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Consumer spending continues growing

13 Jul, 2018 - 00:07 0 Views
Consumer spending continues growing

eBusiness Weekly

Excessive monetary build up in the economy cited

Money supply not backed up by production

Martin Kadzere
Zimbabwe consumer spending keeps growing, as demand for basic and fast moving consumer goods continues to firm due to excessive monetary build up in the economy that is driving stronger demand for products, economic analysts said.

They also argue that most producers of goods have been accessing foreign currency at a subsidised bank rate of about 50 percent discount to the unofficial market rate.

This has resulted in products being more affordable compared to the other commodities being produced and imported without the “implicit” subsidy.

According to economists, the 56 percent increase in broad money supply over the last two years had not been supported by concomitant growth in gross domestic product.

“The spike in asset prices, in particular properties, listed stocks and foreign currency, among others, validates this point,” said Oxlink Capital managing director Brain Muchemwa.

Muchemwa said most producers have seen a significant surge in demand for their products, arguing the “artificial demand can only be sustained by the extent to which the government can afford to continually subsidise such private consumption.”

Muchemwa added the fact producers experiencing a surge in demand were unable to tap into the opportunity by increasing output validates the point that without the “implicit state subsidies”, they would not produce and keep prices at current levels.

Excessive budget deficits
Economist, Gift Mugano concurred the surge in demand came on the backdrop of increase in money supply not backed up by production. “You may recall that in recent years, the Government ran excessive budget deficits and while at the same time it took over debts, which resulted in a (domestic) debt of $4,4 billion by September 2018.

“This debt was financed by treasury bills. In economics we know that Treasury Bills are risk free assets because they are guaranteed by Government. However, in Zimbabwe, the conventional wisdom that Treasury Bills are safe especially under the old dispensation was not holding. The Treasury Bills were no longer safe and as such some companies were offloading the Treasury Bills,” he said.

Compounded by foreign currency shortages to imports critical raw materials for producers, the surging consumer demand has seen most manufacturers failing to meet demand.

The impact of the tobacco and cotton selling season, staggered payments and of civil servants bonuses and the subsequent increase of public sector wages has triggered huge demand for consumption, which is outstripping manufacturers’ capacity.

“It is common knowledge that forex is becoming a major binder and posing danger at a time when demand for our products is very strong,” said Anthony Mandiwanza, chief executive of Daribord Holdings, one of the country’s food companies.

“It’s a wide economic issue (both formal and informal) but the bottom line is we have an economy which is on an upturn.” Mandiwanza said improved productivity in the formal economy had resulted in hiring of more contract employees.

“Compounded by improved activity in informal sector, the result is high demand capacity.”

Drying credit facilities

Charles Msipa, Schweppes Zimbabwe managing director while demand was firming on the back of rising consumer spending, producer were constrained by forex shortages.

“Credit facilities have dried up,” said Schweppes Zimbabwe managing director, Charles Msipa.

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