daniel chigunwe
. . . El Niño, low commodity prices takes toll
Enacy Mapakame
The African Development Bank (AfDB) has lowered its 2024 growth forecast for Zimbabwe citing below-average agricultural output due to El Niño-induced drought.
The bank now predicts a GDP growth of 2 percent, down 1,6 percentage points from its previous estimate.
The downward review on Zimbabwe is in contrast to the region’s prospects with AfDB saying Southern Africa’s overall growth is expected to pick up slightly, reaching 2,7 percent by 2025.
This is due to a projected surge in growth for South Africa and continued strong performance in other countries.
But for Zimbabwe, the El Niño weather patterns are causing a drought, hurting agriculture, which is one of the key sectors of the Zimbabwean economy, providing a significant portion of raw material requirements for the manufacturing sector.
In terms of employment, the agriculture sector is the largest employer in the country accounting for over two thirds of the country’s employable population across value chains, according to the Ministry of Foreign Affairs and International Trade.
According to the 2024 first quarter Labour Force Survey released this week by ZimStat, the agriculture sector is the second largest employer accounting for 22,9 percent of employed population of 3 289 853.
Adding to the depressed agriculture performance, lower international mineral prices could also dampen mining production, another key contributor to the country’s economic strength.
“Slower GDP growth of 2,0 percent is projected for 2024, mainly on account of below average agricultural output due to the El Niño weather phenomenon,” said AfDB in an outlook report unveiled at the AfDB 2024 annual
“Mining output is also expected to remain subdued because of lower international mineral prices. Inflation is projected to average 24,9 percent in 2024 as the exchange rate stabilises.
“The downside risks are elevated due to drought caused by El Niño weather patterns that has affected the agriculture sector, while unstable international commodity prices pose further risks to the mining sector,” added AfDB.
While the AfDB downgraded Zimbabwe’s growth projections, the bank still sees opportunities for a rebound in the near future.
The bank emphasises debt restructuring and clearance as crucial steps to create fiscal space for investment and attract foreign direct investment (FDI). This, along with continued reforms, is seen as the key to unlocking Zimbabwe’s long-term economic growth potential.
The economy has experienced only minimal structural transformation in the last two decades, with structural change impeded by crippling public debt accumulation estimated at 87 percent of GDP in 2023.
“Prerequisites for Zimbabwe’s structural transformation are debt restructuring and clearance of arrears to create fiscal space for investment, attract foreign direct investment, and unlock access to global financing opportunities,” AfDB said
Since 2022, the country has engaged with the international development community and has agreed to implement economic and governance reforms that would unlock arrears clearance.
The country’s main creditors, including multilateral and bilateral donors, according to AfDB who account for 76 percent of its debt, have a key role in accelerating agreed reforms and arrears clearance.
While Zimbabwe’s mining output is also expected to remain low due to weak global mineral prices, the bank predicts inflation will stabilize around 24,9 percent in 2024. However, risks remain due to El Niño’s impact on agriculture and volatile commodity prices.
The AfDB also emphasises the importance of maintaining exchange rate stability and eliminating quasi-fiscal operations by the central bank to achieve macroeconomic stability. Additionally, addressing crippling public debt (estimated at 87 percent of GDP in 2023) is crucial for structural transformation.
“The ZIG exchange rate is market determined and backed by the US dollar and mineral reserves. ‘On its introduction, the exchange rate stood at ZIG13,56/US$1. Inflation declined from 41,9 percent in December 2022 to 29,4 percent in December 2023 mainly due to the adoption of a blended inflation measure and rebasing of inflation estimates,” explained AfDB.
Bongani Ndlovu