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'Price stability to spill into 2021'

by Staff reporter
05 Nov 2020 at 19:27hrs | Views
ECONOMISTS and captains of industry yesterday predicted a continued stability of prices of goods and services into next year.

During a state of the economy report by Africa Economic Development Strategies (AEDS) hosted by the Daily News yesterday, renowned economist Gift Mugano said the foreign currency auction system introduced by the Reserve Bank of Zimbabwe (RBZ) along with restrictions on mobile money transactions had succeeded in reducing distortions in pricing.

"We have noted that the rate has stabilised at around $81 to US$1 and likewise, the inflation rate has started to increase at a decreasing rate.

"The quick fix, in our case, is expected to come from the anticipated agricultural sector on the back of good rains, the-PFumvudza concept and the proposed establishment of a market-based agricultural sector through the establishment of a commodity exchange.

"Combined, these factors will help the country to make savings in excess of US$500 million on cereal importation plus another US$250 million on soya beans which, if achieved, will help guarantee the effective performance of the auction system and effective price discovery," Mugano said.

"With improved output from the agricultural sector coupled with improved availability of foreign currency, the manufacturing sector is anticipated to recover since it draws 70 percent of its raw materials from the agricultural sector.

"At the very basic level, if these expectations are attained, which is most likely, it presents a better outlook for 2021."

Mugano, who is also the AEDS executive director, said the government must ensure that the auction system is sustained by ensuring improved production to do away with "unnecessary imports".

This comes as the government has set itself an ambitious target of achieving a US$8,2 billion agriculture sector by 2025 with the Agriculture ministry's Food Systems Transformation Strategy, the Agriculture Recovery Plan and the Livestock Growth Plan.

Mugano also emphasised the need to decentralise the auction system, allowing banks to take charge of the whole process to attain convergence of the black market rate and official rate to curtail unofficial activities.

"The government must rein in knee-jerk price increases, especially electricity tariffs as well as wages to avert inflationary pressures, which have potential to derail the auction system's success.

"Notwithstanding the policy omissions, from a qualitative perspective, the 2021 economic outlook looks better than 2020 and will be characterised by stabilisation of exchange rate, which will guarantee the return of the local currency as an acceptable currency; improvement in current account on the back of high output from the agricultural sector; improved incomes, aggregate demand and consumer spending as well as low inflation," said Mugano.

If Finance minister Mthuli Ncube presents his 2021 National Budget in US dollars, Mugano predicted that the economy could experience deflation and that inflation could fall to below 100 percent if the statement is in the local currency.

Confederation of Zimbabwe Industries (CZI) president Henry Ruzvidzo concurred, saying the incremental gains realised so far could be sustained by creating a conducive environment for business.

"Diaspora must find it easy to do business in the country and we also expect continued efforts to reduce distortions caused by the multicurrency system if we are going to see sustained macroeconomic stability.

"There is a need to stimulate exports and also promote locally produced goods to cut down on imports. Efforts to re-engage with the international community must be redoubled to improve the country's perception," he said.

The position was also backed by the chief executive officer of the Chamber of Mines of Zimbabwe, Isaac Kwesu, who said 90 percent of mining houses in the country were optimistic that there would be high productivity in the sector.

However, SME Association of Zimbabwe founder and executive officer Farai Mutambanengwe painted a bleak 2021, with the government struggling to pay its workers and companies struggling to meet production costs.

"We are going to see recession and stagflation emanating from low disposable incomes and high taxation. We are moving towards the era of company closures because of high production costs given the dollarisation that is taking place. Everyone has moved their prices back to 2016 and that is why there is a high risk of stagflation.

"We cannot operate as a dollarised economy because we do not have enough of it and at the same time we are not operating as a true local currency economy because all business transactions in the local currency are being done to purchase US$. The use of the Zim dollar is, therefore, minimal and limited to few businesses," Mutambanengwe said.

Source - dailynews
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