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EXECUTIVE SUMMARY
Recent results released by leading hoteliers point towardsimproving occupancies, RevPARs and ADRS locally. Weexpect this positive earnings outlook to continue, given the
positive outlook for the tourism sector. Our range ofscenarios for RevPAR growth is xx, given the limited supplygrowth until 2013.
With occupancies recovering towards peak levels we couldsee room supply coming at a premium. Prospects fordiscount business with corporate transient customers.
Tight supply environment an important tailwind for AfricanSun
An increase in local salaries should boost local consumerspent while investment interest in the country should boostforeign business visitors
An improvement in the global economy will also support thetourism industry.
Better earnings visibility for Cresta Hospitality and Meikles,because of their simpler more defensive business model.Business travel and tourism is less fickle than leisure travelso the groups profits are likely to show defensive qualities.
We also like African Sun because it has already expandedregionally, and is more diversified.
Operating cost inflation, and subdued consumer andcorporate profits.The lack of incremental costs on newmanagement contracts should buoy results for African Sun
Not cash generative because of capex projects.
Prospects for hotels have strong longer term drivers,
Economic growth and varied and unique tourist offering.
Macroeconomic Report 2013 Review and 2014 Outlook-From the zenith of hyperinflation to thenadir of deflation two worlds rolled into one: Zimbabwe
Analyst: Tonderai. J .Maneswa Addmore .T. ChakuriraEmail:[email protected] [email protected]: +263 4 700 000 +263 4 700 000
+263 772 895 024 +263 772 265 454
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]8/13/2019 Zimbabwe Macroeconomic Report 2013 Review and 2014 Outlook
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A sweet spot f or t he ZSE in 2013
After a largely indifferent year in 2012 the ZSE industrialindex reported a sterling performance in 2013 gaining a
sturdy 32.6% compared to 4.3% in 2012. This was on theback of a better economic environment in 2012 and early2013 when corporates reported improved profitability. Theoverall performance of the industrial index was so strongthat in June 2013, before the harmonised election, thereturn on the index was close to 50%. Speculation on thereintroduction of the Zimbabwe dollar immediately afterthe election and unclear economic policies then dampenedinvestor enthusiasm resulting in the market losingmomentum during the third quarter. Reassurances fromthe Ministry of Finance (MoF) and the Reserve Bank ofZimbabwe (RBZ) on the continuation of the multicurrencysystem instilled confidence back into the market by thebeginning of the fourth quarter. The Mining Index for athird straight year receded to close the year with anegative return of 29.7% compared to -35% y-o-y in 2012and a loss of 49.8% in 2011. The industrial indexs gainswere bolstered by respectable performances from the bluechips, Delta, Econet, BATZ, Old Mutual, TSL and Padenga,while the mining index suffered due to unexcitingperformances from all four listed counters namely Falgold,Bindura, Hwange and RioZim. The solid performance of theindustrial index was anchored on the back ofpredominantly foreign trades owing to the trickle downeffects of quantitative easing (QE) in developed
economies. Furthermore, investors were attracted to theZSE irrespective of the election due to the multiplecurrency regime which entails that foreign investors hadminimum exchange risk especially coming from a USDdenominated home country.
On market capitalisation, the bourse closed the year atUSD 5.6bn compared to USD 3.9bn in the prior year. Thiswas mainly on the back of the upward price movement inheavily capitalised stocks such as Delta which closed theyear at USD 1.7bn (2012: USD 1.3bn). Other heavy weightcompanies that recorded solid gains include Econet up33.3%, BATZ +228%, TSL +264%, Innscor +14.3%, Old Mutual
+66% and Seed Co +16.9%. Total turnover at USD 485.7mwas 8.4% higher than 2012 and foreign participationdominated across the board.
Going forward, we expect a largely mixed year ahead dueto the tapering in the US economy that was initiatedtowards the end of 2013. According to World Bankestimates close to USD 64bn was withdrawn fromdeveloping-country mutual funds between June and August2013. We expect the tapering to also negatively impactportfolio allocation in frontier markets as investors returnto traditional markets where portfolio alphas are lookingpositive. On the other hand an improvement in developed
economies will improve demand for commodities fromdeveloping countries but the outlook remain mixed overall.
Equity ResearchZimbabweJanuary 2014
Macroeconomic
0
50
100
150
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250
300
350
0
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100
150
200
250
Indices performance since dollarisation
I ndustrial I ndex(LHS) Mining (RHS)
TOP TEN MOVERS 31-12-2012 31-12-2013 Move(Usc)%Change
TSL 11 40 29 264%
BATZ 365 1200 3 229%
AFRICAN SUN 0.9 2.7 217 200%
MASIMBA 2.93 6.5 0.7 122%
AFDIS 14 30 2.2 114%
FMHL 5.2 10 46 92%
FBCH 7.5 13.5 0.5 80%
LAFARGE 65 110 5 69%
PADENGA 4.75 8 17 68%
OLD MUTUAL 152 253 30 66%
BOTTOM TEN MOVERS 31-12-2012 31-12-2013 Move(Usc)%Change
FALGOLD 16.5 4.5 -12 -73%
HWANGE 19.5 7 -12.5 -64%
ZIMPLOW 6.5 3.5 -3 -46%
TA HOLDING 11 6 -5 -45%ARISTON 1.3 0.8 -0.5 -38%
CAFCA 45 28 -17 -38%
RIO ZIM 52 33 -19 -37%
AICO 9 6 -3 -33%
ART ZDR 0.45 0.3 -0.15 -33%
NTS 3 2 -1 -33%
Zimbabwe Review and Outlook 2014
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-8.0%
-5.0%
-2.0%
1.0%
4.0%
90
92
94
96
98
100
102
Consumer Price Index
CPI (LHS) M-o-M (RHS) y-oy Source: ZimStats So u r c e : I E S; R BZ ; M i n i s t r y o f F i n a n c e
Source: IES; RBZ; Mini str y of Finance
Macroeconomic environment overview
The possibility of Deflation looms large
In a classical case of a taste of two worlds the local economy
is currently undergoing a slow and painful period of
downward price adjustment. Having experiencedhyperinflation in the not so distant past the possibility of the
economy deflating looms large due to a consistent decline in
the prices of goods and services. As illustrated by the charts
on consumer price index and Y-o-Y Inflation and M3 growth
rates on the right, there has been a consistent decline in
money supply growth since September 2011 from above 30%
to below 5% indicating that liquidity in the local economy has
been gradually drying up. This reflects that some banks are
fully loaned out and there is no money in the system to loan
out to productive sectors. A high concentration of
nonperforming loans on the balance sheet of banks isworsening the liquidity problem. Furthermore, as a net
importer of manufactured goods the economy is utilising the
little hard currency to support consumption (see graph on
BOP on the bottom right), thus the growth in money supply
has progressively declined and turned negative in November
2013. The continued decline in inflation during the same
period indicates a combination of a decline in money supply
and the weakening of the South African rand. Although the
Minister of Finance Mr. Patrick Chinamasa imposed duty on
some imported products the scope for the rand to devalue
remains high. In our view, inflation is likely to continue on adownward spiral owing to the weakening of the ZAR against a
basket of hard currencies. The weakness on the ZAR as a
currency due to domestic and international concerns will put
downward strain on the ZAR against other hard currencies
and we do not expect a quick recovery on the ZAR. On the
other hand the weakening of the ZAR will make South Africa
a cost effective production centre compared to Zimbabwe
thus companies will have an incentive to continue producing
from South Africa than Zimbabwe making the country a net
importer of manufactured goods. The unbalanced trade
equation between the two countries will be difficult to
equalise as long as Zimbabwe is using a currency which is
stronger than South Africa where it imports most of its
consumables from and the Zimbabwean government does not
have the ability to print money to control its currency.
Estimates from the IMF indicate that the USD is 15%
overvalued in Zimbabwe. Furthermore, the continued
absence of foreign direct investment implies that the balance
of payment will remain negative at USD 4.0bn by close of
fiscal year 2013. Imported inflation remained very low after
the ZAR lost ground against major hard currencies, in
particular to the United States dollar. According to an Article
IV report on Zimbabwe by the IMF, the CPI inflation rate in
Strategy Note
-4,000
-2,000
0
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4,000
6,000
8,000
10,000
2009A 2010 A 2011 A 2012 A 2013 Est. 2014 Prj. 2015 Prj.
Balance of Payments Accounts
Ex po rt s i n U SD m I mp or ts in USD m Cur re nt Ac co un t B al an ce s (U SD m)
Source: IES; RBZ; Mini str y of Finance
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Zimbabwe is highly associated with both the CPI and PPI
inflation rates in South Africa with a lag of approximately
five months, mostly due to the high share of imports from
South Africa. Regression results indicate that a 1-
percenatge point increase in the CPI inflation rate in South
Africa leads to 0.6 percentage point increase in the CPI
inflation rate in Zimbabwe five months later.
Weak GDP growth forecast for 2014
The economy is estimated to have grown by 3.4% in 2013
from 10.6% realised in 2012 as reflected by the
macroeconomic framework table and the nominal GDP and
Real GDP growth rates graph. On the other hand the World
Bank estimate that the economy grew by 2.2% in 2013 and
its expected to grow at 3.3% in 2014. This estimate is
dwarfed by the MoF estimate which projects a GDP growth
of 6.1% anchored by a sturdy growth in agriculture (+9.0%)
and an improved performance in mining (+11.4%) and
construction (+11.0%) sectors. Our view is that the WorldBank estimates are achievable given the current operating
environment and the possibility of deflation. The 2014
Budget will be based on revenues of approximately USD
4.1bn which is about 29.3% of projected nominal GDP (USD
14.0bn). Tax revenues are expected to constitute USD
3.8bn while non-tax revenue will contribute USD 296.0m.
The major drive of growth in the agriculture subsector will
be tobacco which is expected to grow by 2.6% to 170,000
tonnes after a 15% growth in 2013 as reflected by the GDP
growth rates table. This growth is mainly on account of
increased planted area of about 90,000ha from the
88,600ha planted in 2013. The number of registered
growers increased from 70,904 in the 2012/13 season to
91,278 farmers and indications are that 1,024,000 grammes
of tobacco seedlings were sold compared to 802,000
grammes in the prior year. Maize production for the year
2013 stood at 0.8m tonnes versus a target of 1.1m tonnes
and the authorities are targeting an ambitious tonnage of
1.3m in 2014. Cotton is targeted to grow by 27.8% to close
the year at 178,900 tonnes from a revised output of
140,000 tonnes.
The mining sector is expected to grow by 11.4% up from
6.5% recorded in 2013 on the back of a very ambitious
beneficiation drive to process minerals locally. Metal prices
however are expected to remain stagnate at the current
levels. Gold production is projected to grow by 7.1% to
15,000 kgs while platinum is forecast to grow by 8% to
14,000 kgs in 2014. Diamonds production is expected to
increase from 11m carats to 12m carats in 2014 and other
metals that are expected to record growth include
palladium from 9,800kgs to 11,200kgs while Nickel is
forecast to grow to 15,020 tonnes in 2014.
Macro-economic framework
2009A 2 010 A 2011 A 2012 A 2013 Est. 2014 Prj. 2015 Prj.
Nominal GDP level in USDm 8,157.0 9,457.0 10,956.0 12,472.0 13,099.0 14 ,0 65 .0 1 5, 22 8. 0
Real GDP growth (%) 5.4 11.4 11.9 10.6 3.4 6.1 6.4
World Bank GDP at Mkt Prices(%pa) (5.9) 9.6 9.4 4.4 2.2 3.3 3.4
World Bank Current Acc Bal/GDP(%) (12.2) (10.3) (23.0) (19.7) (21.9) (17.6) (14.7)
Annual inflation (average %) (7.7) 3.0 3.5 3.8 1.7 1.5 2Revenue (Tax and non-tax) 933.6 2,198.2 2,770.4 3,451.8 3,722.2 4,120.0 4,340.5
Expenditure & Net Lending 966.0 2,228.0 3,102.0 3,746.0 4,057.0 4,120.0 4,340.0
Revenue as a% of GDP 11.4% 23.2% 25.3% 27.7% 28.4% 29.3% 28.5%
Expenditure as a % of GDP 11.8% 23.6% 28.3% 30.0% 31.0% 29.3% 28.5%
Balance of Payments Accounts
Exports in USD m 1,796.0 3,541.0 4,771.0 4,355.0 4,430.0 5,024.0 5,524.0
Imports in USD m 3,662.0 5,834.0 8,491.0 7,456.0 7,682.0 8,321.0 8,690.0Source: IES; RBZ; Ministry of Finance, World Bank
0
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16,000
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10
12
2009A 2010 A 2011 A 2012 A 2013 Est. 2014 Prj. 2015 Prj.
Nominal GDP & Real GDP growth Rate
Nominal GDP level in USDm(RHS) Real GDP growth MoF(%pa) World Bank GDP at Mkt Prices(%pa)
So u r c e : I E S; R BZ ; M i n i s t r y o f F i n a n c e
GDP Growth Rates
2009 2010 2011 2012 2013 EST 2014 Proj 2015 Proj
Agric, Hunting and Fishing 38% 7.20% 1.40% 7.80% -1.30% 9.0% 5.1%
Mining and quarrying 18.90% 37.40% 24.40% 8.00% 6.50% 11.4% 9.2%
Manufacturing 17% 2.00% 13.80% 5 .30% 1 .50% 3.2% 6.5%
Electricity and water 1.90% 19.50% 6.40% 0.30% 4.30% 4.5% 7.0%
Construction 2.10% 14.10% 65.10% 23.50% 10.00% 11.0% 13.5%
Finance and insurance 4.50% 8.30% 8.30% 28.00% 2.60% 6.3% 6.2%
Real Estate 2.00% 4.90% 48.90% 59.00% 10.00% 11.0% 13.5%
Distr, hotels and Restaurants 6.50% 8.80% 4.30% 4.30% 3.40% 5.1% 5.0%
Transport and Comm 2.20% 4.70% 0.00% 6.70% 3.40% 4.0% 5.5%
GDP at mkt prices 5.40% 11.40% 11.90% 10.60% 3.40% 6.1% 6.4%
Source: IES; RBZ; Ministry of Finance
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Stock of External debt
2011 2012DebtIncTotalArrearsUSDm
TotalArrearsstockUSDm
DebtIncTotalArrearsUSDm
TotalArrearsstockUSDm
Paris Club 2,858 2,431 3,017 2,650
Non-Paris Club 491 92 572 102BilateralCreditors
3,349 2,523 3,591 2,751
AFDB 622 565 636 582
World Bank 1,335 905 1,348 937IMF 121 121 125 125
EIB 293 255 302 268Others 110 74 75 45
MultilateralCreditors
2,481 1,921 2,487 1,960
Nominal DebtIndicators (%)Debt/GDP 35 49Debt/Revenue 200 173
Debt/Exports 130 149Arrears/Export 93 10
Arrears/GDP 44 38
Source: IES; Minist ry of Finance
AFDB25%
World Bank54%
IMF5%
E.I.B12%
Others4%
Multilateral Creditors
Source: IES; Minist ry of Finance
The staff monitored programme by the IMF was
extended by another six months to June 2014 and this
remains the biggest hope of a complete and
comprehensive engagement with the international
community.
Manufacturing sector capacity utilisation remained
subdued at approximately 39.6% in 2013 from 44.9% in
2012 and a figure of 40% - 45% is expected in 2014. The
sector is projected to grow modestly at 3.2% in 2014
from 1.5% in 2012 driven by growth in foodstuffs,
tobacco, drinks and beverages. The manufacturing
sector capacity utilisation has stalled due to archaic
equipment and obsolete systems which continue to make
the subsector uncompetitive compared to imports. Thisis exacerbated by an acute shortage of long term funding
at competitive rates.
The proposed Macro-Economic and Budget Framework
faces a number of risks inter alia; a poor rainfall season,
budget pressures particularly from employment costs,
low Foreign Direct Investment due to slow investor
response, little progress on the debt resolution and the
re-engagement process, lack of clarity on key policies,
particularly the Indigenisation and Economic
Empowerment programme and slow progress on
implementation of key policies.
The debt overhang inhibiting borrowing capacity
The country has accumulated huge stocks of both
external and internal debt with international financial
institutions and bilateral creditors. Most of this debt is in
arrears and this has negatively impacted the
creditworthiness and the ability of the country to access
fresh capital. The government in 2010 approved the
Zimbabwe Accelerated Arrears Clearance Debt and
Development Strategy (ZAADDS) in order to pave the wayfor negotiating the clearance of arrears and debt relief
for the country. One of the key mandates of ZAADDS was
to undertake a validation and reconciliation exercise of
Zimbabwes public and publicly guaranteed external
debt with all creditors as shown in the Multilateral
Creditors pie chart on the right. Total external public
and publicly guaranteed debt (excluding Reserve Bank
and Private sector external debt) as at 31 December
2012, stood at USD 6.1bn (49% of GDP). Of that total
external debt, penalty charges accounted for USD 1.03bn
(17% of total external debt). As reflected in the table onthe Stock of external debt the Debt to GDP ratio is at
49% and Debt to Revenue is at 173% while Debt to
exports is at 149%. Although these ratios are high in
absolute terms compared with other countries they
indicate that the country is not over geared. The major
difference with other countries is on arrears where
Zimbabwe lags significantly and this is the area where
the sovereign credibility is weak. Engagement with both
multilateral and bilateral institutions remains paramount
to the complete clearance of this economic burden.
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Banking sector developments
A highly segmented banking sector
The banking sector exhibited a two-tiered scenario with
those banks that are well capitalised and prudent on
lending on the one side and those not well capitalised
and more cavalier on lending on the other side. This
was given further credence by the absence of a lenderof last resort as well as a nonexistent interbank market.
To some extent the absence of the lender of last resort
did help the banking industry to thrive in a very tight
liquidity environment as systemic risk was completely
eliminated amongst banks. If the interbank market was
active contagion could have easily spread from the
affected institutions to other healthier banks. The
fortuitous quarantine meant that for the three closed
banks exposure to other unrelated financial institutions
was virtually zero. Furthermore, the other struggling
banks remain in limbo and funding can only be providedby shareholders. The major reasons for these bank
failures are persistent vulnerabilities in the financial
sector steaming from low level of capital, insufficient
liquidity, poor asset quality and related-party
exposures, persistent losses and weak corporate
governance and internal control deficiencies. However,
the reserve bank successfully transferred non-core
assets and liabilities to a special purpose debt
resolution entity, managed by the Ministry of Finance,
in an effort to build capacity to perform its mandate of
monetary policy administration effectively.
Figures released by the RBZ in November 2013
indicated that banking deposits were estimated at USD
3.8bn an annual decline of 0.46% as shown in the
banking sector deposit graph. The nature of deposits
remains predominately short-term as reflected by the
pie chart: Banking Deposits in November. The report
indicated that on a m-o-m basis, broad money
declined by USD 144.6m (3.66%) to USD 3.8bn from
USD 4.0bn in October 2013. The decline was largely on
the back of panic withdrawals experienced in the
banking sector. After ZANU PF won the electionspeculation was rife that the Zim dollar would return
and that is why a run on the banks was experienced.
Unconfirmed sources speculate that there is a
considerable amount of money that left the system
during and immediately after the elections estimated
at approximately USD 800.0m. Outstanding credit to
the private sector amounted to USD 3.5bn, constituting
91% of total deposits as reflected in the credit to
private sector November 2013 pie chart.
0%
10%
20%
30%40%
50%
60%
70%
80%
90%
-
500
1,000
1,5002,000
2,500
3,000
3,500
4,000
4,500
Oct- 11 D ec- 11 F eb- 12 A pr- 12 Ju n- 12 A ug -1 2 Oct- 12 D ec- 12 F eb-1 3 A pr-1 3 J un -1 3 A ug -1 3
Banking Sector Deposits, Loans and Advances
D eposi ts(USD )(L HS) Tota l loans and a dva nces(U SD )(L HS) L oan to D eposit Ratio(L HS)
Source: IES; RBZ; Mi nistr y of Finance
10.4
12.7
24
52.9
Banking Sectors Deposits November 2013(%)
Savings Long te rm Unde r 30-days De mand
Source: IES; RBZ; Mi nistr y of Finance
Source: IES; RBZ; Minist ry of Finance
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As of November 2013 the major recipients of the loans
were agriculture 17.7% (2012:21.7%), distribution 17.6%
(2012:20%), manufacturing 15.6% (2012:19.5%) and
households 16.1% (2012:13.2%). Although the mining
sector is expected to anchor the economy, lending to
that sector has remained very limited due to the short
term nature of deposits. Credit to the private sector
was mainly utilised for asset purchases (44.8%) as well
as inventory build-up (33.9%). Loans and advancesutilised for fixed investments activity have remained
low with the procurement of plant and equipment
accounting for 3.31% and pre and post shipment
financing at 1.61% of total loans and advances.
Level of nonperforming loans at 16%
The period under review saw a spike in the level of
nonperforming loans from 12.3% to above 16%.
According to the IMF the NPL problem is in the worst
case one of resolving troubled institutions, and in
others, one of addressing underlying weaknesses toallow viable banks to gradually reduce NPL ratios
through write-offs, work-outs and growth. Sorting out
the NPL situation would improve the capacity of the
banks to ensure sustainable growth in private sector
credit and enhance financial sector stability. Recent
reports from the Bankers Association of Zimbabwe
estimates that more than 16% of loans mainly
concentrated in six banks are not performing. Although
loan origination from weak banks has subsided most
banks continue to be haunted by the legacy of
imprudent lending at the onset of dollarisation.Indications from the banking sector are that NPLs are
actually higher than the reported figure of 16% and are
estimated at 20% which is miles ahead of the prudential
regional benchmark of 5%. The NPLs are extremely high
when compared to the prudential 3% promulgated in the
Basel III requirements. In our view, NPLS could rise
further given the tight liquidity environment and the
huge possibility that the economy can go into deflation.
With some banks engaged in the poor practice of
continuously rolling over poorly performing assets as a
way of hiding NPLs we believe vulnerabilities in thesector remain elevated. We continue to reiterate that
most of the lending decisions have been based on the
size of the collateral being offered and relationships
rather than cash flow. In the absence of credible
information compounded by the absence of the national
credit bureau, abuse by clients will remain high and
rampant. Furthermore, the value of the collateral,
which is real estate in most cases, tends to be
overstated and inevitably harder to realise if the need
arises. This has allowed the official NPLs numbers to be
low. In our view, many banks are sitting on a significant
unknown quantity of NPLs and they continue to be rolled
over. The planned re-introduction of the interbank market
as well as the recapitalisation of the Central Bank are
welcome developments as these are expected to ease the
liquidity constraints. Nonetheless, we are still to see the
modalities of the proposed USD 100.0m interbank market to
be guaranteed by Afreximbank. Our initial view is that an
injection of new money is unlikely under the programme in
which case the liquidity woes are unlikely to subside.Furthermore, the 5 year TBs at 5% p.a. to be issued for the
RBZ debt are expected to ease the liquidity crunch
depending on acceptance.
Government finances
According to the 2014 MoF budget, revenue was estimated
at USD 3.4bn in November and was expected to have
reached USD 3.72bn by December 2013, slightly below the
original budget estimate of UISD 3.86bn. The budget
experienced a number of shocks from unbudgeted but
inescapable programmes such as the referendum and theelection against very low revenue inflow especially in the
second half of the year. Unlike the previous year the
revenue target of USD 3.9bn was not revised significantly
indicating that the economy largely performed to
expectations. Tax and non-tax revenue were expected to
close the year at USD 3.6bn and USD 0.2m respectively. The
negative variance of 1% on the budget could have been
higher had it not been offset by the once-off unbudgeted
non-tax collections from the renewal of licence fees from
mobile telecommunication companies, whose business
licences generated USD 145.5m (Econet alone paid USD137m). Of the USD 61.0m target revenue from diamonds
nothing was received from this sector compared to USD
84.2m received in 2012. Tax revenues which are directly
linked to the performance of the economy performed
below the target for most of the period under review,
reflecting the overall economic slowdown. Tax revenue of
USD 3.01bn were collected against a target of USD 3.21bn.
For the period to November 2013, recurrent expenditure
was estimated at USD 2.43bn from an initial estimate of
USD 2.28bn representing 68.9% of the budget a slight
improvement on 2012s 70% and 80% in 2011. Theexpenditure composition remains skewed towards recurrent
expenditure at 69% contrary to best practice of allocating
30% of total revenue to recurrent expenditure. The overrun
in recurrent expenditure is a result of the planned cost of
living review affected in January 2013.
The cash budget continued to reflect a cash deficit during
the year which increased domestic arrears accumulation
and the position was worsened by an increase in employee
allowances and unbudgeted recruitment. Fiscal stress was
aggravated by underperforming diamond revenues during
the year.
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Unsustainable reserve levels of 0.3 months
In a hard currency economy, reserves are not only
insurance against external shocks, but also a key tool
for managing domestic financial instability. Thus an
import cover of only 0.3 months indicates that the
country is vulnerable to vacillations in import price
movements especially in the event of a currency
shortage. With low liquid assets of its own, the RBZ
can provide only limited short-term liquidity to banks,
and cannot be the ultimate guarantor of the stability
of the financial and payments systems in the event of
a systemic bank run.
Political Outlook in 2014
After a prolonged period of haggling the principles to
Zimbabwes Global Political Agreement (GPA)-ZANU
PF, MDC-T and MDC agreed on a new constitution on
17 January 2013. The final draft of the constitution
was tabled in Parliament on 6 February 2013. Aconstitutional referendum was subsequently held on
16 March, with an overwhelming majority of the votes
supporting adoption of the new constitution. After the
referendum the draft constitution went back to
Parliament as the Constitutional Bill and was passed by
the House of Assembly on 14 May and by the Senate on
15 May. This paved the way for the holding of
harmonised elections in July 2013. The cost of the
constitution was close to USD 53m, while the elections
cost USD 125.4m. The funding for the elections was
mainly from internal resources including an increase in
excise duty on fuel by USD 0.05/litre for a period of 10
months, USD 40.0m in one year treasury bills to
domestic non-bank financial institution as well as
revenue from mobile phone operating licence fees.
After a largely credible and peaceful harmonised
election in July 2013 ZANU PF won a clear mandate to
govern for the next five years. The party won clear
majorities in parliament and the senate with more
than two thirds majorities, giving the party the power
to effect legislation in the country. Furthermore, the
party also won the presidential race and its candidateRobert Mugabe was sworn-in in August 2013 for the
next five years with a possibility of re-election in 2018
in accordance with the new constitution. The message
from government has largely been positive and
courteous. The IMF staff monitored programme is
ongoing and avenues to engage with the international
community are being explored. Concerns however
remain on the political will to rein in fiscal
indiscipline, tolerance of dissenting voices, freedom of
expression and association as well as respect for
property rights.
2013 Contribution to revenue
VAT 39%
Companies 4%
Individualls 15%
Non-tax Revenue 6%Excise Duties 7%
Other Taxes 3%
CustomsDuty 26%
Source: IES; IMF Art icle IV
Source: IES; IMF Art icle IV
1.20
0.50
0.40
0.20
0.30
0.40
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
0
50
100
150
200
250
300
350
400
2009 2010 2011 2012 2013 2014
International Reserves
Usable International reserves(USDm)(LHS) Months of imports (RHS)
Source: IES; IMF Art icle IV
0.3
4.7
4.8
15.9
0 5 10 15 20
Zimbabwe
South Africa
Lesotho
Botswana
International Resrves (months of prospective imports)
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8/13/2019 Zimbabwe Macroeconomic Report 2013 Review and 2014 Outlook
9/13
Equities market developments
The industrial index recorded a remarkable gain of 32.6%
during the 2013 period to close the year at 202.12 points.
This solid performance was anchored on significant foreign
trading as evidence by a total of USD 291m shares bought
and USD 195m shares sold. Total turnover for the entire
bourse came in at USD 486m for the year. Foreign
participation was solid because of two fundamentally
important issues, firstly the local bourse and the economyis hard currency denominated (USD mainly) and this
eliminated exchange losses associated with investing in
frontier markets and secondly quantitative easing (QE) in
the United States had a positive effect on frontier market
including the ZSE. The effect of QE can be substantiated
by the fact that all bourses in Africa, barring South Africa,
were positive in real terms during 2013 a clear indication
that a large chunk of the cash injected into these
developed economies found its way onto global equity
markets as portfolio investment.
Sectors that performed relatively better in 2013 include
the FMCG, food retail, Agro-Industrials, telecoms and
beverages. A total of 10 companies were delisted from the
bourse and two were suspended during 2013.
2014 Equity Outlook
Going forward we expect the bourse to be largely
defensive in 2013 owing to the ongoing tapering in the
USA. This will impact the Zimbabwean economy in two
ways. Firstly there is the inescapable fact that there will
be reduced portfolio inflows on the ZSE and secondly thereduction in QE will make the USD appreciate against any
other currency which will further erode our manufacturing
competitiveness. Assuming a deflationary environment in
2014 companies that are expected to do well are those
with strong cash generating capacity, low gearing and
most importantly a skilled management team. With
demand expected to weaken, liquidity to tighten,
currency to appreciate and international interest rates to
rise it will be heinous to invest in a highly leveraged
company because the prospect of financial distress are
high. Telecoms, brewers, agro-based manufactures andselected defensive FMCG will do admirably well in a
defensive strategy geared towards value preservation
compared to growth. We urge investors to stay clear of
the banks, manufacturing and mining counters due to high
capital demands in these sectors as well as deep rooted
concerns of technological obsolescence in the current
state of operations. Indications on the ground are pointing
towards a very difficult year from both the fiscal
performance and private sector participation.
Unfortunately we expect more companies to file for
judicial management and some will be liquidated as theinescapable effects of deflation bite.
2013 in Chartes
0
50
100
150
200
250
300
350
31-Dec-12 28-Feb-13 30-Apr-13 30-Jun-13 31-Aug-13 31-Oct-13 31-Dec-1
Millio
ns
ZSE 2013 Volume Traded
Sour ce: IES; ZSE
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
31-D ec-12 28-Fe b-13 30-Ap r-13 30-Ju n-13 31-Au g-13 31-Oct-13 31-D ec-
Millions($)
ZSE Value Traded USD
Sour ce: IES; ZSE
-4.00
-2.00
0.00
2.00
4.00
6.00
8.00
10.00
31-Dec-12
21-Jan-13
11-Feb-13
04-Mar-13
25-Mar-13
15-Apr-13
06-May-13
27-May-13
17-Jun-13
08-Jul-13
29-Jul-13
19-Aug-13
09-Sep-13
30-Sep-13
21-Oct-13
11-Nov-13
02-Dec-13
23-Dec-13
Millions
Net Foreign Value Traded USD
Sour ce: IES; ZSE
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
Billions
ZSE Market Cap USD
Sour ce: IES; ZSE
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8/13/2019 Zimbabwe Macroeconomic Report 2013 Review and 2014 Outlook
10/13
2014 Picks
Buy Recommendations
Market Cap
(USDm)
Updated recommendation
Hist. +1 Hist. +1 31.12.13
Afdis 37.7 15.6 5.6 4.1 28.6 44.5 Dominant market share in the spirits mass
market which has high g rowth potential.
Increasing volumes and eff iciencies keeping
competitive pricing especially after rights issue
BATZ 47.3 16.0 43.8 13.8 247.6 309.0 Dominant market share. Strong cash
generation. Generous dividend policy.
Impressive RoaE and RoaA.
Delta 15.6 12.5 5.3 4.4 1,731.1 2,098.6 Pristine balance sheet, strong cashflows and
solid brands . Virtually a monopoly. Volume
traction likely to be maintained.
Econet 7.7 4.1 2.0 1.5 984.0 1,124.8 Undemanding ratings. Dominant market share
and significant growth potential in the sector.Head start over other players in terms of
penetration data. Nonetheless, governance
issues are a concern.
Innscor 11.1 10.6 2.9 2.4 433.3 547.0 Perenial perfomer. Defensive businesses with
attractive medium to long-term prospects .
Strong cash generation.
Mash Holdings 14.9 12.8 0.6 0.6 60.4 62.5 Divers ified property portfolio. Improv ing
average renta ls per square metre and renta l
yields.Trading at a discount to property value
and replacement cost.
National Foods 10.2 8.7 2.4 2.0 141.9 164.5FMCG company with dominant brands across
defensive food products like mealie meal and
flour. S trong manag ement and s trategic
partners from parent companies.
OK Zimbabwe 18.7 13.0 3.3 2.7 230.9 259.2 Defensive food business and extensive branch
network. Improving dis pos able incomes
expected to support earnings growth
Padenga 8.0 7.5 0.8 0.8 43.3 69.7 Renowned for large premium quality skins
production. Opportunities to ex tend into
production of alligators and saltwater
Seed Co 20.2 10.7 2.1 2.0 175.4 237.3 Dominant market share (80%) of the local
hybrid seed maize. Huge demand for seed in
the region. We are confident on future
performance and believe shareholders will be
richly rewarded.Exposure can be get through
AICO after the consummation of the impending
transctions
TSL 25.0 18.4 1.4 1.3 138.9 154.6 Strong balance sheet. Good asset play.
Volumes improving at Bak Logistics. Energetic
and skilled management
PER PBVIES Fair
Value (USDm)
10
8/13/2019 Zimbabwe Macroeconomic Report 2013 Review and 2014 Outlook
11/13
Ones to watch
Market Cap
(USDm)
IES USD Fair
Value (USDm)
Updated recommendation
Hist. +1 Hist. +1 31.12.13
CBZH 2.4 2.0 0.6 0.5 102.7 123.1 Well capitalised. Largest banking group in
Zimbabwe by all metrices. Receding asset
quality pressures quality given the increasing
tenure.
Colcom 28.8 16.0 14.9 0.1 39.8 51.2 Strong brand equity that is supporterd by a
track record of product excellence. Product
reengineering and reposition was done in 2013.
Rolling out of new products underway
Dairibord 42.0 na 1.7 1.0 56.4 64.4 A victim of intense competition from the
region. Management has failed to retool the
company in time however there is basis for a
recovery given the right skills at the top.
FBCH 6.2 5.4 0.7 0.6 89.7 96.8 A well run financial instituation, very liquid andvery minimum NPLs. A highly conservative and
prudent management with vast experience in
the local banking industry.
Hippo 14.5 12.5 0.9 0.9 173.8 222.0 High cash generative abilities, sound
management. Technical support from Tongaat
Hulett.
Lafarge 14.9 12.5 2.6 2.1 88.0 93.6 Demand for cement remains strong. Improving
efficiencies to result in improved margins.
Meikles 15.6 12.7 3.0 2.7 45.8 65.9 Unbundling of retail operations and the
agricultural concern could unlock value for
shareholders. Supermarkets are recovering well
and hotels are profitable. Group has strong
defensive characteristics and solid market
position.
Truworths 13.6 11.0 2.3 2.0 16.1 19.8 Truworths entered into an agreement with
CABS whereby the bank wil buy recievables
from Truwothrs at discount. This has made
Truworths a very liquid reatiler and prospects
for growing retain sales is high. However the
company is very prudent on credit extension.
Turnall 350.2 18.9 1.4 0.8 25.9 35.2 Turnall dominates the local low cost housing
market holding 80% of the local roofing market
and processes 60% to 70% of Zimbabwesroofing and piping products
PER PBV
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8/13/2019 Zimbabwe Macroeconomic Report 2013 Review and 2014 Outlook
12/13
Sell /Take Profit Recommendations
PER PBV Market Cap
(USDm)
Updated recommendation
Hist +1 Hist +1 31.12.11
G/Beltings na na 0.0 0.0 0.4 na Weak financial position will adversely affectgroup future prospects.
Pelhams 0.0 0.0 0.3 0.2 1.0 na Low disposable incomes. Limited credit
facilities for high ticket goods.
TA Holdings 4.4 2.4 0.3 0.3 9.9 na Agro-chemicval investments continue to
haemorrage the group on oudated technology.
Substantial investment required for new
technology.
Zeco na na 0.0 0.0 0.1 na Undercapitalised businesses. Company unlikely
to see much growth with troughs outweighing
peaks.
IES USD Fair
Value (USDm)
12
8/13/2019 Zimbabwe Macroeconomic Report 2013 Review and 2014 Outlook
13/13
NOTES
Imara CapitalSecuritiesBotswanaBlock 6, SecondFloor, MorojwaMews,Plot 74769
WesternCommercialRoad, New CBDGaboroneBotswana
Imara AfricaSecurities ( Adivision of ImaraSP Reid)Imara House,Block 3
257 Oxford RoadIllovoJohannesburg,2146South AfricaTel:+27 11 5506200Fax:+27 11 5506295
Imara SecuritiesAngolaSCVM LimitadaRua Rainha Ginga74, 13thFloor,Luanda, AngolaTel: +244 222 372029/36Fax: +244 222332 340
Imara EdwardsSecurities (Pvt.)Ltd.Tendeseka OfficePark1st Floor Block 2
Samora MachelAve.Harare, ZimbabweTel: +2634790590Fax:+2634791435
4 Fanum HouseCnr. LeopoldTakawira/JosiahTongogara StreetBulawayoTel: +263 9 74554Fax: +263 966024Members of t he
Zimbabwe Stock
Exchange
Imara S P Reid(Pty)LtdImara House257 Oxford RoadIllovo 2146
P.O. Box 969Johannesburg2000South AfricaTel: +27 11 5506200Fax: +27 11 5506295Member of t he
JSE Secur it ies
Exchange
Namibia EquityBrokers (Pty) Ltd1st Floor CityCentreBuilding, WestWing
Levinson ArcadeWindhoekNamibiaTel: +264 61246666Fax: +26461256789Member of t he
Namibia Stock
Exchange
StockbrokersMalawi LtdGround FloorNBM BusinessCentreCnr. Hanover
Avenue/Henderson StreetBlantyreMalawiTel: +2651822803Member of t he
Malawi Stock
Exchange
StockbrokersZambia Ltd2nd Floor (Wing),Stock ExchangeBuildingCentral Park
CornerChurch/CairoRoadsP O Box 38956LusakaZambiaTel: +260211232455Fax: +260211224055Member of t he
Zambia
St ock Exchange
This research report is not an offer to sell or the solicitation of an offer to buy or subscribe for any securities. The securities referred to in this report maynot be eligible for sale in some jurisdictions. The information contained in this report has been compiled by Imara Edwards Securities (Pvt.) Ltd. (Imara)from sources that it believes to be reliable, but no representation or warranty is made or guarantee given by Imara or any other person as to its accuracy orcompleteness. All opinions and estimates expressed in this report are (unless otherwise indicated) entirely those of Imara as of the date of this report onlyand are subject to change without notice. Neither Imara nor any other member of the Imara Group of companies including their respective associatedcompanies (together Group Companies), nor any other person, accepts any liability whatsoever for any loss howsoever arising from any use of this reportor its contents or otherwise arising in connection therewith. Each recipient of this report shall be solely responsible for making its own independentinvestigation of the business, financial condition and prospects of companies referred to in this report. Group Companies and their respective affiliates,officers, directors and employees, including persons involved in the preparation or issuance of this report may, from time to time (i) have positions in, andbuy or sell, the securities of companies referred to in this report (or in related investments); (ii) have a consulting, investment banking or brokingrelationship with a company referred to in this report; and (iii) to the extent permitted under applicable law, have acted upon or used the informationcontained or referred to in this report including effecting transactions for their own account in an investment (or related investment) in respect of anycompany referred to in this report, prior to or immediately following its publication. This report may not have been distributed to all recipients at thesame time. This report is issued only for the information of and may only be distributed to professional investors (or, in the case of the United States,major US institutional investors as defined in Rule 15a-6 of the US Securities Exchange Act of 1934) and dealers in securities and must not be copied,published or reproduced or redistributed (in whole or in part) by any recipient for any purpose.
Imara Edwards Securities 2014
13