Downside of economic growth. . . pressure mounts from rising disposable income

THE growing demand for goods and commodities on the back of increased disposable incomes on the local market is exerting pressure on the country’s foreign currency earnings, an indicator that the economy is growing, Finance and Economic Development Minister Patrick Chinamasa has said.

Zimbabwe’s economy is this year projected to register a 3,7 percent growth buoyed, primarily, by success in the agriculture sector as well as mineral exports which are expected to surpass the $2 billion exports achieved last year.

The International Monetary Fund (IMF) and World Bank have corroborated Government’s growth projections with the World Bank pegging it at 3, 8 percent while the IMF revised its initial minus 2, 5 percent projection to two percent in its report titled “Global Economic Outlook for 2017”.

The prospects, however, appeared gloom after developments of September 23rd when the economy was beseeched by an artificial shortage of basic commodities which authorities said was sparked by social media misinformation.

However, last Wednesday there was assurance from Government that the economy is on a growth path as was the case before September 23rd. There are no fundamental economic changes to halt the positive trajectory.

Inflation

Finance and Economic Development Minister Patrick Chinamasa last week said the economy was now out of deflation with inflation as at August standing at 0,14 percent. In the Sadc region, inflation range between three to eight percent.

The rise, Minister Chanamasa said, is a result of the success that the economy has registered in agriculture and mining.

In the mining sector for example, gold deliveries have soared to almost 14, 7 tonnes in the first eight months of the year with 7,2 tonnes coming from small-scale miners.

For maize deliveries, Government has paid $360 million, while in the cotton sector production has increased from around 25 000 tonnes to 80 000 tonnes this year.

“For the record, the economy has come out of deflation, those of you who are economists will know that is the worst situation a country or economy can be,” said Minister Chinamasa.

“We were in a negative inflation all along, we have come out, which is a good thing. Our inflation as at end of August was 0, 14 percent and until this (Saturday price hikes and artificial shortages) happened, I (am) almost certain that that figure was obtaining until the 23rd (of September).

“The Sadc best practice is between three to seven (or) eight percent.

‘‘A little inflation is good for the economy, it shows that there is increased demand. And as I have explained at other fora, some of our challenges are because of our successes.

“We have never had people getting income into their pockets to the same extent as they have been doing. The bumper crop, the cotton, the tobacco, the maize, the gold, we have never had any situation like that,” said Minister Chinamasa.

The effects

Because of the increase of money in people’s pockets, the result has been a corresponding increase in the demand for goods which in turn is putting pressure on prices and producing companies who benefited from SI 64.

The companies’ need for more forex for the import of raw materials has also been rising straining the available foreign currency but all these, Government says, are consequences of growth.

Said Minister Chinamasa, “That (success) has increased demand and because of that increased demand it has put pressure, I must admit, on the foreign currency.

“The bulk of our foreign currency is earned from five key products, tobacco, gold, platinum, ferrochrome (and) diamonds.

“Forex is needed by those that lay the golden egg, the forex earners, and the import substitution companies that benefited through SI 64 because they need foreign currency to buy raw materials and that demand has also increased,” he said.

Local Industrial capacity utilisation has also been growing and the Confederation of Zimbabwe Industries is currently carrying out a survey to ascertain the current level which is expected to be higher than what obtained last year.

In 2016, capacity utilisation was at 47, 4 percent, up from 34,3 percent in 2015.