Zimbabwe currency stability to spur growth

Prof Mthuli Ncube – Zim Dollar

Government wants to maintain stable exchange rates and increase the availability of fuel and electricity as part of efforts to achieve 3 percent economic growth this year.

Improving commodity prices for major exports, especially the gold price which rose to US$1 545,50 a troy ounce (just under US$50 a gramme) yesterday, are also primed to spur economic growth by boosting export earnings.

The exchange rate, according to the State media has achieved a high level of stability over the last 15 weeks since the start of October last year.

While agriculture may be affected by poor rains this season, the situation was unlikely to be worse than last year.

Finance and Economic Development Minister Professor Mthuli Ncube, in a wide ranging interview on Monday night, said funds have been set aside to ensure power imports.

He said plans were in place to license more independent power producers to generate electricity through solar and coal to end load-shedding.

Zimbabwe has endured load-shedding since last year after the regional drought reduced upper Zambezi flows, thus keeping water levels low in Kariba Dam, and decades-long failure to refurbish thermal power stations, especially the giant Hwange Thermal.

While efforts have been made to prioritise industry when rationing electricity, manufacturers have been forced to resort to expensive diesel and petrol generators more frequently than they desire.

Experts generally agree that improved fuel and power supplies will ease the transition to economic growth.

Said Prof Ncube: “In terms of prospects for this year, our expectation is that the economy will perform better than last year and we expect growth of 3 percent in terms of GDP growth. You have seen the forecast from the World Bank at 2,7 percent in terms of GDP growth and the IMF (International Monetary Fund) forecast is just below 2 percent. So there is some positive growth if one were to put all of those together, including our own 3 percent GDP growth rate.”

He hoped Zimbabwe will not experience shocks of the magnitude of Cyclone Idai, which devastated human lives, crops, livestock and infrastructure in Manicaland and Masvingo provinces. This piled pressure on Government to allocate more resources for the provision of food to affected areas, and other parts of Zimbabwe that did not get good harvests from the prior cropping season. We are hopeful that God will smile at us and we don’t get another cyclone.”

Incentives such as the $500 million Venture Capital Fund and $240 million allocated to the Industrial Development Corporation (IDC) should be exploited by industry to drive economic growth.

Further, a fiscal incentive — Youth Employment Tax Incentive (YETI) — has been introduced through the 2020 National Budget to support employers who generate jobs for people under 30 years.

Prof Ncube said Treasury will work with Zimra, Ministry of Justice, Ministry of Labour, the Employers Confederation of Zimbabwe (Emcoz) and other relevant organisations to ensure companies benefit.

“Again talking about prospects, individual citizens will benefit from the idea of Youth Employment Tax Incentive where we will be giving rebate to companies that will employ additional youth below the age of 30.

“So we are certainly more optimistic this year than last year, but we continue to watch the weather. It is a part of the story: Better weather is what we expect,” he said.

The Government also expects the budget deficit to be within the on-and-a-half percent that has already been projected.

“The one issue that I think we continue to watch and focus on is currency stability.

“But I want to be clear on the urgent priorities that we will focus on even in this broader theme of growth, productivity and so on, is to ensure food is on the table, energy security (fuel and power) and currency stability and macro-economy stability and then inflation,” said Prof Ncube.

More facilities, to be provided through the banking sector, will be availed soon for industry.

Since the 2020 Budget was passed in late December, modalities for operationalising the guarantee scheme are being worked on for companies to borrow from banks on a Government guarantee for retooling purposes.

Another similar facility is being crafted for the mining sector, which will be implemented through the Minerals Marketing Corporation of Zimbabwe (MMCZ).

In the energy sector, the Government will focus on providing adequate letters of credit to support the importation of fuel.

Said Prof Ncube: “Letters of credit have been put in place to cover the monthly demand of 120 million litres for both diesel and petrol. Letters of credit have been in place and we are doing enough to make sure that we cover everyone.”

The letters of credit will be distributed to both large and small suppliers who are set to meet Treasury and the Reserve Bank of Zimbabwe (RBZ) this week to iron out mechanisms for distributing them.

But Prof Ncube said since local fuel remained relatively cheaper compared to prices in the region, there was still a gap of arbitrage, causing more demand. This involves foreign truckers filling in Zimbabwe and illegal exports of fuel from Zimbabwe for hard-currency sale in foreign black markets.

Turning to electricity, Prof Ncube said focus will be on availing funds for power imports; accelerating issuance of licences and investing in renewable energy, mainly solar energy. Zesa will also be given “maximum support”.

“So we have our priorities. We are also focusing on the environment for doing business; you have seen the advert for CEO of ZIDA.

“We are making progress in that direction, setting up that one-stop-shop. We want to keep improving our position on the ease of doing business to make sure that we are open for business.”