The parallel market will not disappear until a holistic economic revival programme encompassing all sectors and markets of the economy is put in place. A parallel initiative to stabilise the political environment should also be undertaken to lure foreign investors and measures to get back onto the books of the Bretton Woods institutions should be implemented as a matter of urgency.
“Once these issues are comprehensively addressed, we believe that our economy will be in a position to commence its journey to recovery,” the latest report of Kingdom Financial Holdings says.
It says while the export support scheme announced by the government which saw the exchange rate adjusted from $55 to the greenback to $824 was a welcome development, the economy would remain prone to inflation unless the scheme was accompanied by the tightening of monetary policy through a significant hike in interest rates, a tightening of the fiscal policy through the reduction of the government budget deficit and the curbing of domestic borrowing.
“As long as domestic inflation remains higher than that of our trading partners, the Zimbabwe dollar will have to be continually adjusted to maintain parity with trading partner currencies.”
Domestic inflation was 221 in February while the regional average was 15 percent.
Kingdom also says the maintenance of negative real interest rates at current levels of minus 170 percent will compel investors to continue migrating to inflation-beating investments such as foreign currency, equity and property.
It also says high rates of savings are a prerequisite for investment and economic growth. At the moment domestic savings are less than 9 percent of gross domestic product.
The economy declined by 12.1 percent last year with manufacturing declining by 8.2 percent in addition to the 11.5 percent decline recorded in 2001. The agricultural sector had shrunk by 25 percent while mining had declined by 7.1 percent with gold, the country’s second largest foreign currency earner, suffering an 18 percent fall in production.
The company’s net profit more than doubled from $1.5 billion to $3.3 billion and assets increased by 257 percent from $23.2 billion to $82.7 billion in historical terms.
The company, however, opted to report in inflation adjusted terms in which net profit dropped from $1.9 billion to $1.3 billion and assets went up by 23 percent from $71.5 billion to $88.2 billion.
Interest income contributed 39 percent of group income down from 53 percent the previous year. Regional investments contributed 4 percent of net profit.
Dealing profits were down from 34 percent to 31 percent of total income. They were affected by a bearish market and a decrease in foreign currency volumes.
Other income grew by 93 percent, contributing 29 percent of total income, up from 13 percent. This was largely due to an increase in fee and commission income.
Kingdom Bank had a net profit of $1.9 billion down from $2.3 billion. Six new branches were opened bringing the total to 18.
The Discount Company of Zimbabwe had a net loss of $678.5 million down from a profit of $283.5 million the previous year.
Other companies within the group such as Kingdom Asset Management and Kingdom Stockbrokers contributed 25 percent of group profits.
The company says it invested $1.3 billion in Botswana, Malawi and Zambia and is now looking towards deriving greater value from its regional ventures.