Enacy Mapakame
THE gold mining sector is expected to prop Zimbabwe’s economy amid pressures that consumer-oriented companies are facing, as the country navigates the adverse effects of the El Niño-induced drought and global economic volatility.
Zimbabwe’s projected economic growth for 2024 has been weighed down by the impact of the drought on agriculture and related industries, not only in Zimbabwe but across the Southern Africa region.
Agriculture’s contribution to Gross Domestic Product (GDP) is expected to decrease to a four-year low of 11,6 percent from about 16 percent.
The African Development Bank has also lowered its 2024 growth forecast for Zimbabwe, citing below-average agricultural output due to El Niño, predicting a GDP growth of 2 percent, down by 1,6 percentage points from its previous estimate.
But with 58 percent of mining workers involved in gold mining, and prices of the precious metal expected to remain firm, this sector could provide some resilience for Zimbabweans, especially among low-income earners.
The strong returns from gold due to strong prices on global markets will be complemented by an estimated US$2 billion in remittance inflows, which will also inject liquidity into the economy.
Encouraging signals also came from the Zimbabwe National Statistics Agency’s 2024 First Quarter Labour Force Survey results, which show that the country’s employed population grew slightly, with a net increase of 110 000 compared to the quarter to December 2023.
This growth was driven by the formal sector, which added nearly 80 000 jobs, while the non-agricultural informal sector shed jobs. Such developments are expected to drive some growth in disposable incomes.
“While the outlook for consumer spending might be weak, we believe there might be pockets of liquidity considering that 58 percent of mining sector workers are associated with gold, which, at a high level, is primed for a better year based on elevated prices.
“This might point to more resilient bottom-of-the-pyramid liquidity added onto the circa US$2 billion in remittances that the country receives annually,” according to IH Securities, a licensed member of the Zimbabwe Stock Exchange and the Victoria Falls Stock Exchange.
This liquidity is seen cascading to essentials, putting companies like National Foods (NatFoods) in a more favourable position. NatFoods is a leading food processor, for both human and animal consumption.
While NatFood’s margins for the first half of the financial year 2024 came under pressure, there is hope for the counter. The Government has allowed millers to privately import grain to supplement the local harvest in light of the current El Niño conditions.
The company has announced it will be leveraging on its balance sheet for an import programme, ensuring consistent raw material supply in its pipeline.
“We, therefore, expect a modest recovery in the maize segment.
‘‘National Foods aggregate volumes to FY24 are forecast to stay in the positive, anchored by their defensive staple offering,” said IH Securities.
The food processing giant has also continued with its capacity expansion initiatives, thereby providing further volume potential for the group.
The resilience from the gold mining sector comes at a time when consumer-oriented stocks are expected to have a tough time in the short to medium term as the consumer sector battles a challenging environment weighing on bottom-of-the-pyramid liquidity.
Counters like Axia, BAT, Innscor, Delta, Hippo and Simbisa will be impacted in varying ways.
According to analysts’ projections, the consumer sector faces a potentially tough year, as the overall economy navigates the adverse impacts of the El Niño-induced drought and global economic volatility.
Faced with such a predicament, discretionary consumer stocks like Axia are likely to be affected more as consumers focus on staples, as well as look for value for money.
Already, during the first half of 2024, some of Axia’s regional markets (for example, Malawi) continued to grapple with foreign currency unavailability, whilst the Zambian market experienced a fluctuating exchange rate, resulting in a loss of value on the overall net assets of the business.
“The El Niño phenomenon is expected to have a negative effect on the economies of the countries in which Axia operates. Discretionary spending is expected to decline, impacting on the group’s sales volumes,” said research firm IH Securities.
Axia is, however, implementing strategies to increase volumes in the distribution business in Zimbabwe by serving both the formal and informal market channels.
For cigarette maker BAT, volumes are likely to remain weak in the short term, in response to weak disposable incomes, while its market share will also remain under pressure from the availability of cheaper brands, signalling decreasing pricing elasticity for the firm.
As of the first quarter of 2024, sales volumes had retreated by 21 percent versus the same period last year.
While Dairibord’s cumulative sales volume performance for the financial year 2023 was ahead of the comparative previous period and the group commissioned capex investments of US$4 million to improve efficiencies and increase working capacity, it will face constraints passing on rising input costs to the consumer in light of the current environment.
According to IH Securities, another concerning trend is the rise of working poverty.
Defined as living on less than US$2,15 per day (adjusted for purchasing power), working poverty reached 35,35 percent by the end of 2023, up from 20,17 percent in 2013. However, this remains below the average for low-income Sub-Saharan African countries.
Zimbabwe also continues to grapple with low wages. A significant portion of the workforce, 34 percent, earns less than US$90 per month, with the median income falling between US$272 and US$362, which further worsens the consumer landscape.