The Zimbabwean economy is starting the year off with a shortage of staple food and paper money on top of its long-standing challenges. On the one hand, people in rural areas need to cope with last year’s cereal production being 27% lower than the 2008-12 average, according to the Global Information and Early Warning System (GIEWS). On the other hand, urbanites that have become accustomed to the reasonable availability of cash within the multi-currency system have experienced a shortage of money at bank branches and ATMs.
The World Food Programme (WFP) and its partners are planning to provide assistance to 1.8 million Zimbabweans (or one in eight of the population) by April 2014, compared to around 2.2 million people set to be food insecure in coming months. However, their projects are “severely underfunded” at present. The areas most affected by the drought are in the southern and western parts of the country, according to the Red Cross/Red Crescent Societies. The poor volume of farm crops is also hampering the planned Agriculture Commodity Exchange (ACE) in becoming operational.
Looking ahead, the heavy rains seen across the country in recent weeks have stirred hopes for a good harvest during 2014. However, the Commercial Farmers Union (CFA) commented at the end of December that targets set for cereal production in the upcoming crop season will not be met. The organisation cites the under-utilisation of agricultural land due to a lack of inputs from the state and working capital facilities from banks available to farmers. The end result will be another huge food import bill – the country is estimated to have purchased $500m worth of cereals from abroad during 2013.
Reports of violence linked to consumer frustration over cash shortages have popped up in the media over the past few months. The inability of banks to provide a sufficient amount of hard currency to their clients is due to a confluence of factors: a seasonal increase in demand due to holiday spending; a continued increase in the volume of businesses (owned by locals as well as foreigners) opting to deal outside of the formal banking system; and a large outflow of money prior to and after the July 2013 elections, amongst other issues. This resulted in a heavier-than-usual strain on liquidity during the months of November and December when bank cash supplies are always a little tight.
Looking ahead, the first quarter of 2014 should see some easing in the strain on liquidity within urban areas, although this will not reflect improvements usually observed during Q1 of a calendar year. The slew of company closures during 2013, a weak food crop during the same period, as well as donor fatigue, will continue to assert pressure on the economy and the banking sector. Plans to revive the central bank’s lender-of-last-resort facility are underway, but will not have an impact on the situation over the near term.
WHY DO WE CARE? The Zimbabwean consumer has started this year on a worse footing compared to the start of 2013. A weak outlook for the economy during 2014 suggests that household finances will not improve quickly, and that the country’s recovery during 2009-12 and the early parts of 2013 has quite possibly stalled. The 2014 fiscal budget laid out many plans to support the local economy this year, though few of these will be effective without enough state resources to spend on them. Fiscal revenues, in turn, are dependent on job creation and consumer spending – pay-as-you-earn (PAYE) and value-added tax (VAT) represented 50% of government revenues during 2013. In short: the Zimbabwean consumer is under significant pressure, and this should be kept in mind when viewing the country’s business and investment environment.