Zimdollar plunges 53%

UNCERTAINTY over Zimbabwe's growth prospects deepened this week, after a leading advisory said its currency had shed 58% of its value in the first quarter.

It was a continuation of negative developments, which first appeared at the end of last year, when industrial capacity utilisation dropped to 56,1% in the last quarter, from 56,3% during the same period in 2021, according to the Confederation of Zimbabwe Industries.

The country's three mobile telecoms firms saw subscribers fall by 1,8% to 14,3 million during the fourth quarter, from 14,5 million at the end of the third quarter last year, reflecting the economic slowdown.

Last week, the Insurance and Pensions Commission of Zimbabwe opened up on the troubles hounding the sector, where 356 000 policies lapsed during the final three months of 2022 while two million more polices were in at the risk of lapsing.

The Zimbabwe dollar depreciated by over 70% on the parallel market in 2022, marking one of the worst years for the economy, even as authorities insisted markets were stabilising.

 In its Q1 report for 2023, FBC Securities said signs of macroeconomic stability remained.

"The local currency has depreciated circa 58% against the dollar during the first quarter on the parallel market," FBC noted.

"The parallel market premium has also widened to 61% at the end of quarter.   

"Deceleration of the official inflation figures and stability of official exchange rates hints at macroeconomic stability. The devaluation of the local currency on the parallel market and widening of the parallel market premium, however, raise concerns as the widening premium may be detrimental to the relative stability currently prevailing."

At the end of last year, government projected that gross domestic product (GDP) would expand by 3,8% this year, riding on a commodity boom in the mining industry, improved agricultural output and tighter fiscal and monetary policies.

But this week, the International Monetary Fund placed Zimbabwe's GDP growth at a much slower rate of 2,5%. This is also a 0,3 percentage point downgrade from the lender's 2,8% growth projection announced last year.

Reserve Bank of Zimbabwe governor John Mangudya told an Institute of Directors of Zimbabwe meeting recently that stability had returned to the currency, following a difficult 2022.

FBC acknowledged progress on the inflation front, saying was a stronger indication of stability ahead.

However, Zimbabwe's double digit annual inflation rate remains one of the world's most aggressive.

 "Despite the slowdown in official inflation figures, the local currency has depreciated against the US dollar on the parallel market. Global and local economic outlook remains largely uncertain as a result of high interest rate and inflation dynamics as well as uncertainty around the upcoming elections in Zimbabwe," FBC added.

"Due to the prevailing uncertainty, it would be prudent for investors to take position in defensive stocks, with resilient business models and stable dividend policies to hedge against value loss."

It said the Zimbabwe Stock Exchange had a fine run during the period, seeing its all share index nearly doubling to 38,568.48 points.

The Top 10 index surged by 87% to the review period at 12,311.13 points, while market capitalisation grew by 65% to ZW$3,3 trillion, from ZW$2, trillion during the comparable period in 2022.

"The Victoria Falls Exchange (VFEX) continues to gain momentum, as issuers chase broadened capital sources, tax incentives and brand positioning. Market capitalisation has grown 75% year to date to US$992,88 million," FBC.

"Moving into next quarter we expect to see more migrations to the VFEX as the theme of dollarisation continues locally. The VFEX currently has a steady pipeline of new listings.

First Capital Bank and African Sun have joined the list of companies slated for VFEX migration. West Properties Company is set to become the VFEX's first IPO, as all listings on VFEX to date have been migrations from the ZSE."