Economic fundamentals on the mend?

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Econet Wireless Zimbabwe

“One swallow does not make a summer” a popular adage goes. However, when one begins to see several swallows in the skies, one is inclined to get a certain feeling that summer is around the corner.

Certainly, we can apply the kind of thinking to Zimbabwe’s economic situation which we all agree had become quite dire, especially heading into the last quarter of 2017.

Inflation had reared its ugly head, rekindling public fears of the 2000 to 2008 hyperinflation “error”. The “exchange rate” collapsed almost 100 percent whilst the stock market and other asset prices soared as investors sought refuge outside cash. There were intermittent shortages of “cooking oil” and “motor oil” as panic buying gripped the economy.

Then suddenly, a little more than month before the turn of 2017, the tide turned. For the first time in three years, Delta Corporation reported a surge in its third quarter volume sales and a jump in profit. This was a complete reversal of fortunes, following successive annual declines in volumes and turnover since 2013.

The trend was carried into the final quarter of the year with Delta’s final numbers released in April 2018 showing as much as 18 percent jump in Profit after Tax following a 17 percent increase in volumes on a year to year basis.

Quarterly growth figures on the same metrics were upwards of 50 percent; a significant turnaround.

According Deltas statement accompanying its numbers, the performance was due to “strong consumer demand,-a continuation of the positive trends witnessed in the previous quarter”.

Shortly after Delta reported an impressive performance, another of Zimbabwe’s largest companies, Econet Wireless followed up with an equally impressive set of financial results.
Econet Wireless Zimbabwe profitability jumped a massive 265 percent year-on-year from $37 million to $132 million for the year ended 28 February 2018 with top line revenue leaping 33 percent from $622 million to $832 million.

In tandem, Earnings Before Interest Tax Depreciation and Amortisation (EBITDA) rose 52 percent. Subscriber growth was reported at 11 percent.

General Beltings also reported a strong set of results,-35 percent volumes growth leading to a 23 percent revenue growth outturn.

In the services sector African Sun reported robust growth in room occupancies, which were up at 53 percent from 43 percent in the prior year, anchored particularly on strong foreign arrivals (17 percent growth) and a keen domestic tourism market saying in its statement that “the year 2018 started on a high note with the new dispensation positively influencing the increase in foreign tourist arrivals”

More recently, sugar processor and distributor, Star Africa, cement manufacturer PPC, also reported robust recovery and significant upward trends in both volumes and profits.

It is safe to conclude that all these positive results are being driven by consumer demand in the economy and the trend is becoming an established one.

Strong consumer demand is what every economy is built on and its exactly what every company dreams of. The question is what is driving the real growth. Are economic fundamentals shifting into positive gear?

There is general agreement that in the context of the new economic order, which is being pushed by the country’s President, some of the many positives in various pockets of the economy are being driven by “positive sentiment”.

Positive sentiment is a powerful economic force, and given the 2018 economic outlook being put forth by most if not all companies, it appears that the mantra that “Zimbabwe is Open for Business” is not just an empty statement, but has had a seriously positive impact on the economy.

It is the Middle Class that powers Consumption, Investment and Growth in the economy.
In the post election period, as we chart a new economic course for Zimbabwe, we must still address the structural dislocations in the economy that have resulted in a skewed concentration of wealth and opportunities coupled with a deluge of poor quality low-wage jobs across the economy.

Our elected representatives should come together quickly to enact solutions to address the structurally imbalanced economy.

In particular, the Government must be able to advance strategies that create quality middle-class jobs, while easing the cost of doing business in the country. How can this be achieved?

Zimbabwe is Open for Business but . . . Rebuilding Infrastructure is key.
We must therefore continue to move beyond mere rhetoric, mantras and speeches about the need to create jobs and rebuild the middle class and start advancing programmes based on off the shelf solutions that have worked for economies elsewhere.

Rebuilding the country’s infrastructure and empowering the workforce to bargain for fair living wages is the only sure way of rebuilding the middle class.

Only then we will be witness to an era of Zimbabwean economic renewal and expansion defined by an inclusive economy where spending power rises for everyone and families and communities can thrive. Entrepreneurship and opportunity will knock on everyone’s doorstep. The link between infrastructure and quality jobs is simple.

A strong unionised labour force is the one that will do the work needed to rebuild, operate and maintain our country’s roads, rail, urban transit, and aviation systems, rehabilitate drinking water systems, and man our schools, hospitals and universities. A strong well remunerated labour force is a key and direct pathway to the creation of a strong middle class.

Infrastructure is also about creating sustainable and high quality jobs. Rebuilding the country’s infrastructure, especially if we commit to very strict, local supply chain requirements, will produce millions of high-quality jobs along the entire supply chain.

Infrastructure projects are also known for connecting more workers in disadvantaged communities to opportunities.

For example a major highway can pass through a previously disadvantaged community, changing lives in the process.

In conclusion, stagnant incomes, rising debt, and record levels of income inequality all impact economic growth in a bad way and therefore cannot be ignored.

High levels of household debt have the effect of reducing consumer demand; whilst the lack of assets among the middle class (the little that has remained of it) hinders entrepreneurship as people cannot access collateral based finance to start businesses.

Meanwhile, in that mix, the rise of a super rich class, whose wealth is far above everyone else contributes to weakened social relations and a more polarized society. Government must lead in correcting the issues that have undermined trust. It is therefore good economic policy and good politics for the ED Government to continue to focus its energies on making the economy work for everyone.

It is one thing for a company to report improved profitability, cashflows etc on the back of revenue growth driven by price increases, but it is entirely a different matter for businesses to start reporting improvements in financial performance on the back of rising demand and volume sales. In fact, Delta confesses that the company is unable to meet rising demand, whilst all if not all the above mentioned firms report that the positive impact of the new dispensation has brought about a change in their fortunes.

I round off by saying “Cape Diem”-Sieze the Day. Zimbabwe must remain Open for Business and we must and want to see the continued revival of Zimbabwe’s economic fundamentals.

The writer is an economist. The views expressed in this article are his personal opinions and should in no way be interpreted to represent the views of any organizations that the writer is associated with.

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