zimbabwe monthly economic review · 1. international commodity price developments 2. macroeconomic...

1. INTERNATIONALCOMMODITYPRICEDEVELOPMENTS

PreciousMetals

Goldandplatinumpriceswereonadownward trend for themonthofJune2013.InthesecondhalfofthemonththepriceofgoldplummetedtoitslowestlevelsinceApril2013.ThegoldpricedeclinedfromUSD1,398perounceasatJune7,toclosethemonthatUSD1,198perounce(Table1).PlatinumpricefellfromUSD1,521perouncetoclosethemonthatUSD1,321perounce.

Table1:InternationalCommodityPrices,June2013

DateGold Platinum Copper Brent

CrudeOilUSD/oz. USD/oz. USD/tonne USD/barrel

7-June2013 1,398 1,521 7,220 10314-June2013 1,386 1,449 7,055 10621-June2013 1,293 1,364 6,808 10128-June2013 1,198 1,321 6,786 103

Source: Bloomberg and Reuters

ThefollowingaresomeoftheleadingfactorswhichcontributedtothedeclineinpricesofpreciousmetalsinthemonthofJune:

• A continued decline in the growth rate ofmanufacturing sectors inChinaandEurope.

• AriseinIndia’simporttaxongoldandthedepreciationoftheIndianrupeeledtoareduceddemandforgoldinIndia,oneof theleadingimportersofgold,whichresultedinadropinthegoldprice.

• China’s credit squeeze.A decision by theChineseCentral Bank tosqueezefundsoutofthemoneymarket,forcingbankstolowertheirlendingvolumeandraiseinterestrates.

• Depreciationofseveralmajorcurrencies:theeuro,theAustralianandCanadiandollar,aswellastheChineseyuaninthesecondhalfofthemonthofJune.

ISSUENO.15.JULY2013

ZIMBABWE MONTHLY ECONOMIC REVIEWZIMBABWE MONTHLY ECONOMIC REVIEW

TABLEOFCONTENTS

1. InternationalCommodityPriceDevelopments

2. MacroeconomicDevelopments

3. StockMarketDevelopments

4. CorporateSectorDevelopments

5. OtherTopicalIssues

Apublicationproducedbythe

AfricanDevelopmentBank(AfDB)

ZimbabweFieldOffice

2 ZimbabweMonthlyEconomicReviewJuly 2013

• A press statement by the Chairman of theFederal Reserve, Mr Bernanke, followingthe recent Federal Open Market Committee(FOMC)meeting,whichsuggeststhepotentialtaperingoffofquantitativeeasingbytheendof2013.

• ThedeclineincarsalesinEuropeby6percentledtoadropintheplatinumprice.

• The possible termination of the Fed assetpurchaseprogrammebymid-2014.

Thepriceofpreciousmetalswasabletoholdupagainst further declines owing to the decisionby major central banks, including the EuropeanCentralBankand theReserveBankofAustralia,tomaintain their respectivecashratesunchangedinJune.Inaddition,theslowdownintherecoveryof US equity markets serving as an alternativeinvestment for gold also helped the price ofpreciousmetalswithstandthedownwardpressure.

BrentCrudeOil

BrentcrudeoilpriceregisteredaslightimprovementinthemonthofJune,increasingfromUSD103toUSD106perbarrel ason June14, supportedbythegeneralimprovedsentimentintheoilmarket.

Brentcrudeoilprice,however,declinedandclosedthe month at USD 103 per barrel. The declinein price was triggered by news of the potentialtaperingoffoftheUnitedStatesstimulusprogram,aswell as the decline in theChinesePurchasingManagersIndex(PMI),suggestingacontractionoftheChineseeconomy.ThedowngradingofGreecetothestatusofanemergingmarketandthespiralofunemploymentinEuropealsohadabearingonthefallintheBrentcrudeoilprice.Inthecrudeoilfutureexchanges,NewYorkMercantileExchangeWest Texas Intermediate (NYMEX WTI) Brentincreased more sharply than the IntercontinentalExchange(ICE)BrentinJune.

MaizeandWheat

The price of maize declined fromUSD 305 pertonneasatJune7toUSD295,beforefirminguptoclosethemonthtradingatUSD311(Table2).ThedeclineinmaizepriceinthefirsthalfonJunewasduetotheexpectedyear-on-yearincreaseinmaizeproduction of 11 percent in the 2013/14 season,following a higher projected output in theBlackSearegion.ThemaizepricefirmedinthelasthalfofthemonthduetotightspotavailabilitiesintheUSandBlackSeamarkets.

Table2:MaizeandWheatPrices(USA)FOBandGulf,June2013

Date Maize(USA),FOB,Gulf HardRedWinter(USA),FOB,GulfUSD/tonne USD/tonne

7June 305 32514June 295 31721June 302 32428June 311 300

Source: International Grain Council

Theprice ofwheatwas on a downward trend inthe month of June. The wheat price declinedfromUSD325pertonnetoUSD317andclosedthemonth trading atUSD 300.This follows theprospectsforanabundantworldwheatharvest,aswell as a bumpermaize harvest, that could limitdemandforwheatinsomecountries.Theforecastforworldwheat production in2013/14 season isexpectedtoincreaseby4percentyearonyear.

2. MACROECONOMICDEVELOPMENTS

2.1 AgriculturalSectorDevelopments

2.1.1TobaccoUpdates

A total of 155.9 million kilograms had beendeliveredtothemarketasat28June2013,comparedto the 129 million kilograms delivered duringthe same period in the last season. This alreadysurpasses 144.5 million kilograms delivered in

July 2013 ZimbabweMonthlyEconomicReview 3

the 2011-2012 season by 8 percent. The auctionsales significantly dropped from a daily peak of8,000balesperfloortoonly5,000balesperfloor.In response to the low deliveries, the TobaccoIndustryandMarketingBoard(TIMB)declaredanearlyclosurefortheauctionfloor.TIMBset5July2013 as the closing date while contract farmerswould continue to deliver their produce to themarketuntilfurthernoticeassubstantialdeliverieswerestillbeingregistered.

Asat28June2013,up to77,913growersoutofthe 91,189 growers who had registered for the2012-13 season had delivered their tobacco. Asmany as 70,583 growers had registered duringthe same period last year. In addition, a total of53,843hadalreadyregisteredfortheforthcoming2013-14 seasonwhere 47 percent are communalfarmers, 33percent areA1 farmers, 11.6 percentareA2farmersandtheremainingaresmall-scalecommercial farmers. Of those that registered togrow tobacco in the next season, 15,329 (28.5percent) arenewgrowers, evidence that thecashcrop is more lucrative (selling at an average ofUSD3.70/kg)ascomparedtotheothercropssuchas cotton, whose price ranges from USD 0.38-USD0.45/kgandUSD0.31/kg formaize (Grain

MarketingBoardprice).Intheinterestofensuringsustainablehouseholdfoodsecurity,thereisaneedforabalanceontheallocationoflandforcashandfoodcropproductionasitappearsthatcommunalfarmers are increasingly diverting land that wastraditionally reserved for food production intotobaccoproduction.

Seasonalimportpermits

By28 June 2013, asmuch asUSD34.1millionworthofseasonalimportpermitshadbeenissuedby Zimbabwe, where 70 percent of the tobaccoimports would come from Zambia, 19.8 percentfromMalawi, 8 percent from India and the restfrom China and SouthAfrica. The tobacco thatZimbabweimportsisusedforblendingpurposes.

Exportperformance

The shareof tobaccoexports toAsiadeclined in2012. Thismarket absorbed 38 percent in 2013,compared to 54 percent in 2012 (Figure 1). Thedeclinewasmainlyduetoa54.7percentreductionintobaccoexportstoChina,fromUSD39.9milliontoUSD18million.

Figure1:TobaccoExportPerformancebetween28May2012and28May2013

Source: Author’s compilation from TIMB data

TheAfricanmarket share increasedby7percentduring thesameperiodasSouthAfrica importedUSD 29.7 million worth of tobacco in 2013compared toUSD10.2million it imported sameperiodlastyear.TheEUgaineda7percentmarket

share of Zimbabwe’s tobacco export in 2013, astheEU absorbed 30 percent of the total exports,comparedtothe23percentthatwasrealisedoverthesameperiodlastyear.


2.1.2CottonMarketing

AccordingtotheAgricultureMarketingAuthority(AMA), a total of 1.4 million kilograms of seedcottonhadbeendeliveredbyfarmersatthecommonbuyingpointsasat31May2012.However,atotalof14millionkilogramshadbeenboughtasat14June2013.TheseedcottonwassoldatpricesthatrangedbetweenUSD0.38/kgandUSD0.45/kg.ThepricerangewasgenerallyhigherthantheminimumpricessetbyAMAinMay2013,wherethepricesweresetbetweenUSD0.35/kgandUSD0.41/kg,from gradeD to gradeA, respectively. Increaseddemandfromthebuyersresultedinbuyersofferingpricesmuchhigher than the negotiatedminimumprices. Zimbabwe Farmers’ Union, however,reportedrampantsidemarketingasprivatebuyersarebuyingfromfarmersbyofferinghigherpricesthanthoseofferedbycontractingfirms.

2.1.3TheFoodandNutritionSecurityPolicyforZimbabwelaunched

ThegovernmentofZimbabwelaunchedtheFoodandNutrition Security Policy inMay 2013.Thegoal is topromoteandensureadequate foodandnutrition security for all people at all times inZimbabwe,particularlyamongthemostvulnerableand in linewith Zimbabwe’s cultural norms andvalues, as well as the concept of rebuilding andmaintaining family dignity.Agriculture and foodsecurity is oneof thefive commitmentsmade intherecentlylaunchedFoodandNutritionSecurityPolicy for Zimbabwe. The country endorsed theComprehensive Africa/Agriculture DevelopmentProgramme(CAADP),anAfricaninitiativethatisaimed at boosting the productivity of agriculture

in the continent.The country, however, is facingserious challenges as it is required to achieve anaverage growth in agriculture of 6 percent perannum,aswellasinvesting10percentofthebudgetinagricultureinordertoparticipateintheCAADPprocess.Currently,theaverageagriculturalgrowthis4.6percentwhileinvestmentisonly3.9percentofthenationalbudget.ItisthereforeimperativeforZimbabwetofinalisethedraftAgriculturalPolicyandimplementiteffectivelyifitistoensurefoodsecurityforitspeople.

2.2 MiningSectorDevelopments

BinduraNickelCorporation(BNC)hasannouncedthatithasbeenunabletosourceadditionalfundingbyincurringdebttofinancephasetwosoastorestarttheTrojanMine.Thecompanyrestartedoperationsin the last quarter of 2012, after raisingUSD 23millionthroughrightsissueanddeliveredthefirstnickel concentrate to SouthAfrica inApril 2013.Thechallengeshavebeenattributedtothenegativesentimentassociatedwith the fallingnickelprice,coupledwithchallengingcapitalmarkets.

For gold,BlanketMinehas announced that goldproduction increased by 10.7 percent to 11,592ouncesofgoldforthesecondquarterof2013from10,472ouncesrecordedinthefirstquarterof2013.Duringthesecondquarterof2012,itisestimatedthat 11,560 ounces of gold were produced,showinga0.3percentincreaseingoldproductionin the same period this year. Similarly, themineincreased itsfirst half productionby6.5percent,from20,717 ounces to 22,064 ounces of gold inthefirstsixmonthsof2013,comparedtothesameperiodin2012.

Figure2:GoldDeliveriesfromJune2012toJune2013

Source: Fidelity Printers and Refineries


Month-on-monthtotalgolddeliveriesforJune2013declinedby8.64percentfrom1,131.27kilogramsinMay2013to1,033.49kilogramsinJune2013(Figure 2). Deliveries by small-scale producersdeclined by 1.02 percent to 209.50 kilograms inJune 2013 from 211.66 kg in May 2013 whiledeliveriesbyprimaryproducersdeclinedby10.4percent to 823.98 kilograms in June 2013, from919.61kilogramsinMay2013.

On a year-on-year basis, total gold deliveriesdeclinedby9.89percentfrom1,146.94kilogramsin June 2012 to 1,033.49 kg in June 2013.Deliveriesbyprimaryproducersdeclinedby11.51percent from 931.15 kilograms in June 2012 to823.98kilogramsinJune2013whiledeliveriesby

small-scaleproducersalsodeclinedby2.91percentfrom215.79kilogramsto209.51kilogramsduringthesameperiod.

2.3 InflationDevelopments

Annualinflationdeclinedfrom3.97percentinJune2012to1.87percentinJune2013(Figure3).InJune2013, annual food and non-alcoholic beveragesand non-food inflation stood at 2.90 percent and1.35 percent, respectively. Factors underpinningthedeclineinannualinflationinJune2013includecommunication (-13.40 percent); clothing andfootwear(-0.50percent)andrecreationandculture(-0.33percent).

Figure3:InflationDevelopmentsinMay2013

Source: ZIMSTAT

Month-on-monthinflationforJune2013increasedfrom-0.21percent inMay2013 to -0.13percentin June 2013. Month-on-month food and non-alcoholic beverages and non-food inflation stoodat -0.33 percent and -0.03 percent respectively.Theincreaseinmonth-on-monthinflationinMay2013 was underpinned by the increase in theprices of alcoholic beverages and tobacco (0.17percent),recreationandculture(0.12percent)andmiscellaneousgoodsandservices(0.06percent).

The continued decline in annual inflation isassociated with the weakening of the SouthAfricanrandagainsttheUSdollar,aswellasweakaggregatedemandintheeconomyduetoliquidityconstraints.Lookingahead,inflationinZimbabwe

will continue to largely depend on the strengthof the SouthAfrican rand given the close tradelinkagesbetweenthetwocountries.

2.4 InterestRateDevelopments

Theweightedaveragelendingratesbycommercialandmerchantbanks to individuals softened fromtheirApril2013levelsof14.58percentand17.77percent, to 14.25 percent and 17.66 percent inMay2013, respectively.However,over the sameperiod, commercial andmerchant bankweightedaverage lending rates for corporates firmed from9.66 to 9.89 percent and 14.35 to 17.02 percent,respectively(Table3).


The range in commercial bank three-month andsavingsdeposit ratesforMay2013hasremainedat theNovember2012 levelsof4-20and0.15-8,respectively. Deposit and savings rates have notimproved despite theMOU between the CentralBankandthebanks,whichencouragesthebankstoincreasetheseratesinabidtoattractmoresavingsanddepositsintotheformalbankingsystem.

2.5 BankingSectorandMonetaryDevelopments

Annual growth in broad money supply (M3),defined as total banking sector deposits (net ofinter-bank deposits), declined from 31.0 percentinMay2012to12.2percentinMay2013(Figure4). The higher growth rates recorded in the pastarearesultofthelowbasefromwhichthemoneysupplywas growingwhen the economy adoptedthemulticurrencysystemin2009.Thepresentlowlevels of growth inmoney supply are consistentwiththelevelofeconomicactivity.Onamonth-on-monthbasis,M3declinedfrom4.4percentinApril2013to1.3percentinMay2013.Demand,savingsandshort-termdepositsdeclinedwhile long-termdeposits increased. Among other factors, if theeconomy’sexternalbalanceoftradeimproves,andZimbabwe is able to attract more foreign direct

investment (FDI) and portfolio investment, thenthe liquidity constraints in the economy wouldimprove.

In May 2013, annual total banking sectordeposits increased to USD 4.02 billion fromUSD 3.58 billion in May 2012 (Figure 5). TheUSD 4.02 billion achieved in May 2013 is thehighest level so far since the introduction of themulticurrency system in 2009. On a month-on-monthbasis,totalbankingsectordepositsforMay2013increasedtoUSD4.02billionfromUSD3.97billioninApril2013.

TheincreaseintotalbankdepositsinMay2013isattributedtothesignificantincreaseinlong-termdeposits by 28.29 percent (Table 5). However,demanddeposits,savingsandshort-termdepositsfellby1.98percentand4.14percentrespectively.The increase in long-term deposits by 28.29percent indicates an improved depositors’confidence in the banking sector, despite theuncertaintysurroundingthepost-electionperiod.Theincreaseinlong-termdepositsisfavourable,especially for industry recapitalization whichrequireslong-termfunds.

Table3:InterestRateLevels(AnnualPercentages)

Endperiod

Commercialbankslendingrates Merchantbankslendingrates3-Monthdepositrate

Savingsdepositrate

Nominalrate

Weightedaverage Nominalrate

WeightedaverageIndividuals Corporates Individuals Corporates

May-12 6.00-30.00 14.98 11.86 15.00-30.00 15.78 14.47 5.20.00 0.00-12.00Jun-12 6.00-35.00 13.81 11.58 15.00-30.00 17.86 14.04 5-20.00 0.00-12.00Jul-12 6.00-35.00 14.32 10.88 15.00-30.00 17.92 13.93 5-20.00 0.00-12.00Aug-12 6.00-35.00 15.65 10.74 15.00-30.00 17.94 13.95 5-20.00 0.00-12.00Sep-12 6.00-35.00 13.25 11.14 15.00-30.00 17.98 13.92 5-20.00 0.00-12.00Oct-12 6.00-35.00 13.35 11.03 13.00-30.00 17.98 13.95 5-20.00 0.00-12.00Nov-12 6.00-35.00 15.25 10.88 13.00-25.00 17.91 14.42 4-20.00 0.15-8.00Dec-12 10.00-35.00 15.08 10.40 15.00-25.00 17.93 14.43 4-20.00 0.15-8.00Jan-13 10.00-35.00 15.58 10.81 13.00-25.00 17.96 14.42 4-20.00 0.15-8.00Feb-13 10.00-35.00 14.83 10.53 13.00-25.00 17.93 14.36 4-20.00 0.15-8.00Mar-13 6.00-35.00 14.32 10.19 14.00-25.00 17.80 14.35 4-20.00 0.15-8.00Apr-13 3.00-35.00 14.58 9.66 14.00-25.00 17.77 14.35 4-20.00 0.15-8.00May-13 9.00-35.00 14.25 9.89 13.00-23.00 17.66 17.02 4-20.00 0.15-8.00Average 14.56 10.74 17.72 14.43

Source: RBZ Monthly Economic Review


Figure4:MonetaryDevelopments(M3)


Figure5:LevelandGrowthRateofTotalBankingSectorDeposits,May2012toMay2013


Table4:CompositionofTotalBankingSectorDeposits(USDbillion)

Typeofdeposit March2013

April2013

May2013

Monthlyincrease(absolute)USDbillion

Monthlyincrease(percent)

Demanddeposits 1.97 2.09 2.05 (0.04) (1.98)Savingandshort-termdeposits 1.31 1.35 1.30 (0.06) (4.14)Long-termdeposits 0.53 0.53 0.68 0.15 28.29Totaldeposits 3.80 3.97 4.02 0.05 1.30



As at May 2013, the composition of total bankdeposits was as follows (Figure 6): demanddeposits (50.90 percent), savings and short-term deposits (32.29 percent) and long-termdeposits(16.81percent).InthebankingsysteminZimbabwe,wideconcernhasbeenexpressedaboutthepredominantlyshort-termandtransientnature

of the bank deposits. While ideally, banks cantransformshort-termdepositsintolong-termloans,thetransformationinthecaseofZimbabwehassofarbeenlimited.Thisisagainstthebackgroundofotherconstraintsfacingthesectorsuchaspoliticalandeconomicuncertainty,amongotherfactors.

Figure6:CompositionofTotalBankingSectorDepositsforMay2013


The loan-to-deposit ratio, calculatedon the basisof total bank deposits, as well as external anddomestic sources of funding, declined slightly

from90.0percentinApril2013to89.5percentinMay2013(Figure7).

Figure7:Loan-to-DepositRatio


There has been a continued decline in the loan-to-deposit ratio since March 2013. This reflectsthe slow-down in lending by banks, despite theincrease in total bank deposits. This could beattributedtopoorperformanceoftheirloanbooksanduncertaintysurroundingthependingelections.

AsofApril2013,bankcredittotheprivatesectorwas distributed as follows (Figure 8): loansand advances (84.98 percent); mortgages (8.51percent);billsdiscounted(3.30percent);bankers’acceptances (1.40percent) andother investments(1.8percent).


Figure8:DistributionofBankCredittothePrivateSectorinMay2013


Loans and advances, which are the largestcomponent of bank credit to the private sector,were utilized as follows (Figure 8): workingcapital(77.10percent);consumerdurables(15.17percent); plant and equipment procurement (5.64percent)andpreandpost-shipmentfinancing(2.09percent).Althoughmostoftheloansandadvanceswereusedforproductivepurposes,fewerloansandadvanceswereusedforfixedinvestmentactivities.More funding in fixed investment activities is

desirable for the rebuilding of the industry’sinfrastructureasthiswillimproveproductionandcompetitivenessintheeconomy.

Bankloansandadvancestotheprivatesectorweredistributedasfollows(Figure9):individuals(18.5percent);agriculture(17.9percent);manufacturing(17.5percent);distribution(16.9percent);services(12.5 percent); other sectors (9.9 percent) andmining(6.7percent).

Figure9:SectoralDistributionofBankingSectorLoansandAdvancesinMay2013


It iscauseforconcernthatmostoftheloansandadvances are going to individuals as opposed tocorporatesintheproductivesectorsoftheeconomy.Out of the 18.5 percent loans and advances thatwerechanneledtoindividuals,15.17percentwas

utilized forconsumerdurables. Inorder to fosterpositive economic recovery, more loans andadvances should be advanced to the productivesector.


2.6 OtherFinancialSectorDevelopments

In September 2012 TN Livestock Trust startedcattle banking,which seeks tomake smallholderfarmers bankable by recognising cattle as avaluable asset, which could then provide thefarmerswith capital.TheLivestockTrust startedoffwith56headsofcattle(capitalherd)andasatJune 2013, the capital herd stood at 86. Farmershaddeposited265headsofcattleasofJune2013.Thecattle-bankingschemeworksasfollows:

A livestock grader from the Department ofLivestock Production and Development in theMinistry of Agriculture inspects the farmer’scattleanddeterminestheirmonetaryvalueagainstwhichthefarmercangetacashloan.Theamountthefarmercanborrowislimitedto60percentofthevalueoftheircattle,soastolimitthefarmer’sexposure to default. A certificate of deposit isissuedtothefarmerbytheLivestockTrustasproofofthetransaction.Thetransportationofthecattleto and from thebank is thebank’s responsibilityandthereisneitheramaximumnorminimumlimitto thenumberofcattledeposited.Interest,whichisnegotiatedbetweentheLivestockTrustandthefarmerisaccruedaccordingtothevalueofthecattledeposited.Interestispaidbiannually,eitherintheformofmoneyoradditionalcattle.Thedepositisafixedtwo-yeardeposit,afterwhichfarmerscandecide to redeem their cattle or leave themwiththe Livestock Trust. If a farmer defaults on theloan repayment, thebankkeeps thecattle. In theeventthatthefarmerdies,aclosefamilymembertakesovertheloanrepayment.Underthisscheme,farmersretainownershipofthecattleunlesstheydefaultontheloanrepayment.However,thebankreserves the right to slaughter ageing cattle, sellthem and replace them with others of a similarvalue.The LivestockTrust also owns the calvesthatareaproductofabreedingprogrammeatthecattlebank.TheLivestockTrustmaintainscapitalintheformoflivestockofavalueofnotlessthan25percentofthetotallivestockdeposits.

Oneof theexpectedbenefitsofcattlebanking toordinary farmers is the transfer of managementand riskassociatedwith cattle ranching from thelesscapacitatedfarmertothebank,whichisbetterpositionedtomanageandamelioratetheattendantrisks. The bank employs experts and modernlivestock husbandry methods, thereby reducingmortalityrateandincreasingcalvingratefroman

averageofabout45percentincommunalareastoabout 70percent.TheLivestockTrust also takesout insurance on the deposited herd, somethingwhichanordinaryandfinanciallyilliteratefarmeris unlikely todo.Another advantage is that poorfarmerswhoowncattlehaveeasyaccesstocreditby collateralizing their cattle. The scheme alsoenables urban dwellers to accumulate wealth inthe formofcattlewithouthaving toworryaboutmanagingthecattle.

The impact of the scheme would be increasedfinancial inclusion of the rural households whoconstitutethebulkofthepopulation,ofwhom40percentarefinanciallyexcluded. If theschemeissuccessful, then the effective demand for loanscould go up as farmers, who were previouslydisadvantaged through a lackof collateral, couldborrowmoneyusingtheircattle.

Apossiblechallengeinthisschemeisthatthereisnolegislativeframeworkandregulatoryoversightfor cattle banking in Zimbabwe, which couldaffectthelegitimacyoftheschemeandconfidenceof potential investors. Another challenge is thatthereisnomechanismthatguaranteesfinanciallyilliteratefarmersfrombeingunfairlyremuneratedon their cattle deposits. Perhaps the implicationoftheschemeforthemonetaryauthoritiesisthattheyshouldcomeupwithproactivemeasuresfordealing with potential challenges in determiningtheinterestrates.However,despitetheseconcerns,this innovative scheme is a first of its kind inZimbabwe, inAfricaandbeyond.Oneof itskeymerits is its inclusivefinancialattribute,whichiscurrentlyatopicalconceptinthefinancialsectorinZimbabwe.However,thereisaneedforfarmerstobegivenadequateinformationontheoperationoftheschemeandhowtheycanbenefitfromit.

2.7 FiscalDevelopments

Revenuesoutturn

The revenue outturn for May 2013 amountedto USD 303.59 million (Figure 10). This bringsthe cumulative total for the fivemonths toUSD1,412 million, an improvement of 10.77 percentcompared to the same period in 2012, when therevenueoutturnamountedtoUSD1,275million.The improvement in revenue outturn largelyreflectsimprovedefficiencyinrevenuecollectionbytheZimbabweRevenueAuthority(ZIMRA).


Figure10:FiscalDevelopmentsfromJanuarytoMay2013inUS$Millions

Source: Ministry of Finance

compared to the same period in 2011 and 2012(Figure 11). Exports during the period underreview fell by about 2 percent compared to thesameperiodin2012andfellbyabout17percentcomparedtothesameperiodin2011.

Exports continue to be dominated by primaryproducts,withprimaryminingproductsconstitutingabout62percentoftheexports;tobaccoconstitutingabout8percentandsugar(rawbeetsugarandcanesugar in solid form) constituting about 4 percentof the exports. This demonstrates the potentialthatthecountrycanhaveinvalue-addedexports,harnessing the competitive advantage it alreadyhasintheseprimaryproductsintheexportmarket.

The general decline in exports does not reflectthe preference for local markets by traditionallyexporting firms, given that imports continue toincrease (Figure 12). The increase in importsimpliesthecrowdingoutoflocallymanufacturedproducts from the local market, at a time whentheyarealso struggling togaina foothold in theexportmarket.ImportsfromJanuarytoMay2013increased by about 23 percent compared to thesameperiodin2012.Unlikeexports, importscutacrossall categories though thereare somemorepronouncedcommodities.InMay,themaindriversof imports includedfuel,whichconstitutedabout20 percent of total imports, followed by motorvehicles (including goods vehicles and trucks),which constituted about 7 percent of the importswhile basic food imports (maize, wheat, rice,millet,oatsandbarley)constitutedabout5percent.

ExpenditureOutturn

Expenditure for May 2013 amounted to USD340.48million, thusexceedingrevenuesbyUSD36.89million(Figure10).Cumulativeexpenditureto May 2013 amounted to USD 1,449 million.Against a cumulative revenue outturn of USD1,412 million, Government incurred a deficit ofUSD 36.95 million. The Government’s fiscalposition is expected to worsen, in the comingmonths,astheGovernmentseekstoaccommodateelection-related expenditure, estimated at USD107million1.Pressuresonthefiscusmayadverselyaffect growth as the Governmentmay be forcedto continue accumulating domestic arrears, withnegative consequences on service delivery andcompetitiveness,orredirectfundsfromtheplannedpublic sector investment programme towards thefinancingoftheelection.Enhanceddonorsupportwould thus be required to reduce the negativeimpactofelection-relatedfinancingonthebudget.

2.8 ExternalSectorDevelopments

The trend for both imports and exports duringthe first five months of 2013 reveals that thecurrent account deficit is worsening. The deficitisprimarilypushedbythetradedeficit,whichhadworsenedbyMay2013.ThetradedeficitstoodataboutUSD1.9 billion during the fivemonths toMay2013,havingincreasedfromaboutUSD1.3billion recordedduring the sameperiod in 2012.The decreasewasmostly caused by the sluggishperformanceofexports,whichgenerallydecreased

1 State of the Economy Report for December 2012 and January 2013 by the Minister of Finance.


Figure11:ExportsPerformanceforZimbabweJanuarytoMay2011-2013

Source: ZIMSTAT

Figure12:PerformanceofImportsforZimbabweforJanuarytoMay2011-2013

Source: ZIMSTAT

3. STOCKMARKETDEVELOPMENTS

The industrial index opened the month of June2013 at 211.33, gaining 5.8 percent to reach anall-timehighof223.58beforesheddingoff(profittaking), thus overall performance for the monthresultedintheindustrialindexlosing0.07percentto close at 211.19. The fall in the performanceof the industrial index was in response to theproclamationoftheelectiondatesbythePresident.Thus, the performance of the industrial index inJune2013surpassed itsperformance in thesameperiodlastyear.

Meanwhile, the mining index opened the monthat 74.34 and closed at 73.29, thus shedding1.42percentage points. Throughout the month, themining index did not show a consistent tradingpattern.Onayear-on-yearbasis,theminingindexremained below its performance in June 2012closingat73.29ascomparedtotheclosingvalueof75.70in2012.

Onayear-on-yearanalysis,activitiesatthestockmarket declined in the month of June 2013 ascompared to June 2012 with turnover value andvolume declining by 37.67 percent and 53.94percentrespectively.Thedeclineinactivitiesatthestockmarketcanbeattributedtotheproclamation


ofelections.Thus,foreigninvestorstookadvantageoftheslumpinthemarket.Thevalueandnumberofsharesboughtbyforeignersincreasedby29.02

percentand33.95percentrespectivelyalthoughthevalueandnumberofsharesolddeclinedby40.18percentand74.11percent,respectively(Table5).

Figure13:ZSEIndustrialandMiningIndicesforJune2012and2013

Source: Zimbabwe Stock Exchange (2013)

Table5:SummaryStatisticsfortheZimbabweStockExchangeforJune2012and2013

Jun-12 Jun-13 PercentageChangeTurnovervalue(USD) 65,203,312.75 40,639,480.65 (37.67)Turnovervolume 486,520,631 224,076,278 (53.94)Foreign-boughtvalue(USD) 17,939,606.39 23,145,518.35 29.02Foreign-soldvalue(USD) 15,998,705.01 9,569,868.87 (40.18)No.ofsharesboughtbyforeigners 66,313,001 88,828,737 33.95No.ofsharessoldbyforeigners 134,162,125 34,729,841 (74.11)Marketcapitalization(USD) 3,341,457,429.00 5,436,574,788 62.7

Source: Zimbabwe Stock Exchange (2013)

Despite the decline in market activities, stockmarket capitalisation grew by 62.7 percent fromUSD3.34billioninJune2012toUSD5.44billionin 2013 while share turnover velocity (ratio ofturnover value tomarket capitalisation) declinedto0.75percentinJune2013from1.95percentinJune2012, indicating that the increase inmarketcapitalisationhasbeentheresultoftheincreaseinthepriceofsharesrather than the increase in thevolumeoflistedstocks.

Meanwhile, the second quarter of 2013 saw anumber of counters being either suspended orbeingdelistedfromtheZimbabweStockExchangeforfailuretocomplywiththestockmarketlistingrules. These include Apex Corporation Limited,whichwassuspendedfromthestockmarketwith

effect from11 June 2013 for an initial periodof30 days. The shares of the following countersweredelistedfromtrading:GulliverConsolidatedLimited,SteelnetLimitedandLifestyleHoldingsLimited.Followingthesedevelopments,thestockmarketisnowleftwith65activetradingcounters.

4. CORPORATESECTORDEVELOPMENTS

The ZimbabweNational Chamber of Commerce(ZNCC)helditsannualcongressinVictoriaFallsfrom12 to14June2013todeliberateonways toresuscitate the manufacturing sector. During thesameperiod,onJune13,thegovernmentlaunchedthe Zimbabwe Leather Sector Development


StrategyattheZimbabweInternationalExhibitionCentre in Bulawayo. The strategy is intended tointroduce measures to boost the leather sectorindustry in the country,which has suffered fromdeindustrialisation.

ThedebateduringtheZNCCcongressrevealedthatthegrowthof industry inZimbabweishamperedby challenges in competitiveness as firms areproducingathighercostscomparedtocompetitorsfrom other countries. The underperformanceof key enablers such as the railways, waterdelivery and electricity due to the poor state ofinfrastructure is among the causal factors for thelow competitiveness of manufacturing output.Such infrastructural bottlenecks have beenidentifiedasapolicyissueforalongtimealthoughtheredoesnotappeartobesignificantmovementsin implementing the policies. The Short-termEmergency Recovery Programme (STERP), theThree-year Macroeconomic Policy and BudgetFramework(STERPII)andtheMedium-termPlan(MTP)allacknowledgethefiscalconstraints thatinhibitthegovernmentofZimbabwefromplayinga major role in infrastructure rehabilitation andconstruction. Thus, the policies have providedfor the private sector to play a significant rolein rehabilitation, maintenance and expansion ofinfrastructure through public-private partnerships(PPPs), including in water, transport, and powerdevelopment.Thus,businessvoicessuchasZNCCand the Confederation of Zimbabwe Industries(CZI)havetostrengthenadvocacyeffortstowardsPPPs.

The Zimbabwe Leather Sector DevelopmentStrategy is also an attempt to establish a leathersector cluster to ensure competitiveness. Pooraccess to raw materials and markets, whichcharacterise players in the leather industry, alsoaffect competitiveness. A cluster would involveanagglomerationoffirmsacrossthevaluechain,whererawmaterials,labourandmarketsareveryclose to where production takes place. ClusterdevelopmentisoneofthestrategiesidentifiedundertheIndustrialDevelopmentPolicy(2012-2016)todealwithchallengesbedevillingthemanufacturing

sector. While the development of the strategyshowscommitmentonthepartoftheprivatesectorplayers to promoting clusters, the government’sroleisstillmissingfortheincompletepuzzle.

TheGovernmentofZimbabwehastoputincentivesinplacetocreateanenvironmentthatisconducivetoagglomeration.Inadditiontoinfrastructureandother tax incentives,policy responseswouldalsoinclude the provision of sector-specific services,support for collective action and informationdissemination.Thus, policy implementation gapsare also responsible for the slow pace of clusterdevelopment.

The implication is that a more serious approachtowards policy implementation would seeeasingof someof the challenges that theprivatesector continues to be grappling with. Businesscontinues to echo challenges whose solutionshave already been identified within governmentpolicydocuments.Whilethepolicydirectivesaregenerallysound,thereisneedtoimplementthesepolicydirectivesconsistently.

The ZNCC Congress also highlighted that theZimbabwean economy is endowed with vastmineralresourcesandhumanskills,whicharekeyenablers of competitiveness. Infrastructure suchaselectricity,roads;railways;airandinformationcommunication technology (ICT) is critical toachievingcompetitivenessatnationallevel.

ItwasnotedthattheperiodofZimbabwe’scrisisof2000to2008coincidedwithgoodperformancesin international commodity prices, implying thatZimbabwe lost out on this huge opportunity.The country’s external position also deterioratedduringthecrisisandcurrently,theimport:exportratio isalmost3:1,whichmeans that thecountryis a major exporter, especially for consumptiongoods.Exportsareincreasingataslowerratethanimports,resultinginahugetradedeficit.Rawhidesareatthetopof15exportperformers,contrarytothecountry’sfocusonbeneficiation.Anumberofsuggestionsweremade to improve the country’scompetitiveness(Table6).

Table6:KeyHighlightsoftheZNCCCongress

Formationofdifferentclusters

Giventhecomparativeadvantagethecountryhaswithvastminerals,thecountrycanformdifferentclusterssuchasadiamondcluster,aplatinumcluster,etc.Theseclusterswillformregionalclustersandwillbecomekeydriversofcompetitiveness.

Valueaddition Pursuingvalueadditionatregionalleveltoreducecosts.


Competitiveadvantage Thereisneedtoconvertcomparativeadvantageintocompetitiveadvantage,hencetheissueofglobalvaluechainsiscritical.

Humanskills Tappingintotheknowledgeoflocalexpertsandthoseinthediaspora.Tradefacilitation Tradefacilitationiscriticalforthecountrytobefullyintegratedintotheregionaland

worldmarket.Regionalintegrationisnowasurvivalstrategy.Addressingstructuralbottlenecks

Addressingstructuralbottleneckssuchastherehabilitationofinfrastructure-powerstations,railwaylinesandroadconstructionsincetheyarekeyenablerstocompetitiveness.Thereisneedforreliableenergysources,especiallyelectricity.Agriculturewastecanbeusedtogeneratebiofuels.

Fiscalmanagementstrengthening

Strengtheningfiscalmanagementandtheexpendituremixrationalisation.Onshrinkingfiscalspace,thereisneedtospearheadproductivity,whichwillthentriggercapitalexpenditure.

Conduciveenvironment Governmentshouldprovideanenvironmentthatisconduciveforentrepreneurs.Policyconsistencyandcoordination

Consistency(i.e.timeinconsistent)andpredictabilityofpoliciesarecritical.Thereisneedtocoordinatepolicies,forinstancetheIndigenisationandEconomicEmpowerment(IEE)policyallowstheMinistryofYouthDevelopment,IndigenisationandEmpowermenttoapprovetheshareholdingstructureintheFinancialsector,whereastheBankinglawalsoallowstheReserveBankofZimbabwetoapprovetheshareholding,hencethereisaconflict.

Executionofplans Implementationofplansiscriticalforthecountrytorecoverfully.Debtrelief DebtreliefthroughtheZimbabweAcceleratedArrearsClearanceandDebt

DevelopmentStrategy(ZAADS)ofMarch2012todeepenengagementwithbothcreditorsanddevelopmentpartners.Thereisalsoneedtocreatenon-debtcreatingcapitalflowssuchasforeigndirectinvestment.

Socialcontract Thereisneedforasocialcontract.TheTripartiteNegotiatingForummustresumemeetings.

Monitoringandevaluation(M&E)

M&Eisalsocriticaltoenablealltheplayerstokeepontrack.

Sovereignwealthfund Thereisneedforasovereignwealthfundtomanagetheflowofwealth.Buildreserves Thereisneedtobuildmorereservetoenablethecountrytocushionitselfagainst

shocks.

Source: ZNCC Congress

5. OTHERTOPICALISSUES

a. DevelopmentsinTradeRelations

Enhancing trade facilitation through an electronic certificate of origin

The Common Market for Eastern and SouthernAfrican (COMESA) Committee on CustomsUnionhelditsfourthmeetinginKampala,Ugandabetween10and12June2013todiscussanumberofissues,includingtheintroductionofanelectroniccertificateoforigin.Inamoveaimedatimprovingtrade facilitation across borders, COMESAmember states have embraced the electronic

certificates of origin. These certificates play acriticalroleintradeastheynotonlyfacilitatethemovementofgoodsbutalsoactasproofoforiginforgoodsthatoriginatefromtheCOMESAregion.The present procedures being followed by thememberstatessubjecttradedgoodstolongdelaysat theportsofentry,whichsometimesrendertheregionalgoodsuncompetitive.Thememberstatesnoted that using electronic certificates of originis, in fact, international best practice as manyinternationalchambersofcommerceandindustryarenowissuingcertificatesoforiginelectronically,completewithrubberstampandsignatures.Usingtheelectroniccertificateoforiginhasmanybenefitsasitguaranteessecuretrade,savestimeandlabourcosts, increases transparency, increasesefficiencyand improves productivity, reduces paperwork


through data exchange and integration online,minimizes data inaccuracy through data sharing,combats forgery; and provides 24/7 convenienceandtheconvenienceofonlineapplicationtracking.Anelectroniccertificateoforiginalsoprovidestheconvenience of having a direct link to banks forLettersofCreditclearanceandCustomsforspeedyCustomsclearance.

b. TheSouthernAfricanDevelopmentCommunity(SADC)RegionalInfrastructureInvestmentConference

The SADC Regional Infrastructure InvestmentConference, which took place from 26 to 28June in Maputo, brought together private-sectorfinanciers and regional officials to accelerateinvestment in regional infrastructure. The themeof the conference was ‘Accelerating Investmentin SADC Infrastructure through Sustainableand Innovative Financing’. It brought togethersome SADC Heads of State, ministers andsenior officials from SADC member countries,heads of continental and regional organisations,international cooperating partners, investors andbusinessorganisations.TheconferencegaveSADC,whichZimbabweis,amemberof,anopportunity

to share its Infrastructure Development MasterPlan with various stakeholders and to showcasepriorityinfrastructureprojectstoinvestors.Italsofacilitated direct consultations between potentialinvestors,serviceprovidersandprojectpromotersataseriesofhigh-levelround-tablediscussions.

The SADC Master Plan defines infrastructurerequirements in the region and it is aligned tothe Programme for Infrastructure Developmentin Africa, as well as the Common Market forEastern and Southern Africa (COMESA), theEastAfrican Community (EAC) and the SADCInterregionalInfrastructureMasterPlan.Theneedfor a minimum acceptable infrastructure in eachof the six sectors (energy, water, transport, ICT,meteorologyandtourism)wasseenascritical.Theavailabilityofareliableandadequatepowersupplywasprioritised,giventhecurrentpowershortagesintheregionandthegrowingdemandforpowerbyupto5percenteveryyear,drivenbytheongoingdiscoveryofmineralsandotherrawmaterialsintheregion,which requires processing. It was agreedthat all priority infrastructure projects containedin theShortTermActionPlan (STAP)needed tobe implemented in the next five years.The totalinfrastructureinvestmentcostoftheprojectstobeimplementedamountstoaroundUSD64billion.

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