While the last few years in Zimbabwe have been marked by a lot of economic uncertainty, the year 2018 started with a strengthened optimistic view by forecasters. The coming in of President E. D. Mnangagwa posed many questions about the terms of trade under which the land locked country will operate and the extent to which inward investment will flow.

Forecasts on the economic growth strengthened, with Zimbabwe’s expected GDP being revised by the IMF from 0.8% to 2.4% for the year 2018, although notably lower than the global average growth which stands at 3.9%. This revision signifies positively on the prospects of growth with a credible election anticipated to cause a further upward revision.

The upcoming elections on the 30th of July will undoubtedly have a bearing on the economic outlook particularly in the area of trade and investments. In contending for international investments, Zimbabwe is making a definite case to potential investors by its revised policy direction. As this uncertainty of what the elections result will bring persists, businesses leaders must do what comes naturally – find opportunities and close the deals. As we heard into the second half of the year, several key economic issues will come into focus.

Inflation

Although Zimbabwe flirted with negative inflation in the years leading to 2017, rising international oil prices have caused an upsurge in the domestic fuel prices which have eventually caused a rise in the inflation. According to a presentation by BancABC Economist, Mr. James Wadi at Zimnat’s Inaugural Trade Finance and Credit Insurance Conference, there is a growing mismatch between the official inflation and “real feel inflation” where prices of some goods have soured four times higher than the regional parity prices. This has led to the erosion of disposable incomes and subdued consumer spending. High prices on goods have also led to the opening up of cheaper imports.

Currency and liquidity

The country is experiencing cash shortages owing to the decline of nostro balances and cash holdings. The country has suffered less cash inflows in the form of export receipts, foreign investments and external loans compared to net outflow of foreign currency in the form of imports, service payments, capital payments and leakages. This has led to consumers having “trapped deposits” due to withdrawal limits instilled by the Reserve Bank of Zimbabwe. The central bank has also banned the withdrawal of forex by individuals to prevent fueling of black market rates. Uncertainty still remains on the reintroduction of a local Currency with the Reserve Bank of Zimbabwe expressing that they will continue to procure cash in foreign currency to support the multi-currency system.

Fiscus

From the year 2016, Zimbabwe’s expansionary fiscal policies have caused unsustainable fiscal deficits that widened from 8.5% in 2016 to go beyond 11% in 2017. There is great concern over the disparities in the government budget and the actual outcome. Costs relating to the elections in 2018 are likely to widen this disparity which will cause a high fiscal deficit. Pressures from the civil servants to increase salaries have also put a burden on the fiscus. Although there are efforts to reengage foreign lenders, the government has had to depend on local sources of financing to absorb the budget shortfalls.  Budget deficit in 2018 according to James Wadi is expected to be USD1.5 billion compared to the budgeted USD672million.

Trade

According to an export report by Zimbabwe Economic Policy Analysis and Research Unit, the year to date prices of Zimbabwe’s major export commodities (tobacco, gold, nickel and platinum) grew steadily which boost export revenues. However foreign currency shortages have led to diminishing competitiveness of Zimbabwean exports as importation of critical goods needed in value addition and manufacturing is affected. This has led to unsustainable trade deficit. However the increasing cost of local goods has encouraged consumers to increase consumption of imports.

Looking beyond, economic events of 2018 will cast a long shadow into the future economic performance of Zimbabwe. An encouraging environment and a compelling case on the skills and cost effectiveness of doing business in the country will make Zimbabwe a competitor for international investment. Free and fair elections will position the nation for an economic rebound. Future terms of trade are also particularly significant for the economy. The question however still remains if Zimbabwe will be able to utilize its aptitude in the form of natural resources, skilled human resources and infrastructure. Resolving the fiscal policy issues and re-stabilizing the monetary systems, supported by resolving of pending issues with international lenders will create enormous potential for Zimbabwe.