Business bullish, falling inflation to drive growth

Source: Business bullish, falling inflation to drive growth | Herald (Business)

Nelson Gahadza Senior Business Reporter

Business operators are confident sustained deceleration of inflation and growing exchange rate stability would be key for business confidence and better growth opportunities, going forward.

This comes as the Reserve Bank of Zimbabwe (RBZ) has reiterated the economy has potential to maintain the current low inflation trend and exchange rate stability, despite slightly revising up year-end inflation projections.

“Inflationary pressures in the economy have dissipated, thus, creating a conducive monetary and financial environment essential to supporting the envisaged growth of 7,8 percent in 2021 and a robust economic growth in the medium term,” said RBZ Governor, Dr John Mangudya, in a recent Monetary Policy Statement (MPS).

He said the deviation from the initial end period forecast of just below 10 percent was due to unavoidable shocks to international food and administered prices. 

As a result, annual inflation is now expected to fall between 25 and 35 percent by end December 2021. 

Zimbabwe Stock Exchange (ZSE) listed companies, which published their quarterly performance reports all agreed that the inflation slow down and strengthening exchange rate stability had potential to drive growth and profitability.

“Inflationary pressures significantly reduced during the quarter under review leading to relative price stability in the consumer markets,” Starafrica Corporation said in its quarterly report to June 30, 2021.

The group forecasts sustained improvement of major macroeconomic fundamentals into the next quarter and beyond as the trading environment becomes more favourable to both industry and consumers alike. 

“The business will leverage greatly on the improved trading conditions to increase both production and sales volumes,” the company said. 

The company added that having expunged its legacy liabilities, it would continue intensifying the capital expansion strategy bolstered by the foreign currency receipts obtained on the RBZ Foreign Currency Auction Trading System. 

The foreign currency auction system, which was introduced last year, has been widely credited for taming the country’s once rampant foreign currency black market, thereby boosting the local currency and calming inflation. 

Sugar manufacturer, Hippo Valley, in its quarterly report said that the period under review was characterised by positive economic indicators as annual infl­ation continued on a downward trajectory. 

“The Zimbabwe dollar exchange rate has been relatively stable and industry continued to transact in multi-currencies on the local market, ensuring improved foreign currency liquidity within the formal economy.

“The agricultural and agro-processing sectors have benefited from the satisfactory rainfall season which has had a positive impact on the wider economy,” the company said. 

Art Corporation said foreign currency availability through the auction system had improved, however pointing out that the easing inflationary pressures were negatively affected by the adverse market response to Statutory Instrument 127 of 2021 which sought to put further regulations on foreign currency trading.

“Despite that, there was a steady improvement of economic activity across most of the group’s market segments,” the company reported.

Simbisa Brands on its part said despite the business disruptions stemming from the Covid-19 pandemic, the company remained confident that proactive measures taken by the Government to counter the business impact will enable it to continue to grow the business and to consistently deliver value to all its stakeholders.

“The group continues to pursue a short to medium term growth strategy hinged on new store openings and growth in the delivery business. There are 48 new store openings in the pipeline for FY22, including the expansion of our casual dining footprint through four casual-dining brand openings,” the company said.

 Mr Eddie Cross, a former member of the RBZ monetary policy committee, said inflation should move to lower than 10 per cent for an extended period before authorities can really relax.

The central bank in its MPS noted that in spite of the exogenous global inflation factors, month-on-month inflation, which reflects current inflation trends, is expected to remain stable at around two percent during the second half of 2021. 

According to the Zimbabwe National Statistics Agency, (ZimStat), year-on-year inflation fell to 56, 37 percent for July 2021 from a high of 837,5 percent in July 2020. 

The apex bank also noted that it will set aside foreign exchange resources to build the country’s foreign exchange reserves to anchor exchange rate stability and to cope with transitory exchange rate shocks in the national economy.