Economic recovery tied to political stability

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The country’s economy is expected to continue on a recovery path in 2012, but would largely be dependent on the political environment, analysts have said.

They said the economy could recover at a much slower pace as a result of pre-election talk by political parties.

Economist Godfrey Kanyenze said the performance of the economy was tied to politics.
“We expect the recovery to continue, but it won’t be as high as expected simply because of the elections,” said Kanyenze.

“There is so much electioneering. Even if the elections are not held this year that mindset will have an impact on the economic performance.”

Finance minister Tendai Biti projects the economic growth to slow down to between 7,8 and 9% this year , compared 9,3% in 2011.

Kanyenze said there was massive economic decline in Bulawayo and Gweru that would undermine the recovery.

Another economist, Joseph Mverecha, said he was hopeful 2012 would be a good year for the country despite liquidity, energy and structural challenges.

“I think 2012 is a year our economy will get a new momentum, especially if the politics is helpful to the economy with less acrimony,” Mverecha said
He said the economy should pick up around February and March.

“There is more convergence of views in regards to indigenisation, meaning the government will work closely with companies,” he said.

In his 2012 National Budget statement, Biti said the projections will only be atatained if a stable political and economic environment is maintained and with adherence to cash budgeting and the continued use of multiple currencies.

“Guaranteed supply of minimum levels of power and water will be necessary to support the key sectors of agriculture, mining and manufacturing. Furthermore, the anticipated firming of international prices for major exports such as tobacco, gold, cotton and platinum coupled with an outlook of moderation of energy and food price increases, will support increased export earnings and financial system liquidity,” Biti said.

Anthea Alexander, an associate at Renaissance Capital, said the impetus of 2010, following the boost from dollarisation, started to slow in 2011.

Alexander said the ripple effects of the global financial crisis are likely to have impacted foreign investment flows into the country during 2011, but the key reason for the slowdown was political uncertainty, more specifically the indigenisation law and the timing of elections.

“Indigenisation is the biggest question mark in investors’ minds, given the lack of consensus on how it should be implemented, and which companies will be affected,” said Alexander.

“The election date remains a moving target due to delays in the constitution-drafting process, and we think that late 2012 (at the earliest) is a more realistic timeline. Any transparency on these issues will help market sentiment in our view.”

The Renaissance Capital associate said despite perceptions that economic growth was levelling off, results delivered by companies such as Delta Corporation, Econet Wireless Zimbabwe and Innscor Africa, suggested otherwise.

“Demand growth for their products suggests that consumer spend continues to grow, driven by formal and informal market activity. While constraints to wider economic growth remain in place (agricultural output, foreign investment, utilities, etc) we still think disposable income growth will continue, driven mainly by small-scale agriculture (cash crops) and mining activities (formal and informal),” said Alexander.

“We think Delta, Innscor and Econet will be key beneficiaries. Agriculture is growing slowly off a low base but some crops such as cotton and maize are recovering more quickly. We think this will be positive for agri stocks AICO Africa and SeedCo.”

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