By Kuda Chideme
The country’s largest gold producer is on the brink of collapse because of government’s warped foreign currency retention policy; the cost of bread has gone up, more than three times in hardly a month while the livestock industry is warning of imminent meat shortages because of the skyrocketing costs of stock feed.
All this has happened within just the first three months of the year.
Within these few months, the International Monetary Fund (IMF) has also gone to scrap its initial growth forecast for Zimbabwe, warning that the country’s economy would contract by as much as 5,2% by year end.
For the tenth consecutive month, year-on-year inflation is on the rise, reaching a staggering 66,8% as at March 2019. By their own admission, if the statistics agency had not changed the matrix used to calculate the Consumer Price Index (CPI), the year-on-year inflation for March would have been a confounding 166%.
This wouldn’t be too far off Professor’s Steve Hanke’s projections, which have put the country’s inflation in the region of 200%, second only to Venezuela, which is chasing after the records we set a decade ago.
Meanwhile, foreign currency, just like confidence, is in short supply.
Two of the country’s top foreign currency earners tobacco and gold are performing way below expectation as a result of the government’s blundering.
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The tobacco season has started on a very poor note as sales continue to be dogged by disputes between merchants and farmers over payment terms. The farmers want to be paid in United States dollars for their produce, but the central bank refuses to oblige. The merchants also want the loans they extended to farmers repaid in US dollars, but the central bank has directed otherwise.
According to statistics from the Tobacco Industry Marketing Board (TIMB), tobacco deliveries dipped by some 52% to 17,5 million kilograms in the first 20 days of trade while the value of tobacco sold at $30,3 million is down 70% compared to the same period last year.
The implications of this to a sickly economy, which is desperate for foreign currency, could never be overstated considering that last year the tobacco industry alone generated close to a billion dollars in foreign earnings.
On the other hand, gold deliveries to Fidelity Printers and Refiners in the first quarter have fallen some 10% on last year’s output.
With the country’s largest producer of gold, Metallon Corporation, facing viability challenges, we might as well write off all hopes of attaining the targeted gold output of 40 tonnes. In fact, we might not even reach last year’s 33 tonnes.
In fact, the company which had long-term plans of expanding and ramping up production to 500 000 ounces of gold per year by 2021 from the 120 000 ounces it used to produce from all its mines, might just fold.
With mounting debts, the company has filed for judicial management to protect its assets from being seized by creditors.
Investor sentiment is weak and the droves in foreign capital that had been anticipated are nowhere to be seen. Instead the country is witnessing massive capital flight as companies find the going difficult and fold.
The decision to float the RTGS has not brought about much relief to industry which had sought a liberalized market for foreign currency.
On Friday, the RTGS dollar was trading at 3.19 to the dollar on the interbank market while it sank to as low as 1:5 on the parallel market.
“The premium between the US dollar and the RTGS dollar continues to widen on the parallel market, hence remaining as an albatross around the economy’s neck as cost pressures continue to build. Our view is that the interbank market remains incapacitated to decisively deal with massive demand of foreign currency as the supply side remains under pressure. As long as exports and investment inflows remain weak, the supply side will remain under pressure, threating the anticipated convergence between the interbank rate and the parallel market rate,” reads a recent report by MMC Capital.
“Our view is that there will be very minimal growth this year, owing chiefly to the foreign currency shortages, clipping the efforts of the local industry to retool. The below-par agricultural season will also impact growth negatively as output is relatively low. We also fear that the retention ratios in the mining sector will not adequately attract output from the small-scale miners.”
Not to gloat, but we saw this coming.
Now that we find ourselves here, we ask just how much worse will things get. If history has taught us anything, it is that things can always get worse, even when that seems impossible.
With all indicators pointing southwards, it would seem that it is only just a matter of time before we better our own record for the worst performing economy in the world.
