adminand mining sectors as well as the possible adverse effects of elections that are expected next year.
Finance Minister Tendai Biti, in his 2012 National Budget, projected the economy would expand by 9,4 percent, driven by mining and agriculture while inflation would be contained below 5 percent.
But an analysis on the Budget compiled by FBC Securities noted that the 9,3 percent growth was more “theoretically judged than practically confined”.
With sub-Saharan growth forecasts of 5,75 percent for 2012 on improved commodity prices, FBC projected a “sober” 7,8 percent for the next year, subject to developments on the socio-political front.
“Evidence to the sustenance of this growth is now questionable as it is based on the performance of other non-quantified sectors other than the key drivers which are mining and agriculture,” said FBC.
“With a slowdown in mining and agriculture there is no justification to this figure (of 9,4 percent growth). Hence we forecast lower growth levels within the region of 7,5 percent to 8 percent.
“The growth of 9,4 in 2012 is too optimistic considering the adverse effects of the electioneering campaigns set over the period.”
FBC said the nominal GDP at US$8 billion this year and the projected US$11,9 billion in 2012 represents an increase of 49 percent, which is not commensurate with the estimated economic growth projections.
It further noted that the continued shortages of power would deter growth.
“With the projections of power supply falling short by 856MW, assuming that the demand is maintained in 2012, it is clear that the industries will suffer which would mean economic activity will remain derailed as there will be no electricity to power the mines and industries.”
The FBC analysis suggested raising of excise duty on tobacco and royalties on gold and platinum might deter meaningful investments.
Excise duty on locally produced cigarettes was increased from US$7 to US$10 per 1 000 sticks, with effect from December 1 this year.
The excise duty on imported cigarettes was also raised from 40 percent plus US$5 per 1 000 sticks to 40 percent plus US$7 per 1 000 sticks.
To improve revenues, royalties on gold and platinum were increased from 4,5 percent and 5 percent to 7 percent and 10 percent respectively.
“Economic growth is assumed to be driven by mining and agriculture developments. At record, tobacco production contributed the bulk in agriculture performance as platinum and gold topping in the mining development. Raising of excise duty on tobacco and royalties on gold and platinum might deter investments.”
The 5 percent inflation target also “appears too simplistic” cognisant of developments in exchange markets versus Zimbabwe’s manufacturing capacities which are still low and given expectations for continued reliance on the South African imports.
Zimbabwe is importing the bulk of groceries from South Africa as local manufacturers still lack adequate capacity to meet domestic demand.
“Given expectations for continued reliance on the South African economy, inflationary pressures are likely to persist in line with global market conditions. A projection for inflation to be contained below 5 percent is under probability with our expectations for it to be inclined towards regional averages of 6-7 percent.”
Online Reporter