Authorities are toasting the slowdown in inflation as a victory for central bank’s tight monetary policy, but reports by consumer companies show the damage the measures are having on spending.
In July, the Reserve Bank of Zimbabwe (RBZ) raised interest rates to 200% and put a tight leash on money supply growth – even cutting the rate at which it releases new cash into the market to zero. This was meant to attack “speculators” and support the Zimbabwe dollar.
Inflation eased to 255% in November from 268% in October, falling for the fifth straight month. This means that while prices are rising, they are rising at a slower pace than before. For RBZ and the Ministry of Finance, the latest inflation data is a win. In a front page article on Tuesday, the state-owned Herald said the slowdown in inflation was giving “more cheer to hard-pressed consumers”.
But what are the companies in the consumer business telling us about the impact of these measures? How have they affected consumer spending, a key driver of economic growth?
Here are a few updates from leading manufacturers and retail companies.
National Foods: ‘Exceptionally challenging’
The biggest food producer in the country says while the measures brought some stability, they drove sales volumes down 18% in the September quarter.
Says Natfoods: “Notwithstanding the welcome economic stability, the constrained liquidity negatively impacted volumes during the quarter. From a trading perspective, the quarter was an exceptionally challenging one for the group. Volumes for the quarter at 118,000 tons declined by 18% compared to last year.”
Zimplow: Farmers under pressure
Zimplow is the country’s largest supplier of new tractors and farm implements, and its sales are a good measure of how well farmers are doing. Not so good.
Zimplow reports: “The measures to reduce money supply, such as the suspension of lending in May, dampened demand as most agricultural contractors decided to suspend extension of credit to the out-grower schemes in agriculture. In addition, the interest rate spike that followed discouraged bank borrowings which the group has traditionally leveraged on to address the increased appetite for cash given the long working capital cycles.”
For the six months to June, Zimplow sold 22% more tractors. But, in the three months to September, following the rate hike, tractor sales were down 4%.
Dairibord: Sour quarter
According to Dairibord, the tight monetary policy measures “resulted in liquidity challenges across the value chain, constraining aggregate demand and growth of the business”. While price increases slowed down, the company says, “exchange rate disparities impacted competitiveness and suppressed demand in the formal trade, as consumers shifted to the informal trade.”
Dairibord’s Q3 sales volumes fell 7% compared to the same time last year, affected by the policy changes that hurt business in July and August.
Edgars: A dressing down
Edgars says while the measures brought some stability, the high interest rates and liquidity shortages “dampened consumption and investment levels resulting in our customers cutting on ZWL purchases negatively affecting our sales growth”.
In the Edgars chain, unit sales were down 23% compared to last year, and fell 37% from the second quarter, “largely on account of reduced aggregate demand following a sharp increase in minimum lending rates announced in early July.” Credit sales constituted 45.6% of total sales compared to 60.2% for the second quarter.
Delta: A glass half empty
The country’s biggest beverage producer says consumer spending is being driven by increased activity in mining, infrastructure and farming. But “the recent curtailment of local currency liquidity has resulted in softening of demand for goods and services in some formal channels”, Delta says.
Turnall: Falling demand
The building materials company saw third-quarter volumes down 34%, “mainly due to a change in the sales mix which was skewed towards the high value and low tonnage building products; coupled with a decline in the aggregate demand due to liquidity challenges in the market.”
TM Pick n Pay: Quiet tills
Between April and June, sales volumes in the supermarket grew by 38.53%. But, in the three months to September, units sold fell by 4.40%. The company says: “The measures introduced by the authorities to curb rising inflation, starved the economy of ZWL liquidity leading to reduced customer spending.”
OK Zimbabwe: Excessive costs
According to OK Zimbabwe: “Interest rates were increased to 200% with effect from 1 July 2022, including on debt arrangements entered into before that date. This has made borrowing costs excessive resulting in liquidity pressures across the entire supply chain.”
Simbisa: Clipped wings
Says Simbisa: “The Group commends efforts by the Reserve Bank to stabilise the country’s local currency in the period after the Group’s reporting date. However, the Group urges the Reserve Bank of Zimbabwe to review minimum productive sector lending rates which are currently set at 200% as this may stifle growth in the medium term.”