uMthwakazi Review

Monthly Economic Review: February, 2013: Dr Eric Bloch

                                                 MONTHLY ECONOMIC REVIEW: FEBRUARY, 2013

INTRODUCTION

On Thursday 31st January, 2013 the Governor of the Reserve Bank of Zimbabwe, Dr. Gideon Gono, presented a Monetary Policy Statement, which included the following key issues:

 

·        Economic Overview

Constraints in the domestic market continue to haunt the economy, with the growth momentum experienced between 2009 and 2011 slowly losing steam. Despite these challenges, the Governor outlined the country’s strengths that can be harnessed to move the country into ‘emerging market status.

·         Inflation developments

The inflation outturn of 2.91% realized in December 2012 compares favourably with initial projections of 4%. In the medium to long term, inflation developments in the domestic economy will continue to be driven by the evolution in international oil prices, World food prices, the US$/rand exchange rate, import tariffs and the level of aggregate demand in the economy.

·         Banking Sector Developments

Deposits in the banking sector increased considerably by 30.7% from US$3,376 million in 2011 to US$4,411 million in 2012. Loans and advances increased by 27.5% from US$2,761 million in 2011 to US$3,519 million in 2012. The Loan to Deposit ratio however declined marginally from 81.79% in 2011 to 79.79% in 2012. Deposits, just like loans and advances, remained short term.

The banking sector continues to be haunted by:

Ø  Liquidity Shortages

Ø  An absence of an active interbank market

Ø  Limited access to affordable external credit lines

Ø  Absence of Lender of Last Resort.;

All being:

Factors which limited most banks’ ability, to perform their intermediary role to the fullest.

The Banking sector remains generally safe and sound despite the challenges faced by Royal Bank and Genesis Investment Bank. Underlying risks associated with adverse macroeconomic developments and mismanagement at some banks provided fertile ground for potential liquidity challenges and capital insolvency.

·         Average Lending and Deposit Rates

 

These remained relatively unfavorable with lending rates averaging 22% per annum and deposit rates averaging 4% per annum. The Reserve Bank Governor put in place various policy interventions in the financial sector. These were driven by the Reserve Bank’s overarching objective of maintaining financial sector stability in a manner that promotes sustained economic growth and development. (See MOU highlights below).

 

·         Bank Capitalisation Levels

 

Fourteen banks have met the December 2012 minimum capital levels threshold. Five Banks have put in place credible capitalisation plans whilst two banking institutions have plans that are in need of further refinement.

 

·         Banking Sector Vision 2020

 

The vision is centered around the pursuance of banking sector solvency and stability to anchor sustained economic growth and development. The Reserve Bank of Zimbabwe envisions:

a)                   A thriving banking sector with functional Lender of Last Resort and active interbank market.

 

b)                   The establishment of universal banks and an integrated framework;

 

c)                    Adequately capitalized and competitive banking sector with the ability to support the funding needs of the economy;

 

            d)         Banks with ability to attract significant financial resources from both local and  international sources;

 

            e)         More inclusive banking sector, with improved outreach to the currently un-banked and under banked sections of the population;

 

            f)          Increased interoperability of banking platforms, mobile networks, and other key  national information databases;

 

            g)         Robust legal and regulatory framework benchmarked to international best  practice;

 

            h)         Cashless society characterized by electronic and mobile banking.

 

The Monetary Policy Statement made reference to the Memorandum of Understanding (MOU) between the Reserve Bank and Participating Financial Institutions. The MOU came into effect on 01 February 2013 on all issues discussed except for the issuance of debit cards, which is effective 01 March 2013. Participating Financial institutions and the Reserve Bank of Zimbabwe (the Parties) have reached a consensus on the framework for determining bank charges and interest rates margins.

 

Major highlights in the MOU are as follows:

 

·         Participating Financial Institutions shall disclose all their fees and charges in a uniform manner to enable customers to easily make informed choices and comparisons among banks.

·         Any term deposit by individual customers of US$1 000 and above held over a period of at least 30 days shall attract an interest rate of at least 4% per annum provided that such deposit has been   placed in a term deposit account in accordance with the terms and conditions applying to such account at a Participating Financial Institution.

·         Lending rates will be subject to a maximum rate of not more than 12.5 percentage points above a Participating Financial Institution’s weighted average cost of funds.

·         Standard charges and fees were levied on generic bank products see below :

 

 

Service/Product

 

Agreed Charges

 

 

Cash Withdrawal

 

 

Up to 0.5% of cash withdrawal amount subject to minimum charge of $2.50

 

 

Debit Card Fee

 

 

First debit card fee and thereafter up to $3.50. The issuing of Debit cards will be mandatory to every account holder

 

 

Ledger fees Maintenance & Service fees,

or whatever name they may be called

 

 

up to $4 per account

 

 

ATM Withdrawal fee

 

 

$2 per transaction

 

POSB

 

Between $0.10 and $0.50 per transaction

 

Request for Statement

 

First statement request free per month. Subsequent requests during the same month, will attract current charges

 

Cash Deposits

No charges shall be levied on cash deposits

 

 

 

It was also agreed that All Participating Financial Institutions currently charging below proposed levels, should maintain these levels obtaining and the charges and fees not specified in the MOU should not be increased.

 

KEY HIGHLIGHTS AND MEASURES OF THE MONETARY POLICY STATEMENT

 

 

 

Policy Measure / Economic Development/

Highlight

 

 

Impact on the Economy /Customers/ Comments

 

Economic Developments

Economic growth in Sub-Saharan Africa is projected to expand from 5% in 2012 to 5.7% in 2013. Growth in global economic activity is projected to modestly

improve from 3.3% in 2012 to 3.6% in 2013.

 

 

Likewise despite the low growth forecasts for 2012, it is anticipated that Zimbabwe’s economy will expand in 2013 in line with global growth trends.

 

Year on year inflation as at December 2012 stood at 2.91%. The inflation target for 2012 was 4.0%.

 

Adverse inflationary pressures have remained

subdued on the back of tight liquidity conditions,

depressed aggregate demand and stable

international oil and world food prices. In the

medium to long term, inflation developments in the domestic economy will be influenced by

developments in international oil prices, World food prices, the US$/rand exchange rate, import tariffs and the level of aggregate demand in the economy. Low levels of inflation should increase the performance of the economy as firms become more confident to invest.

 

The Current account deficit for 2012 was estimated at US$3.6 Billion in 2012. Total exports amounted to US$ 3.884 billion against imports of US$ 7.484 billion.

 

This undermines the country’s ability to develop

domestically. It shows that the economy is not

saving. It is not a healthy state of affairs as it also

impacts on the country’s creditworthiness and

economic growth.

 

Commodity prices were generally buoyant first quarter of 2012, but decelerated during the second quarter of the year as the debt crisis in Europe intensified and China’s growth slowed down markedly. Prices for gold and platinum remained firm however through out 2012, supporting mining operations in the country.

 

 

Falling commodity prices may lead to a possible

decline in exports and a threat to viability of mining entities should prices decline below production costs. This is likely to have a negative impact on economic growth.

 

 

 

 

Policy Measure /Development

Impact on the Economy /Customers/ Comments

 

Monetary and Financial Developments

Deposits in the banking sector increased considerably by 30.7% from US$3,376 million in 2011 to US$4,411 million in 2012. Loans and advances also increased by27.5% from US$2,761 million in 2011 to US$3,519million in 2012.

 

The trend in deposits growth is positive for the

banking sector as it shows increased confidence

by the public. It is moreover positive for the

economy as it translates into increased capacity

to lend to the productive sectors.

 

The Memorandum of Understanding between the Reserve Bank and participating Financial institutions

comes into effect on 01 February 2013. It highlights various measures that will be taken to keep customers well informed and to keep the cost of banking services

fair. (as summarised above )

 

Measures highlighted will bring down interest

rates and bank charges. They will ensure fair

treatment of customers and ensure that

customers make informed decisions when dealing

with any banking institution.

 

Bank capitalisation levels

14 banks have met the December 2012 minimum capital levels thresh hold. 5 Banks have put in place credible capitalisation plans whilst two banking

institutions have plans that are in need of further refinement.

 

The measure is aimed at strengthening the

banking sector and aligning the sector to regional

and global standards. The increase in

capitalisation levels is likely to see mergers within the sector and possibly reign in the indiscipline which had threatened the stability of the sector

 

Enhanced Troubled Bank Resolution Policy Framework Roll- Out during the first half of 2013. The Policy will provide a framework, underpinned by fair, consistent, transparent, cost effective and timely problem resolution principles to be followed by any troubled banking institutions.

This will improve the stability of the Banking

Sector and allow for timely resolution of problems in ailing banks.

 

Accreditation of Credit Reference Bureaus.  The completion of the framework which is targeted for March 2013, will pave way for the commencement of Operations by accredited bureaus.

This will make it easier for banks to assess credit worthiness of potential borrowers and

reduce the waiting period for borrowing clients to

access loans.

 

The Reserve Bank will, in liaison with the proposed Banking Sector Ombudsman, issue financial sector Consumer Protection Regulations before 30 June, 2013.

 

Customers will have all the information they may

need on banking institutions to allow them to

make informed decisions.

 

Continue developing risk management processes that are rigorous and comprehensive to respond to current

and future risks brought about by the rapid pace of technological innovations.

 

The policy measure will ensure soundness of

banking institutions in the face of changing

conditions.

 

Exporters to ensure timeous acquittal of their export

proceeds.

 

Will ensure accountability of all export proceeds

into the country. Clients are advised to comply to

avoid regulatory action.

 

Members of the public are also reminded that currently, all registered microfinance institutions are non-deposit taking

 

Institutions and members of the banking public

are advised to desist from dealing with

unscrupulous microfinance institutions as this may result in loss of money.

 

 

Other Economic Developments

 

Indigenisation and Economic Empowerment

 

The National Indigenisation and Economic Empowerment Board (NIEEB) has issued a statement that companies may be subjected to closure and/or presentation if they fail to obtain compliance certificates within 14 days.

 

Land Reform

The Minister of Lands and Rural Resettlement, Dr. Herbert Murerwa, announced that “for now” Government will halt compulsory acquisition of agricultural lands covered by Bilateral Investment Promotion and Protection Agreements (BIPPAs).

Flights to Zimbabwe

Air France, Bulgarian Airlines, Austrian Airlines, Egypt Air and Swissair have applied for licences to fly to Zimbabwe.  In addition, the reconstituted Board of Air Zimbabwe announced that it is anticipated that within 2 months the national airline will increase its domestic regional and international flights, primarily using 2 new aircraft which have been leased to it.

Mandatory Ethanol Blending

All licensed oil companies are now required by Government to sell blended petrol with a minimum of 5% locally-produced ethanol.

Energy Generation

The Minister of Energy has announced that it is anticipated the construction of a Kariba South Hydropower Station in the course of 2013, and that such construction is anticipated to be undertaken by certain Chinese companies.

Economic Review by African Development Bank

A review by the African Development Bank of the Zimbabwean economy includes:

·         Agriculture

The commencement of the 2012-2013 rainfall season started late, leading to delays in planting of crops, especially in the drier regions.  Agribank has so far received US$10 million of the US$15 million that it was allocated in the 2013 National Fiscal Budget to support A2 and other eligible farmers in the 2012-2013 agricultural season.  The scheme is earmarked for food crops.

 

As at 4 January, 2013 the Tobacco Industry and Marketing Board reported that 65 199 growers had registered to grow flue-cured tobacco in the 2012-2013 agricultural season as compared to 34 673 who had registered by the same time in the previous year.

Mining Sector Production

The Zimbabwe Mining Development Corporation reports that in 2012, mining sector exports included:

 

                                                                        US$ million

 

            Diamonds                                            684,5

 

            Gold                                                     782,7

 

            Platinum                                              464,5

 

CONSUMER PRICE INDEX (CPI) and INFLATION DATA

As foreshadowed in last month’s Economic Review, the Zimbabwe Statistical Agency (ZIMSTAT) has, after many years, revised the composition of the CPI, seeking to align it more substantially with currently prevailing composition of average consumer spending, for such composition had changed considerably as the economy continued to be very fragile, with pronounced poverty afflicting most consumers, with resultant intensified concentration of limited spending power upon absolute essentials.  The new CPI weighs are:

 

            Food & Non-Alcoholic Beverages                                            33,53

 

            Alcoholic Beverages & Tobacco                                                 4,38

 

            Clothing & Footwear                                                                   6,05

 

            Housing, Water, Electricity, Gas & Other Fuels                      17,74

 

            Furniture & Equipment and Household Maintenance         9,91

 

            Health Products & Services                                                        2,16

 

            Transport                                                                                     9,76

 

            Communication Services                                                            3,41

 

            Recreation & Culture                                                                    2,10

 

            Education                                                                                       5,67

 

            Restaurants & Hotels                                                                    1,38

 

            Miscellaneous Goods & Services                                                3,91

 

            All items                                                                                  100,00

 

                        Rood & Non-Alcoholic Beverages       33,53

 

                        Non-Food                                             66,47                          

 

 Applying the restructured CPI, ZIMSTAT determined that Inflation for January, 2013 was 0,07%, whilst for the year to January, 2013 Inflation was 2,51%.  The composition of Inflation was:

 

                                                                        Month of January, 2013    Year to January, 2013  

 

                                                                                    %                                             %

 

Food & Non-Alcoholic Beverages                               0,32                                        3,72

 

Alcoholic Beverages & tobacco                                  -0,54                                       3,83

 

Clothing & Footwear                                                   0,00                                         -0,74

 

Housing, Water, Electricity, Gas & Other Fuels         0,00                                     10,70

 

Furniture, Household Equipment & Maintenance     0,00                                    0,63

 

Health Products & Services                                        0,01                                         1,94

 

Transport                                                                    0,00                                             6,42

 

Communication Services                                            0,00                                         -0,36

 

Recreation & Culture                                                  0,01                                         1,92

 

Education                                                                    0,00                                         12,96

 

Restaurants & Hotels                                                  0,01                                         1,92

 

Miscellaneous Goods & Services                                -0,52                                        1,32

 

All Items                                                                      0,07                                         2,51

 

The Consumer Council of Zimbabwe (CCZ) assessed that Inflation declined by 0,72% in January, 2013, and that the Poverty Datum Line (PDL) for a family of 6 was US$567,90 compared with US$572,00 in December, 2012.

 

Over the 12 months to January, the inflation trend, according to ZIMSTAT, was:

 

                                                                    Monthly             Annual

 

                                                                        %                       %

 

                                    2012

 

                                    February                      0,49                 4,31

 

                                    March                         0,43                 3,98

 

                                    April                            0,19                 4,03

 

                                    May                             0,07                 4,01

 

                                    June                             0,20                 3,97

 

                                    July                              0,23                 3,94

 

                                    August                         -0,18                3,63

 

                                    September                  0,46                 3,24

 

                                    October                       2,26                 3,38

 

                                    November                   0,13                 2,99

 

                                    December                   0,13                 2,91

 

                                    2013

 

                                    January                        0,07                 2,51

 

INTEREST RATES

In part compliance with the Memorandum of Understanding (MOU) entered into between Reserve Bank of Zimbabwe, Ministry of Finance, and Zimbabwe’s banks and allied financial institutions, lending rates generally declined, in January, 2013 to a range of 15% p.a. to 18% p.a. (plus Establishment Fees of 1,5% to 2,5% flat), whilst most lendings of the National Social Security Authority (NSSA) and Old Mutual to banks was at a rate of 7% p.a., with on-lending of such funds being subject to an interest rate of 15% p.a.  A further decline in rates is expected to occur over the next few months.

 

Deposit rates are now in the range of 2,5% p.a. to 5% p.a., contingent upon the deposit periods.

CONCLUSION

Referendum and Parliamentary/Presidential Elections

It is now almost (but not absolutely) certain that a national Referendum on Zimbabwe’s proposed new Constitution will be held on 16 March, 2013, and that thereafter national elections will be conducted in late June, or in July, 2013.  Provided that they are conducted transparently, freely and fairly, devoid of intimidation and harassment, and without any vote rigging, economic upturn of greater substance than heretofore can be anticipated, founded primarily upon incoming foreign investment, lines of credit, developmental aid, and progressive restoration of business confidence.

 

 

 

 

 

 

 

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