Zimbabwe economy risks deflation trap

Zimbabwe’s economy risks being caught in the trap of deflation, with corporate earnings seen continuing to shrink unless the country restores investor confidence to attract investment, a local investment advisory firm has said.

Last month heavyweight Delta Corporation, the local unit of beverage giant SAB Miller and the largest listed counter on the Zimbabwe Stock Exchange reported a four percent fall in revenue and a 10 percent decline in earnings before interest, tax, depreciation and amortisation (EBIDTA) for the full-year to March.

Zimbabwe’s largest telecoms operator Econet Wireless’ financials showed a one percent fall in revenue and a 14 percent drop in EBITDA in their full year to March.

OK Zimbabwe, the largest retailer in the country which also reported its full year results in May, registered a fall in revenue of four percent and a 10 percent decline in EBITDA.

“Expect corporate earnings to come under increased pressure. Zimbabwe is at risk of falling into a deflationary trap unless something is done to revive the economy,” Invictus Securities said in its latest report, adding that the economy was unlikely to recover in the short-term.

“Zimbabwe needs to focus on attracting investment and improving the business environment. It needs to restore business and investor confidence,” said Invictus.

The advisory firm has previously warned that the economy was facing its bleakest post-dollarisation outlook and is likely to contract by four percent this year,  weighed down by weak mineral prices and poor foreign direct investment flows.

This is despite government and the World Bank projecting a 3.2 percent growth this year premised on stability and higher mineral prices but the country’s economic drivers — agriculture and mining have underperformed.

In May the ZSE declined by 2.1 percent to close the month at a total market capitalization of $3.98 billion while the Industrial Index continued southwards shedding 2.11 percent to close the month at 152.96, its current level.

Turnover in the month declined 20 percent to $23.28 million and average daily trades were 20 percent lower than the previous month.

Volumes traded declined 51 percent to 288.48 million shares. Foreigners contributed 59 percent of total turnover and accounted for 56 percent of total purchases.

ART, RioZim and Starafrica  registered gains of 66.67 percent, 50 percent, and 40 percent during the month. Clothing retailer, Truworths; hospitality group, RTG and Powerspeed lost a third of their share price over the same period.

The mining index gained 3.54 percent mainly due to the anticipation of a rights offer by RioZim.-The Source

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