Zim squirms amid rand, yuan fluctuations

HARARE - Zimbabwe's economy is squirming following the recent devaluation of the Chinese yuan and the declining South African rand, putting a dent on the country’s economic revival hopes, market experts say.

This comes as the country — which ditched its own currency in 2009 in favour of a multiple currency system encompassing the United States dollar, Botswana pula, South African rand, Chinese yuan and Australian dollar — is facing an economic decline reminiscent of the hyperinflationary period.

Information gathered by businessdaily shows that the rand on Monday sank to a new low of R14,07 to the dollar, the most since September 2011, while early August China depreciated its yuan by 4,7 percent in value to 6,401 per dollar — a record low in two decades.

The Zimbabwe National Chamber of Commerce (ZNCC) chief executive, Christopher Mugaga, told businessdaily that the trends in China would significantly impact on Zimbabwe’s economic prospects which are hinged on a strong mining sector.

“Zimbabwe is going to feel the impact much more on commodities as we export 30 percent of our products to China,” he said.

The slowdown of China has resulted in reduced demand for most commodities. For the month of July alone, cement and steel output in China fell five percent and 1,8 percent respectively, confirming this waning Chinese demand.

As a result, global commodity prices have retreated over the year with platinum shedding 17 percent whilst aluminium declined by 25 percent for the same period. In addition, copper shed 20 percent whilst nickel and Brent crude oil each tumbled by 35 percent.

Mugaga noted that the devaluation of the Chinese yuan will also result in worsening liquidity crisis in the country.

“China has been importing mainly nickel and tobacco from us, but with the devaluation of the Chinese currency it means we will have to bear with the current liquidity crisis for as long as China is coughing,” he said.

BancABC economists say given China’s growing participation in Africa’s trade and economic activity over the past decade, it is imperative that the slowdown in the Chinese economy and subsequent depreciation of most commodity prices will have an adverse impact not only on Zimbabwe, but on other Sub Sahara African (SSA) countries.

“We foresee a drop in the performance of resource stocks across the region. The profitability of most SSA mining companies is expected to be compromised with the coming off of resource prices. As such, we advise investors to trade SSA mining stocks as well as oil and gas companies with caution,” said BancABC in a market update.

The regional financial institution noted that banks with a great loan exposure towards oil and gas and other mining sector stocks are expected to battle with Non-Performing Loans (NPLs) given fears that the sector’s profitability should decrease significantly.

“There is however, a marginal opportunity for the same banks to make additional trading income from foreign currency trading should they successfully trade their respective currencies through this volatile season,” read part of the report.

BancABC also expects tobacco companies to face revenue pressure as United States dollar receipts from tobacco sales going into 2016 come off with the depreciation of the yuan in the face of stagnant global demand and supply for tobacco.

“Companies that have a high exposure to the tobacco export industry, such as TSL may be worst affected by this. For the reason stated above, we expect Zimbabwean banks that are committed to finance tobacco farmers to possibly witness deterioration in their loan quality due to farmers’ reduced profitability,” the bank said.

“FBC Holdings that has been supporting tobacco farming over the past couple of years through their Tobacco Bill and CBZ Holdings with 28 percent exposure towards agriculture, should have a wider exposure to this risk among the listed banks, unless they lower their participation in this space as we go into this year’s farming season or insist on adequate security cover for loans of this classification,” added BancABC.

In relation to the depreciating South African rand, Mugaga warned Finance minister Patrick Chinamasa to propagate protective measures on Zimbabwean industry when he presents his 2016 National Budget later in the year.

“The risk we are facing as a nation is that we will become a much bigger warehouse of South Africa,” he said.

South Africa continues to be Zimbabwe’s leading trading partner with total trade between the two countries for the month of June being $314,5 million representing 42 percent of total trade of $747,9 million.

Zimbabwe imported goods and services worth $203,3 million from its southern neighbour while the country’s exports were $111,2 million.

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