Zimbabwe consumer demand remains firm despite currency depreciation

DEMAND within Zimbabwe's consumer sector will remain firm, supported by the informal sector, which makes up the bulk of the economy and shows resilience to macro-economic changes, a research firm has said.

IH Securities, in its Zimbabwe consumer sector report 2023, said that despite a challenging economic environment characterised by weakening local currencies and high inflation, demand will also be supported by a good agriculture season and above-average precious metals prices.

"With the majority of the population employed in the informal sector, where the currency of trade is USD, we are of the view that currency headwinds will affect mainly those in the formal sector.

"Despite an anticipated firm consumer demand, we are skewed towards consumer-facing stocks that have the ability to generate revenue in USD, the capacity to penetrate the informal sector, the ability to adjust prices in line with inflation and exchange rate movements, and good management," said the stockbroking firm.

Consumers have recently seen a dramatic rise in their cost of living, from the price of food and fuel to rising interest rates and higher utility costs, forcing them to adjust their spending patterns, according to PayPal.

IH said remittances seem to be used to bridge the gap between incomes and consumption, but the results also have implications for economic growth and poverty reduction in Zimbabwe.

"Diaspora remittances as a percent of exports remain sizable in Zimbabwe, unsurprisingly, as more than 30 percent of the population is in the diaspora.

"They provide a cushion from economic shocks for local consumers, making up six percent of gross domestic product (GDP)," IH said.

The research firm said as the disparity between the official and parallel market rates grew between 2016 and 2019, diaspora remittances seemingly decreased, likely as a result of the decreasing use of formal channels in the face of uncertainty.

It said the informal sector acts as a "hidden" buffer for shocks in the formal sector such as inflation, currency collapses, and rapid policy changes by accommodating the labour force, which cannot be formally absorbed.

The International Labour Organisation (ILO) estimates that more than 66 percent of total employment in sub-Saharan Africa is in the informal sector.

IH said Zimbabwe's informal sector is credited as one of the reasons local GDP did not retreat to the same extent as peers during the first wave of the pandemic in 2020.