In the latest sitting of the Monetary Policy Committee, they noted that the negative impact of emerging global
risks could pose significant risks to the current stability in the domestic economy. This included subdued global
growth emanating from geo-economic fragmentation and the effects of tight monetary policy, high interest rates,
credit squeeze and low international commodity prices.
It is expected that there will be little additional monetary policy tightening globally as many countries are nearing the peak of their tightening cycles. We however expect that central banks will maintain high interest rates into 2024 to ensure disinflation holds, with most economies reaching target inflation by 2026 on average. The World Meteorological Organization has warned of El Nino conditions for the remnant of 2023, which could point to production downside for drought-prone countries in Sub-Saharan Africa like Zimbabwe and significantly impact yields. This is a huge risk as the local agricultural sector remains a key driver of national GDP. In the short to medium term, we anticipate continued use of the US$ in the local market as the local currency has depreciated significantly YTD. We believe the ZSE remains undervalued, providing for buying opportunities whilst we forecast increased liquidity on the VFEX in light of increasingly dollarized premiums to institutional investors.
FY23 for Innscor Africa Limited was encompassed by a relatively stable environment in 1H23 on account of tight monetary conditions. 2H23, however saw resurgence of currency volatility and inflationary market conditions with pricing distortions and resultant arbitrages negatively impacting consumer demand and confidence in formal retail channels. Consumer demand however remained firm in the informal market supported by performances in the mining and agricultural primary sectors.
The year under review saw a fluid environment characterized by local currency exchange rate volatility. Policy interventions saw the introduction of the 200% key policy rate which exacerbated costs of ZWL debt and tighter money supply conditions. Demand was consequently impacted by the illiquid conditions with volumes slowing 3% y/y to 553,000 MT. Raw material costs remained elevated in the period on account of supply chain blockages from the Russia-Ukraine war. As such, average realised selling prices for National Foods were US$621 per ton compared to an average of US$494 per ton historically.
The operating environment remained challenging in the period under review characterized by a volatile currency and hyperinflation. Subsequent tightening of monetary conditions by authorities created local liquidity constraints for both business and consumer. Lower real disposable incomes also impacted demand resulting in volumes for BAT Zimbabwe sliding 15% y/y. However, optimal cigarette pricing strategies and revenue from cut-rag tobacco exports supported a revenue increase of 674% in historical terms from ZWL$4.79bn in 1H22 to ZWL$37.12bn in 1H23.
According to the Ministry of Agriculture’s Dairy Services Department, Zimbabwe’s 1H23 milk intake by processors rose 9.19% to 42.08mn litres from the prior year comparative period. Dairibord’s milk intake increased 16% in 1H23 and the Group retained its position as the processor with the highest milk intake at 14.23mn litres, representing 34% of the total intake by processors. Despite the adverse operating environment marked by severe inflationary pressures and depressed liquidity, the Group’s cumulative sales volume performance was ahead of the comparative period last year as total sales volumes for the period grew by 9%.
