|Select Economic and Financial Indicators||2014||2015||2016||2017e||2018f|
|Real GDP (% change)||2.8||1.4||0.7||2.8||3.1|
|GDP (USD bn)||15.8||16.1||16.1||17.1||18.9|
|Fiscal Balance (% GDP)||-1.4||-1.0||-8.4||-5.1||-3.4|
|Broad Money (% change, end period)||12.6||8.2||19.0||48.0||15.0|
|Exports (USD bn)||3.9||3.9||4.0||4.6||4.8|
|Imports (USD bn)||7.6||6.9||6.4||6.8||6.6|
|Current Account Balance (% GDP)||-15.1||-9.3||-4.1||-5.9||-5.0|
|FX Reserves (USD bn, end period)||0.3||0.4||0.3||0.3||0.2|
|Exchange Rate (average)||n/a||n/a||n/a||n/a||n/a|
Real GDP: We expect improved rainfall patterns and increased investment in irrigation infrastructure in 2017 to underpin higher agricultural production. In addition, improved commodity prices and improving investor attraction towards Zimbabwe following the regime change bolsters prospects for mining output. Nonetheless, a shortage of USD notes, which resulted in issuance of bond notes, and growing externalisation of USD cash should curb domestic demand leading to a tempered expansion in real GDP (2018f: 3.1% vs 2017e: 2.8%).
Inflation: After exiting deflation in 2017 with average inflation of 0.9% y/y (2016: -1.6% y/y) as ‘depreciation’ on the newly issued ‘bond notes’ used to monetise fiscal deficits fuelled inflationary pressures, we see headline inflation maintaining the rising pattern over 2018. Though improved rainfall and stronger food production speaks to tamer food prices, we see a combination of higher fuel prices and further currency pressures underpin higher inflation. Furthermore, we expect the ramp up in fiscal spending ahead of the general elections to support higher inflation and forecast annual inflation at 4.5% y/y over 2018.
Fiscal balance: In its first budget, the Emmerson Mnangagwa government projects an increase in fiscal spending to USD5.7bn (up from USD4.1bn in 2017) for 2018 split between recurrent (79%) and capital spending (21%). To fund the projected budget, the 2018 budget estimates fiscal receipts at USD5.1bn (2017: USD3.7bn) driven by higher tax receipts which account for 84% of projected revenues. While the resignation of Robert Mugabe and renewed engagement with the international community is positive for resumption of donor inflows, Zimbabwe’s unsettled areas to the World Bank and the AfDB (though it has cleared debts to the IMF) are likely to continue to pose hurdles until after the 2018 elections. Consequently, to plug the deficit, we believe the central government should continue to lean heavily on the Reserve Bank of Zimbabwe (RBZ) which borrowed heavily from the banking sector in 2016.
Current account: Improved weather should support a recovery in tobacco production (28% of exports) even as higher commodity prices bolster mining receipts (42% of exports). On the import side, while we expect improved food production to drive lower food imports, rising crude oil prices and Zimbabwe’s high import dependency means the overall import bill will remain elevated. In all, we expect the CA deficit to remain elevated at 5.5% of GDP over 2018 (2017e: 5.9% of GDP).
Key risks to outlook are the re-emergence of El-Nino which should trigger drought like conditions in Zimbabwe and pose a threat to agricultural production. Similarly, lower commodity prices pose downside risks to the current account and fiscal balances.
Exchange rate structure
|Regime||No separate legal tender, but RBZ introduced a bond note in 2016|
|Type of intervention||n/a|
|FX Products||Spot||Forwards||Non-deliverable Forwards||Options||Swaps|
|Daily trading volume (USD mn)|
|Average trade size (USD mn)|
|FX Market Structure||The RBZ, external lines of credit, donors, diaspora remittances, and export revenues all supply varying, albeit relatively small, amounts of FX.|
|Non-resident FX Regulations||Spot||Forwards||Non-deliverable Forwards||Options||Swaps|
|Trade and FDI flow||n/a||n/a|
|Resident FX Regulations||Spot||Forwards||Non-deliverable Forwards||Options||Swaps|
|Trade and FDI flow||n/a||n/a|
|Primary Market||Treasury bills||Treasury notes||Treasury bonds||Central Bank bills||OMOs|
|Daily trading volume|
|Average trade size|
|Nedbank local affiliate MBCA contact details:|
14th Floor Old Mutual Centre, Cnr Jason Moyo Avenue and 3rd Street, Harare
Tel: +263 4 70 16 36 / 52
|Ecobank local affiliate contact details:|
Ecobank Zimbabwe, Sam Levy’s Office Park, 2 Piers Road, Borrowdale, Harare
Tel: +263 4 85 16 44 / 49
|Government debt (% GDP)||49.6||51.9||69.7||70.7||68.5|
|External debt (official creditors, % GDP)||39.6||40.6||42.1||39.8||37.1|
|External public debt stock (USD bn)||6.3||6.5||6.8||6.8||7.0|
|Share of total sub-Sahara debt (%)||2.5||2.5||2.3||2.0||2.0|
Zimbabwe’s banking sector is regulated by the Reserve Bank of Zimbabwe (RBZ) and at end-2015 there were 13 commercial banks, four building societies and one savings bank in the country. That year total banking sector assets grew by 11% year-on-year in USD terms (since Zimbabwe’s economy is dollarized) to USD5.7bn. This growth was driven by commercial banks almost tripling their holdings of securities and investments to USD1.25bn.
Key balance sheet items, USD millions
|Domestic Notes and Coins||306||187|
|Balances with Central Bank||486||559|
|Balances with Domestic Banks||174||138|
|Balances with Foreign Banks||150||118|
|Securities and Investments||442||1,247|
|Loans, Advances and Leases||2,870||2,647|
|Total On-Balance Sheet Assets||5,108||5,666|
|Non-Convertible Debentures (NCDs)||60||48|
|Balances with Other Banks||455||667|
The sector is highly concentrated, but lending has been restrained
Zimbabwe’s banking sector has a relatively high level of concentration; at end-2015 five banks accounted for 66.2% of total banking sector deposits, while six banks accounted for 68.5% of total banking sector loans and advances. In FY2015 outstanding loans, advances and leases declined by 8% year-on-year to USD2.6bn. This decline was driven by banks’ adopting a cautious lending approach, as well as by banks disposing of some of their non-performing loans to the Zimbabwe Asset Management Company (ZAMCO). Four sectors drive lending in Zimbabwe: consumer (24.3%), manufacturing (24.3%), agriculture (16.4%) and transport & distribution (5.3%).
Customer deposits offer a stable funding base
Customer deposits accounted for 84% of total funding liabilities in FY2015, offering a stable funding base for commercial banks. Total customer deposits grew by 10% year-on-year to USD3.5bn, driven by a 27% surge in demand deposits. This increased demand deposits’ share of total deposits to 65%, compared with 26% for term/fixed deposits and 9% for Savings and Non-Convertible Debentures (NCDs).
Breakdown of customer deposits, USD millions
|Non-Convertible Debentures (NCDs)||60||48|
Non-funded income drives earnings
In FY2015 commercial banks generated USD813mn and USD567mn in gross and net revenues, respectively. Gross funded revenues accounted for 61% of gross revenues, whereas net funded revenues (net of funding costs and loan loss provisions) accounted for only 45% of net revenues. The slump in net funded revenues’ share was driven by two factors. The first was elevated USD funding costs for commercial banks; in FY2015 commercial banks spent 34% of their gross annuity income from loans, advances and leases on funding their balance sheets. The second was elevated loan loss provisions; in FY2015 9% of banks’ annuity income from loans and advances was impaired by specific loan loss provisions, double the level in FY2014. However, we expect impairments to fall significantly in the period 2016-19 led by ZAMCO (see below). Given these constraints, non-funded income accounted for 55% of total net revenues in FY2015, driven largely by fees and commissions from loans, advances and leases. However, commercial banks’ cost-to-income ratio remained high at 80%, constraining their bottom line to 20%.
Capital adequacy is improving
The banking sector remained adequately capitalized in FY2015 as all banks complied with the minimum required capital adequacy ratio of 12%. The banking industry average ratio was 21.3% at end-2015, up from 18.5% at end-2014.
ZAMCO is leading NPL resolution
Zimbabwe’s banking sector has had to deal with elevated loan non-performance which peaked in September 2014 when 20% of commercial banks’ gross loans were non-performing, before easing to 15.9% at end-2014. Any further rise had the potential to cause a significant drag on Zimbabwe’s economy by impairing banks’ intermediation role, eroding their capital and curbing their lending to key sectors. In response the government created a Special Purpose Vehicle (SPV) – the Zimbabwe Asset Management Corporation (ZAMCO) – which would buy NPLs from banks on commercial terms. ZAMCO was modelled on the Asset Management Company of Nigeria (AMCON) which was successfully created by the Central Bank of Nigeria (CBN) at the height of the 2008/09 banking crisis. Since becoming operational ZAMCO has had a significant impact on reducing commercial banks’ NPLs: by end-2015 ZAMCO had purchased NPLs worth USD357mn from them, helping reduce the sector’s NPL ratio to 10.8%.
Hydrocarbon & mineral production
Zimbabwe is a diverse mineral producer, with output of precious metals and stones, mineral ores and refined metal. In 2016 the country produced 65,000 tonnes of platinum ore, 2.1mn carats of diamonds, 2 tonnes of precious stones and 23 tonnes of gold. Other significant mineral production included 241,000 tonnes of nickel ore, 205,000 tonnes of chromium ore and 153,000 tonnes of iron & steel. However, the outlook for the diamond sector is unclear following the government’s decision to rescind the licences of private miners and bring all diamond mining under the control of the state-owned Zimbabwe Consolidated Diamond Company (ZCDC).
Zimbabwe has no known oil and gas reserves, but the country has strong potential for gas production based on its coalbed methane gas deposits, which are estimated to hold above 20 trillion cubic feet of gas. Given the lack of domestic refining capacity, Zimbabwe must import all its refined products. Consumption of petroleum products has fluctuated wildly, owing to periodic economic crises, falling from a peak of 1.9mn tonnes in 2009 to just 399,000 tonnes in 2007, before recovering to around 1.2mn tonnes in 2016. Zimbabwe sources its petroleum products primarily from Singapore, as well as importing small volumes directly from South Africa and Mozambique.
Soft commodity production
Zimbabwe is a diverse producer of soft commodities for the domestic and global market, but its agricultural sector has suffered years of disruption owing to the mismanaged redistribution of agricultural land in the early 2000s. The country’s key food crops are maize (853,000 tonnes in 2016) and cassava (238,000 tonnes). Zimbabwe used to be Southern Africa’s leading maize producer, but in recent years it has been overtaken by its neighbour Zambia, whose maize surplus helps close Zimbabwe’s domestic deficit. In 2016 Zimbabwe accounted for 21.7% of Africa’s maize imports (the second highest after South Africa), and also for 3.2% of wheat imports and 2.6% of rice imports. Zimbabwe’s maize production has fluctuated between seasons, slumping to just 512,000 tonnes in 2016/17. However, good weather in the 2017/18 season could see maize production rebound to 2.2mn tonnes, producing a surplus.
Zimbabwe produces a number of cash crops for domestic consumption and export. The country is Southern Africa’s third largest sugar producer, after South Africa and Swaziland, with estimated output of 500,000 tonnes in 2016/17, a level that has been steady for the past five seasons. Zimbabwe is also a leading producer of tobacco, with output of 172,000 tonnes in 2016, the country’s most valuable single export. Zimbabwe’s other soft commodity production is on a small scale, including 58,000 tonnes of groundnuts, 34,000 tonnes of cotton lint (2016/17) and 25,000 tonnes of tea.
Zimbabwe’s imports totalled US$5.2bn in 2016. Given the country’s lack of refining capacity, Zimbabwe is heavily dependent on imports of petroleum products (worth US$1.3bn in 2016) and electricity (US$169mn, imported from South Africa & Mozambique). Zimbabwe is also reliant on imports of machinery, vehicles and electronics (together worth US$1.1bn in 2016), reflecting the poorly developed manufacturing sector. Zimbabwe also imports large volumes of industrial raw materials, including iron & steel (US$213mn), plastics (US$182mn), fertiliser (US$95mn) and rubber (US$67mn). Zimbabwe has lost its status as the breadbasket of Southern Africa and has come to rely on imports of food, including US$519mn of cereals and US$124mn of soybean oil in 2016.
Zimbabwe’s exports totalled US$2.8bn in 2016. The country’s single most valuable export is tobacco, worth US$927mn in 2016, all of which went to South Africa and Mozambique for re-export to global markets. Minerals make up the bulk of other exports, including gold (US$850mn) and nickel metal & ore (US$329mn), all of which went to South Africa, and US$119mn of diamonds and US$52mn of platinum & silver. Zimbabwe also exported US$123mn of iron & steel, all of which went via Mozambique and South Africa for re-export to world markets. Zimbabwe’s other soft commodity exports in 2016 included sugar (worth US$59mn), cotton lint (US$25mn), wood (US$24mn) and tea (US$17mn).