cro p s , such as
t o b a c c o,cotton and maize and the contraction in mining was on
account of lower international prices of metals, m a i n ly go l d ,
n i c kel and copper. The manufacturing sector, h oweve r, a c h i eve d
a growth rate of 8.5 percent in 1997 compared to 4 percent in
the preceding ye a r. In 1998,the economy is fo recast to grow by
3 perc e n t ,with the major sectors, v i z ,mining manufacturing and
a g r i c u l t u re contributing positive ly. Sectoral growth of 5 perc e n t ,
3 percent and 2.8 percent are fo recast for mining,m a nu f a c t u r i n g
and agriculture in 1998 re s p e c t i ve ly.
The fiscal deficit for 1997/98 is estimated to be around 8
p e rcent of GDP. On an annual basis,the inflation rate decre a s e d
in the third quarter of 1997, but then rose to 16.0 percent in
O c t o b e r, 19.4 percent in November and to 20.1 percent in
December 1997. Fo l l owing an increase in sales tax of 2.5
p e rcentage points, inflation rose marke d ly to 24.2 percent in
J a nu a ry. It is anticipated that by ye a r- e n d ,inflation will have
eased to around 17 perc e n t .
A n nual growth in broad money supply (M3), which had
decelerated to a thre e - year low of 13.3 percent in September
1 9 9 7 , surged significantly to 28.2 percent in November and
f u rther to 36.1 percent in December 1997. G rowth in M3 was
underpinned by a 42.8 percent domestic credit expansion.
Tight liquidity conditions, which characterised the money
m a r ket during the last quarter of 1997, persisted into Janu a ry
1998 with shortages re c o rded throughout the month. M o n ey
m a r ket interest rates, which started firming in October 1997 in
response to the tight liquidity conditions and the rise in inflation,
c o n t i nued to harden through to end-December 1997.
The balance of payment was under considerable pre s s u re,
e s p e c i a l ly during the latter half of 1997. It is estimated that, i n
value terms, e x p o rts fell by 0.4 percent while imports grew by
about 19.4 perc e n t .The trade account, t h e re fo re, swung from a
surplus of USD249m in 1996 to a deficit of USD198m in 1997.
The weak export performance caused a worsening in the
c u rrent account deficit, which deteriorated to 8.8 percent in
1997 from 2.1 percent in 1996. The capital account balance,
h oweve r, s l i g h t ly increased from a surplus of USD110m in 1996
to a surplus of USD118m in 1997. T h u s , the deficit on the
overall balance deteriorated significantly to USD768m in 1997
c o m p a red to a deficit of USD21m in 1996. The gross fo re i g n
exchange re s e rves position declined from USD830m in 1996 to
USD272m in 1997, re p resenting about one month of import
c ove r.
The Zimbabwe dollar, after having remained re l a t i ve ly stable
during most of 1997, came under considerable pre s s u re
t ow a rds the end of the ye a r. During November 1997, the local
c u rrency depreciated in nominal terms by 11 percent against
the major trading partner curre n c i e s . By end-December 1997,
the currency had depreciated further by 20,3 perc e n t . T h e
Z i m b a b we dollar part i a l ly re c ove red its November and
December 1997 losses, ap p reciating by 2,9 percent in nominal
terms against the major trading partner currencies in Janu a ry
1 9 9 8 . This was against the background of a slow d own in
demand and improving fo reign exchange re s e rve s .
Financial Institutions
Fundamental to the efficient operation of Zimbabwe ’s financial
system is the Reserve Bank of Zimbabwe established, under the
aegis of the Reserve Bank Act of 1973.The Bank enjoys a cert a i n
m e a s u re of autonomy allowing it there fo re to perform its
s t a t u t o ry obligations without external influence.
The country ’s financial services sector comprises five
c o m m e rcial banks, ten merchant banks, six finance houses, f i ve
building societies and two accepting houses, as well as the Po s t
Office Savings Bank,insurance companies and pension funds,a n d
s everal re g i s t e red re p re s e n t a t i ve offices of fo reign banks. M o s t
of the restrictions fo r m e r ly facing the sector have been
re m oved and banking regulations are being rev i ewed to make
them more re s p o n s i ve to a market-led economy. L a t e ly
contained in the budget speech was the fine-tuning of money
m a r ket operation by confining clearing functions exclusive ly to
c o m m e rcial banks. Also any crunch in the money market will be
remedied through re p u rchase agreements since Tre a s u ry bills
will hencefo rth become government financing instruments only.
Z i m b a b we Stock Exchange
T h e re are 67 companies curre n t ly listed on the Zimbabwe
Stock Exchange (ZSE).The most important listed companies, i n
terms of market cap i t a l i s a t i o n ,a re Ashanti (dual listed), B a rc l ay s
Bank and Meikles. ZSE is part of the International Finance
Corporation Global Index which monitors performance of
emerging marke t s . Since the opening of the ZSE to fo re i g n
p a rticipation in June 1993, activity by fo reign investors has
i n c reased considerably.A fo reign investor is allowed to own up
to 10 percent of a listed company, with a maximum fo re i g n
ownership of 40 perc e n t .
The Stock Exchange had mixed fo rtunes in 1997. Its ove r a l l
m e a s u re of perfo r m a n c e,as indicated by the Industrial index, h i t
a re c o rd high of 12,082 in August fo l l owing a bull run which
began in Janu a ry and fuelled by re l a t i ve ly stable interest rates,
but thereafter fell sharply in the last four months of the ye a r. B y
ye a r- e n d ,the index had shed over 40 percent of its gains to
7 , 1 9 6 , l a r g e ly because investor confidence took a knock on
account of the negative assessment of the local economic
p ro s p e c t s .P re s s u re on the Zimbabwe dollar, on the back of
rampant speculative activity, did little to assuage the ailing stock
m a r ket and added to the substandard performance of the
Industrial index.
Institutional developments includes the drafting of new listing
re q u i re m e n t s ,and re s e a rch undert a ken for the purpose of
establishing a central depository and settlement company.
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