Zimbabwe Business Forecast Report Q1 2013

Date: December 13, 2012
Pages: 33
Price:
US$ 1,195.00
Publisher: Business Monitor International
Report type: Strategic Report
Delivery: E-mail Delivery (PDF)
ID: Z9E5FBAC01CEN
Leaflet:

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Includes 3 FREE quarterly updates

Core Views:

Zimbabwe’s current account will remain in deep deficit until such time as foreign investment flows help finance a recovery for the domestic manufacturing industry, thus weaning the economy off its dependence on imports. In addition to constraining the recovery in the manufacturing sector, a dearth of financial account inflows means that the country’s external accounts will remain in deficit and this will mean that external debt arrears will continue to build and that a return to a domestic currency will not be viable for some time yet.

We believe that the authorities are likely to have extremely limited fiscal resources at their disposal once again in 2013. Although tax revenues will increase in line with economic growth, this will not be sufficient to meet massive spending requirements. The situation will be worsened by the fact that the government’s windfall from diamond mines will continue to be limited. Furthermore, although attempts to issue Treasury bills signal that the government has moved away from its no-borrowing regime of the last few years, a poor credit profile will mean that it will struggle to find lenders.

Major Forecast Changes:

We have made downward adjustments to our long-term trend economic growth forecasts based on the fact that we think that the ‘easy growth’ driven by a recovery in exports and improved private consumption has run its course. Growth in 2013 is likely to benefit from the low base effect of a poor agriculture season in 2013 and we therefore see expansion at 6.0% y-o-y for the year. However, thereafter, we believe that trend growth will be around the 4.5% mark as productivity is unlikely to improve in the absence of foreign investment. The risks to our outlook are to the upside and stem from an improvement in the political and policy environment that would likely see investment flow rapidly into the economy. We have revised downwards our expectations for Zimbabwean inflation due to a depreciating South African rand and ongoing weakness in domestic demand. Whereas we previously saw price growth averaging 5.7% in 2013, we now believe that this will be closer to the 4.5% to 5.0% range. The risks to this view, however, remain weighted to the upside.

Key Risks To Outlook

The political environment presents the most salient risk to our outlook for the Zimbabwean economy. If upcoming elections descend into violent chaos or if the security forces refuse to accept an MDC victory, our growth forecasts would likely be rendered too optimistic. On the other hand, if there is a quicker, more decisive resolution to ongoing political uncertainty, foreign investment would likely flow quickly into the country and would cause our forecasts to prove pessimistic.

There are significant policy risks. Premature abandonment of the foreign currency regime, for instance, would likely have a negative impact on the economy.

The weather is also a major risk. The country has seen several droughts over the last two decades which have had a devastating impact on the important agricultural sector and there is always a risk of a recurrence of poor rains.
Executive Summary
Core Views:
Major Forecast Changes:
Key Risks To Outlook:

CHAPTER 1: POLITICAL OUTLOOK

SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
Slow Progress Along The Rocky Path To Elections
Zimbabwe took another step towards the holding of general elections when a constitution-making conference passed off without major incident in late October. However, we not e that the remainder of the process will be fraught with challenges which could derail it entirely and the throw the country into political turmoil. Even if the constitution-making process proceeds smoothly, it will not necessarily guarantee that subsequent elections will be free and fair, with the most pertinent threat coming from the possibility of military involvement in the voting process.
Long-Term Political Forecasts
Navigating The Political Minefield
Zimbabwe faces many challenges as it seeks to end a decade of political turmoil. These include addressing the economic hardship faced by the majority of the population, ensuring impartiality of the security forces and drafting a constitution that will ensure protection of citizens' interests and liberties.
  TABLE: POLITICAL OVERVIEW

CHAPTER 2: ECONOMIC OUTLOOK

SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Growth Constrained By Lack Of Investment
We have made downward adjustments to our long-term trend economic growth based on the fact that we think that the ‘easy growth’ driven by a recovery in exports and improved private consumption has run its course. Growth in 2013 is likely to benefit from the low base effect of poor agriculture season in 2013 and we therefore see expansion at 6.0% y-o-y for the year.
  TABLE: ECONOMIC ACTIVITY
Balance Of Payment
External Imbalance Woes To Continue
Zimbabwe's current account will remain in deep deficit until such time as foreign investment flows help finance a recovery for the domestic manufacturing industry, thus weaning the economy off its dependence on imports. In addition to constraining the recovery in the manufacturing sector, a dearth of financial account inflows means that the country's external accounts will remain in deficit and this will mean that external debt arrears will continue to build and that a return to a domestic currency will not be viable for some time yet.
  TABLE: CURRENT ACCOUNT
Monetary Policy
Inflation To Remain Subdued In 2013
We have revised downwards our expectations for Zimbabwean inflation due to a depreciating South African rand and ongoing weakness in domestic demand. Whereas we previously saw price growth averaging 5.7% in 2013, we now believe that this will be closer to the 4.5% to 5.0% range. The risks to this view, however, remain weighted to the upside.
  TABLE: MONETARY POLICY
Fiscal
Fiscal Pressures To Remain
We believe that the authorities are likely to have extremely limited fiscal resources at their disposal once again in 2013. Although tax revenues will increase in line with economic growth, this will not be sufficient to meet massive spending requirements. The situation will be worsened by the fact that the government’s windfall from diamond mines will continue to be limited.
  TABLE: FISCAL POLICY

CHAPTER 3: 10-YEAR FORECAST

The Zimbabwean Economy To 2021
Brimful With Potential And
Political Risk
After a decade of economic contraction which ended in 2009, the Zimbabwean economy has the potential to expand rapidly in the years ahead. However, political risk remains pertinent and could deter foreign investment which would is crucial to the economic growth.
  TABLE: LONG-TERM MACROECONOMIC FORECASTS

CHAPTER 4: BUSINESS ENVIRONMENT

SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
Institutions
  TABLE: BMI BUSINESS AND OPERATION RISK RATINGS
  TABLE: BMI LEGAL FRAMEWORK RATING
Infrastructure
  TABLE: LABOUR FORCE QUALITY
  TABLE: AFRICA – ANNUAL FDI INFLOWS
  TABLE: TRADE AND INVESTMENT RATINGS
Market Orientation
  TABLE: TOP EXPORT DESTINATIONS
Operational Risk

CHAPTER 5: BMI GLOBAL ASSUMPTIONS

Global Outlook
Mixed Signals For The New Year
  TABLE: GLOBAL ASSUMPTIONS
  TABLE: DEVELOPED STATES REAL GDP GROWTH FORECAST
  TABLE: REAL GDP GROWTH CONSENSUS FORECASTS
  TABLE: EMERGING MARKETS REAL GDP GROWTH FORECAST
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