Zimbabwe | ZSE

The Zimbabwean economy continues to face inflation, currency, and exchange rate headwinds affecting economic activity which in turn affect the property sector. As of June 2023, the inflation rate stood at 175.8%, with a month-on- month inflation rate of 74.5% according to ZIMSTATS. Due to disparities between the official and parallel exchange rate, suppliers of construction materials practice forward pricing leading to significant cost pressures on property owners and developers. The market also remains affected by slow space uptake in the CBDs due to low formal economic activity. The retail and residential sectors continue to benefit from increased demand for quality space.

On the global front, prospects for a strong global economic recovery remain dim amid obstinate inflation, rising interest rates, ongoing effects of Russia’s invasion of Ukraine, and three years of COVID-19. According to The United Nations, the global economy is projected to increase by 2.3% in 2023, up 0.4 percentage points from a January forecast. However, prediction for 2024 dropped by 0.2 percentage points to 2.5%. Projections from the IMF seem a bit optimistic with 2023 global GDP expected to increase by 2.9%. For the year 2024, the IMF forecasts a modest global economic growth of 3%. Regardless, all estimates are still below the average of 3.1% in the two decades before the COVID-19 pandemic.

The trading environment during the financial year was characterized by a hyperinflating currency, rolling power outages and a fluid policy environment which resulted in challenges to industrial activity and slowed economic growth. The ongoing Ukraine/Russia war resulted in significant increases of key agricultural input costs such as fuel and fertilisers. Whilst the rainfall season was not as pronounced as the previous year, significant rains were notably received at the beginning and end of the season. Cane contribution from the company’s plantations grew 13% y/y aided by improvements in yields from 92.23tn/ hectare to 97.98tn/ hectare. There was improved control of yellow sugarcane aphid infestations through aerial spraying within the period. Cane deliveries from private farmers improved from trailing 5% y/y ...

Growth for the sector has leapt from 5.9% in 2021 to an estimated 10% in 2022. The productive capacity utilised on pre-existing infrastructure in the mining sector in 2022 remained relatively flat y/y at 81%, as per the Chamber of Mines. Local gold production increased 19% to 35.2tn in 2022, from the 29.6tn recorded in 2021 signaling a third straight year of growth. Mineral exports continued on an upward trajectory bolstered by both production increases from maturing investments and firm hard commodity prices. 2022 exports for the sector registered at US$5.67bn, up 9.65% y/y. According to the Chamber of Mines, mining costs are expected to come in 15% higher in 2023 with constraints coming from power supply deficits and foreign currency shortages. Forecasts for 2023 have pinned sector growth to a range of between 8% to 10.4%.

Zimbabwe Consumer Sector undervalued versus regional peers: The Zimbabwe Consumer Sector appears to be fairly valued compared to historical averages but cheap versus regional peers. The sector is currently trading at a weighted average P/E (+1) of 5.64x versus a weighted average historical P/E of 5.99x and regional peers at an average P/E (+1) of 16.44x. The sector is currently trading at a weighted average EV/EBITDA (+1) of 3.58x versus a weighted average historical EV/EBITDA of 4.14x and regional peers at an average EV/EBITDA (+1) of 7.97x suggesting selective buying opportunities. Despite a challenging economic environment characterized by weakening local currency and high inflation, we believe consumer demand will remain firm supported by the informal sector which makes the bulk of the economy and shows resilience to macroeconomic changes.

During the period under review, the Group introduced the EcoCash United States Dollar (USD) wallet in its quest to consolidate its participation in the USD economy. The reduction of Intermediated Money Transfer Tax (IMTT) on USD domestic money transfer transactions from 4% to 2% effective 1 January 2023 (now at 1%), helped in the adoption and use of USD on digital money transfer services. The Group also launched the EcoCash Junior wallet, a mobile wallet for children between the ages of 9 and 18, aimed at improving financial literacy and financial inclusion. According to management, this product is experiencing steady growth and will be key in the growth of the company’s subscriber base in the future. Steward Bank continued to grow its USD interest earning assets particularly in the corporate sector. This was coupled with an increase in FCA accounts which grew by 34%. During the year under review, EcoCash launched the Dura Pension Scheme, aimed at the informal sector to ensure broad-based inclusion of all workers in retirement planning. A new product that allows customers to get funeral cover as they purchase Econet data products, Data Life Cover, was also launched.