Agriculture typically accounts for over 25% of the national produce and, within it, maize and tobacco are key crops. Maize output will likely come in at below 500 000 metric tonnes a record low and, similarly, all other non-drought resistant crops would follow. The annual national demand for maize is at about 1,2 million metric tonnes.
Underperformance in agriculture, which typically feeds into other sectors such as manufacturing, will strongly undercut gross domestic product. The rebound in gross domestic product (GDP) projected by government, International Monetary Fund (IMF) and World Bank is all premised on agriculture recovery, which will be a big miss.
Mining output underperformed in 2019 largely as a result of economic headwinds such as currency volatility and policy changes. Further to this, mining was weighed by power shortages, which is a recurring threat into 2020. Not only will this factor affect mining, but other sectors too will bear the brunt of power shortages and this is the biggest threat to GDP rebound in 2020.
Electricity generation will be hamstrung by low dam levels at Kariba, in the face of sustained drought, erratic thermal power production at Hwange, which is now antiquated and over-utilised, serious challenges at South African power utility Eskom, and a general regional deficit, threatening South Africa, Zambia and Namibia respectively. This puts a huge premium on production and general price levels in the economy and increases competition from regional products, whose price points may be lower.
Against these projections, I am of the view that it will increasingly become difficult to contain inflation, which has largely been driven by exchange rate weakness.
Although Zimbabwe recorded the narrowest trade gap in 11 years in 2019, the absolute foreign currency earnings dwindled against growth in domestic liquidity through high-powered money.
The tendency towards “money printing” in the face of economic pressure is very likely and equally poses a serious threat to economic stability in 2020. There is therefore a high likelihood that government will tamper with money supply in the event that budgetary demand swells beyond budgeted levels or revenue underperforms. Already, the forex market is not yet in equilibrium, the ready daily caps and the widening gap between interbank and parallel market all point towards further weakness in local currency, in the very near term.
On a more fundamental level drought has induced increased importation of maize, soya, wheat and rice will increase the demand forex. This will be further coupled with demand for more electricity imports and petroleum products, the latter whose price has surged in recent days due to heightening geopolitical tensions.
Government will however attempt to fight back and this will be mainly done through efforts to balance the fiscus that is attempting to keep expenditure to budget.
This could only be achieved if the expenditure function is rescaled in favour of recurrent expenditure. Even after doing so, government still runs the risk of failing to achieve revenue targets to support the envisaged expenditure. My view will therefore be that inflation will keep rising, hence government’s cost function soiling all other key variables.
Gwenzi is a financial analyst and managing director of Equity Axis, a financial media firm offering business intelligence, economic and equity research. — [email protected]