COVID-19 created a class of ‘new poor’ in Zimbabwe as company closures and economic decline worsened Zimbabwe’s jobless crisis, according to a research firm.
In its outlook for 2021, Morgan & Co says rising unemployment and the decimation of jobs will shrink disposable incomes further, and this will hit many consumer-focused companies this year.
The pandemic, and the lockdowns used by government to contain it, led to company closures, added to unemployment, while the global crisis has led to a drop in the value of exports.
“As a result, we are seeing the emergence of a ‘new poor’. This new class is different from the existing poor. The new poor are mostly based in urban areas and employed in informal services. They also depend on remittances for food, healthcare and basic needs,” Morgan & Co say.
The bulk of Zimbabweans are spending their incomes on the basics, which leaves none of the disposable incomes that many firms need to thrive. This will “translate to limited aggregate demand in 2021”, Morgan & Co projects.
“Our research points to the fact that a significant portion of household income is being directed towards essentials such as food and rentals (60%), debt repayments – mostly microfinance debt – take up to 20% while transport costs take 15%,” the firm says.
Companies that focus on luxury or non-essential goods will be the victims, the company says, but “consumer facing companies offering mass market oriented goods could be able to surf the tide”.
Morgan & Co expects inflation to average 338.5% in 2021, significantly higher than the Ministry of Finance’s ambition to slow inflation to below 10% by year end. The firm also sees the parallel market exchange rate reaching 200 by half-year.
“The official rate will continue to lag the parallel market and maintain a gap of 20-40%. This means that inflationary pressures will remain while the year-on-year inflation number will be in the triple digits.”
According to the company: “The COVID-19 pandemic has also impacted the structure and shape of economy in Zimbabwe. The limited economic activity implies increased levels of formal unemployment.”