May marked the first full month of monetization of the ZiG currency. ZiG inflation registered at -2.4% from April, with the top mover, the Alcoholic Beverages and Tobacco segment, deflating 6.1% month-on-month. Pricing in the Food and Non-Alcoholic category eased 5.6%. Notably, the government introduced Statutory Instrument 81A of 2024 which removed the 10% trading margin above the official exchange rate for retailers. However, Housing and Communication pricing in the local currency gained 5 basis points and 6 basis points respectively in the period relative to April. Month-on-month USD inflation was 0.1%, with annual USD inflation firming up to 3.5% from 3.2% in April spurred on by the Food and Transport categories. The blended month-on-month inflation for May subsequently came in at -0.6%.
As per the monetary policy, month-on-month inflation rates are expected to trend below 1%, with annual inflation registering below 5% by year-end, achievable through strategically managed money supply growth. The Ministry of Lands released the Second Round of Crops, Livestock and Fisheries Assessment Report (CLAFA-2) consolidating the outcomes of the 2023/2024 summer season and addressing the severity of the El-Nino drought, which has seen the driest summer in 40 years. According to the report, summer food production fell 77% to 0.84mn MT with the steepest declines being recorded in groundnut and sweet potato production which are down 98% and 96%, respectively. Maize production collapsed 72% to 0.63mn MT, creating a deficit for both feed and food. The ministry has reported that c. 9.2mn rural people will require food aid from June whilst 35% of the urban population will be food insecure. The government has said it will require USS3.3b in funding to enable ellective safety nets until March 2025. Economic growth for the country is therefore expected to slow down from 5.5% in 2023 to 3.5% in 2024 as per the government. In consideration of the magnitude of the drought and falling commodity prices, The African Development Bank (AIDB) has trimmed the economic growth forecast for 2024 from 3.6% to 2%.
The outlook for the year has overall been gloomy owing to depressed activity in primary sectors and collapsing prices for key export commodities such as platinum and lithium, pointing to weaker bottom-of-the-pyramid liquidity. Despite this, 1024 trading updates for the period ended 31 March have shown volumes growth across the consumer staples and transport categories whilst occupancies in the tourism sector picked up y/y. However, changes to taxation laws that came into effect on the 1st of January 2024 have exerted pressure on margins as well as competitiveness for select companies. In our view, the full impact of the El-Nino drought might appear in the next round of trading updates owing to a lag impact.