Economic headwinds persist: IH Securities

Ziscosteel plant


LOCAL financial services firm, IH Securities expects low foreign currency generation from gold, tobacco and tourism on the back of further economic headwinds, unless Zimbabwe produces high value-export commodities.

In its new monthly update for November, IH Securities said without foreign currency there would be a further devaluation to the local currency.

“We expect economic headwinds to persist in Zimbabwe and further constrictions of foreign currency, and thus significant currency devaluation as exports are expected to decline unless the country can produce high value-export commodities, which might not be feasible given recent withdrawals by foreign investors in infrastructure and beneficiation projects (such as) the Ziscosteel deal and the Mimosa refinery plant,” IH Securities said.

IH Securities added that statistics have shown a 16% drop in registered tobacco farmers for the 2019/20 cropping season due to a looming drought, soaring input costs and incoherent policies around foreign currency retention.

With tobacco being one of the major forex generators, fewer farmers means less harvested tobacco, and less foreign currency generated.

In terms of gold production, the firm said the country was likely to miss the 40-tonne end-of-year target owing to persisting economic challenges, including regulatory uncertainty and devastating power cuts lasting for up to 18 hours.

These power cuts have affected the miners’ ability to produce gold.

IH Securities, however, noted that the Mining Business Confidence Index forecasted a positive outlook for the sector in 2020.

“Furthermore, mineral sales, excluding gold and silver, are expected to close the year at US$1,8 billion, 6% above last year’s figures as mineral earnings amounted to US$1,6 billion between January to October,” IH Securities said.

“Surprisingly, October was the first month in 2019 that gold deliveries outweighed last year’s production on a month-on-month comparison as gold deliveries increased 17% to 2,4 tonnes from two tonnes during the same period last year due to increased fuel allocation to miners and as significant draw down of the Gold Development Initiative.”

Apart from power cuts, Zimbabwe is also grappling with water shortages with both problems being a result of drought.

The effects of the drought on Zimbabwe have been unrelenting and are now affecting the country’s main tourist attraction sites such as Victoria Falls and Kariba Dam.

“The country’s main tourist attraction, the Victoria Falls, has recorded the lowest water flow in history, which is down 50% of normal water fall at this time of the year, posing a threat to Zimbabwe’s tourism sector should these climatic conditions become the norm,” IH Securities said.