The AXiS XXXV

The Hyperinflation o’clock
Opportunists get richer
NB: Not actual coin,-IT Gold coin concept Evading business risk in Zim
Oil drilling to commence in Mukuyu-1

The bullion vault of
absurdity

#ISSUE: XXXV



The AXiS Friday 10 July 2022 #ISSUE: XXXV

The Invictus Energy:

Mukuyu-1 prospect doubles

from initial estimates PAGE 13

equityaxis.net @equity axis @equity axis zimbabwe @equity axis @equity axis @equity axis 08677 197 791 @ aaronc[at]equityaxis.net

Of Bond notes & Gold Coins:

Predictability of policy failure in Zimbabwe

When RBZ Governor John Mangudya lizing factor for the economy as it created arbi- ya coin is worth about US$282.
introduced the Bond Notes in 2016, it trage, rent-seeking and gross subsidies. The value The market price of the gold coin will be made
looked like a very good idea on paper, Queues at banks were becoming long and the up of the spot price portion, coin demand and
at the respective time. A few years later, the USD had become very scarce. The very act of supply factors and the production and distribution
Bond Notes became valueless, in line with the having to avail USD cash to cash in a currency cost. Adding the spot price of US$282 to the pro-
electronic money known in Zimbabwe as the which government had engineered and was no duction and distribution cost will take the coin’s
RTGS, which powered the notes. The governor longer at par was proving to be a major destabi- price to anything close to US$300 but below and
said the notes were not a currency per se, but lizing factor for the economy as it created arbi- this price too will vary depending on the spot
an export incentive, tied to the value of the trage, rent-seeking and gross subsidies. The value price. Popular coins such as the Krugerrand are
export production. This appeared rational, given disparity evaded the principle of production-in- priced at a premium of 2% to spot and this pre-
that the quantum of money released into circula- duced money supply growth, because, bond notes mium varies on coin-specific fundamentals and is
tion should closely mirror production in the were not the actual currency. In 2016, I argued market forces determined. This statistic shows that
economy. Therefore, increasing the export pro- that bond notes per se were not inflationary there are coin-specific demand factors that are
duction would justify the injection of bond notes, because their quantum as physical money was inherent in the price of the coin. It also shows
at about 10% of export value. In principle, if the very low compared to the overall balances of that the production cost of gold coins should not
level of monetary growth is higher than the pace deposits in the banking system in Zimbabwe. be more than 1% above the melt/spot price.
of production, it may result in a market disequi- Their portion throughout the currency’s lifespan The concept of gold coins is preferred globally
librium and a weakening of the currency and or was less than 10% of the total money supply. I by countries such as the UK, USA, China,
higher inflation. It appeared to be a fantastic idea raised the awareness that the RTGS money, Canada and Australia. The US Mint, an equiva-
in principle but it was very disguising, as we which was being fueled by the issuance of Trea- lent of Fidelity Printers, mints the American
will unpack later in this piece. sury Bills was the elephant in the room. Bond Eagle Gold Bullions Coins while the UK’s Royal
Another appeasing dimension to the bond note Notes were the unfortunate face of the underlying Mint mints the Britannia and the Queens’ Beast.
was that it was backed by an Afreximbank currency. Eventually, the bond note fell with the South Africa’s Krugerrand is the world’s most
US$200 million facility. The said facility acted as underlying currency. popular gold coin although it underwent some
guarantor to the notes, meaning bond notes could This reference and reflection on the past are very massive turbulence near the end of Apartheid.
be exchanged for actual USD at face value at an important as Zimbabwe prepares for yet another Essentially, for South Africa, the Krugerrand was
exchange rate of 1:1 in the event of currency new financial creature. Last week the RBZ a way of exporting and earning foreign currency
failure. This too appeared to be a smart move on announced that it is introducing Gold Coins, as
the part of the RBZ, only that it was practical, a way to give Zimbabweans an alternative store *To Page 5
neither was it true. Authorities did nothing to of value in a hyperinflationary environment. On
prove that there indeed was a backing facility in Monday, the Bank formally introduced the coin Insurance firm
place and as time proved, the bond note eventu- highlighting its features and characteristics. It frets over sustained
ally failed and no facility came into play to save said the coins will be called the Mosi-Oa-Tunya ballooning inflation
it. In the instance of the first point, the idea of after the Victoria Falls. The government has long
matching bond notes’ injection to the growth in sought to posit Victoria Falls as a safe haven PAGE 12
production of exports, did not clearly reflect the investment centre, divorced from Harare. In
actual challenge government was seeking to 2020, the Victoria Falls Stock Exchange was Markets watch
solve. To the government, bond notes were the introduced and the stock market exclusively
physical manifestation of the RTGS currency it trades in US dollars. Naming the coins Mosi Oa PAGE 23
had created a few years back and was now caus- Tunya is an attempt to divorce the coins from
ing problems because it couldn’t be settled at 1:1 the mainstream and posit them as value accretive
with the USD which was not only in short in the face of the demise of the Zimdollar.
supply but had ceased to be the money behind Among the coins’ features is that they will weigh
the RTGS. 1 troy ounce with a 22-carat purity. 1 troy ounce
Queues at banks were becoming long and the is equivalent to 31 grams while 22 carats is
USD had become very scarce. The very act of equivalent to 4.4 grams of gold. This means the
having to avail USD cash to cash in a currency coin will be 14% pure. The purest form of gold
which government had engineered and was no coins is a 24-carat with 99.9% fineness. Given
longer at par was proving to be a major destabi the current LME spot price of US$1800, the
value of the gold contained in the Mosi-Oa-Tun

ZSE ASI 19,791.94 ZSE TOP 10 12,273.75 MEDIUM CAP INDEX 38,857.16 ZSE TOP 15 13,721.95 SMALL CAP INDEX 513,602.97 ZWL INTERBANK 370.9646
19,590.05 12,209.39 38,151.54 13,559.50 507,512.80 372.8740
19,340.56 12,036.36 37,615.28 13,405.19 508,318.87 375.4440
18,810.17 11,631.30 37,075.91 12,993.11 522,073.44 376.8387
18,363.47 11,319.88 36,431.30 12,648.65 520,654.50 380.0225
17,521.72 10,738.02 35,094.68 11,978.28 519,250.86 380.4024
-11.47% -9.68% 1.10%
-12.51% -12.71% 2.54%

In Focus The AXiS XXXV Friday 08 July 2022 4

Hyperinflation o’clock:

Why the government is failing to rein in inflation

Due to errant fiscal and monetary policy, tions of power are not focused on resolving the omy that is behind the current inflationary
consumer prices have continued their crises, but rather focused on the pursuit of the surge.
relentless climb in July. Just as predict- power retention agenda. Since only government policies can cause
ably, our government continues to tout its eco- Political fecklessness in the face of rising prices prices to rise economy-wide, controlling infla-
nomic policy as sound and seems to be more is not unprecedented in Zimbabwe. Our policy- tion requires fundamental reforms to the current
interested in deploying short-term, rudimentary makers seemingly prioritize political agendas at fiscal and monetary policies. The search for
measures rather than implementing the right the cost of the economy. Simply put, the econo- scapegoats distracts from these necessary
policy mix that would rein in inflation. my comes second in Zimbabwe. The historical reforms and, to the extent that they delay the
Recently, Zimbabwe’s inflation rate hit a new record shows what should have been obvious in implementation of the right policy mix, and
record high, surging to 191%. However, Profes- 2008 – buttons and abstinence do not control unnecessarily increase the real economic costs
sor Steve Hanke of John Hopkins University inflation. Unfortunately, because our financial created by an out-of-control inflationary envi-
places that figure in the 400% region. Hanke branches of government lack independence, they ronment.Implementing the right policies that
has been using the purchasing power parity have been unified in response to our current will moderate the current surge in inflation
(ppp) method to calculate the inflation rate in inflationary surge. Instead of political suasion or should be the government’s top priority. Presi-
Zimbabwe since the hyperinflationary period outright price controls, they are employing inac- dent Mnangagwa hailed 2022 as the “Year of
that ended in 2008. curate rhetoric and political scapegoating. Economic Growth”, but persistent inflation and
The ppp method compares the price levels The current administration continues to blame policy inconsistency is hampering the country
between two countries and the result is the market players for inflation and currency insta- from progressing. If the government does not
actual exchange rate. In 2008 when the gov- bility. Supermarkets, fast-food chains, and other fully dollarise now, the consequences will be
ernment terminated the reporting of official retailers at large have been purported as some of dire.
inflation statistics, Hanke and Alex Kwok took the major culprits. However, evidently higher The price of fuel has already exceeded the
it up on themselves to utilise economic models prices at supermarkets do not drive-up rents for $1.70-mark price of fuel per litre hit, making
that would get us as close to actual inflation apartment buildings, the cost of used cars, and Zimbabwe the African country with the highest
figures as possible. the prices for new clothing. Even rising energy fuel costs. Lack of access to foreign curren-
With fuel, basic food items, and the cost of costs, which increase the cost of raising cattle cy to import wheat and procure fuel for deliv-
grain continuing to skyrocket, we have also and selling groceries, cannot be the root cause eries has seen the price of bread exponentially
used the ppp method in our models and our of the inflation problem. rising. The Grain Millers Association of Zimba-
figures correlate with Hanke’s calculations. In The Zimbabwe Stock Exchange has also been a bwe (GMAZ) in April also increased the prices
fact, a simple visit to the supermarket tells the target for supposedly enabling “speculators” and of maize and wheat by 50% and 17.8% respec-
real story. The government in the past has been driving the exchange rate disparity in the black tively.
guilty of manipulating the exchange rate and no market and official rate. If it’s not the supermar- Further, Zimbabwean health workers went on
doubt wants to report an artificially lower rate. kets or the ZSE, then it’s the average Zimba- strike in June after rejecting a 100% wage hike.
Now, here lies the underlying policy problem in bwean who is at fault for not getting over the Public health workers and other civil servants
Zimbabwe. By reporting an official inflation remnants of the last hyperinflationary period. continue to demand US$ salaries dollars as
rate of 191%, the monetary authorities were Behavioural economics was the root cause of our inflation erodes their disposable income and
forced to announce an interest rate hike to a inflation a few months ago. And before that it continues to bite.
level that is slightly above the former, at 200%. was all about the Russia-Ukraine war.
Assuming Hanke’s and EA models are accurate, Troublingly, political scapegoating distracts
that would mean the policy rate is futile and people from the actual drivers of inflation –
will do nothing to tame inflation. errant government policies. The Zimba-
bwean government continues on
This is the PPP formula. Have a go at it! its spending spree trajecto-
ry, driven by desperation
Purchasing Power Parity = Cost of good X in curren- to remain in control.
cy 1 / Cost of good X in currency 2 Then to plug in the
(1+ ΔPZIM /PZIM ) / (1+ ΔPUS /PUS) = 1 + Δ holes of the leaking
EZWD/USD /EZWD/USD vault, the deploy
elementary monetary
Where: policy such as the new
gold coin. The gold coin
PZIM = the Zimbabwe price level in Zimbabwe was probably the most
dollars (ZWD), potent policy measure
PUS = the United States price level in U.S. dollars announced in the last
(USD), and cycle, but the govern-
EZWD/USD = the exchange rate (ZWD per unit of ment has incurred
USD). billions of dollars in
In fact, when inflation is higher than interest new debt to shower the
rates money loses value quicker than what it economy with all sorts
can grow if deployed in interest-bearing invest- of spending programs
ments/savings. This is called negative real inter- with elections only
est rates. The short-term effects can be that months away.
people and corporations are discouraged from
hoarding money or lending it at key rates (term A majority of this newly issued debt has found
deposits with banks etc.) and opt for higher its way to the RBZ balance sheet, leading to
rate lending (bonds,commercial papers etc.). Of the creation of billions of dollars in new
course, the risk-adjusted rates for these should money. It is this excessive growth in the money
be higher than nominal risk-free rates + infla- supply that was directly injected into the econ
tion. According to former Finance Minister,
Tendai Biti, for the third time in 14 years that
the regime has pushed the economy into hyper-
inflation territory, and says that those in posi

5 The AXiS XXXV Friday 08 July 2022 In Focus
*From Page 3

since it was sold locally and globally during a contrary to the government’s assertions, broad periods of high uncertainty and economic down-
sanctions period. For the buyers of the gold coins, money supply has been going up at an astronomi- turns. The geopolitics of the Russia-Ukraine war
the rationale is largely to increase their invest- cal rate, thanks to the ballooning TBs stocks, as and natural disasters such as COVID-19 in
ment assets, diversify, hedge their portfolios and well as speculative private sector borrowing. The recent periods increases economic uncertainties
maximise returns. In the instance of Zimbabwe, speculative nature of private sector borrowings is and chances of global recessions hence propel-
authorities say the coins are necessitated by the equally a government creation as it feeds from ling gold prices. However, if the situation turns,
need to preserve value. Either way, their link to market gaps created by a dysfunctional or RBZ gold prices may come off to averages of about
the spot price makes them both an investment manipulated foreign currency market system. The US$1500 per ounce which is 18% below the
asset as well as a store of value, given inflation. overwhelming growth in liquidity has blown the current price. So, suppose the prices ease to
capital markets as speculators play the market, those levels, it means the intention of value
Will the coins succeed? driving asset prices higher. On the other hand, preservation will not be met. In short, gold,
corporates have found a gap to borrow at discrete especially at current all-time highs, does not give
This article started by looking at the background rates and shore up stocks, briefly hold and a guarantee of value preservation. This makes
of currency in Zimbabwe over the recent past. unwind stock after a few months, paying back the the coin less attractive to citizens looking to
Whereas economic events largely repeat in future, full loan amount at deflated levels. This is the hedge against inflation.
it is always largely a function of behaviour. fallacy of a guarded exchange rate regime, as is
Studying behavioural aspects of the markets e.g. being pursued by Zimbabwe. TGhoeldmCeocihnasnics of buying and selling
citizens’ reaction to policy, or authorities’ reac- Now, our verdict on the gold coins based on sim-
tions to some macro developments, can help ulations applied to economic principles, is that the The mechanics of buying and selling gold coins
inform future projections. History has shown that Gold Coins will not save the prevailing currency is replete with flaws which will make it another
the RBZ along with government, in general, does crisis, and nor will any measure recently promul- avenue for rent-seeking and a catalyst for an
not think through its policies and when it does, gated by the RBZ and the Treasury. The econom- economic downturn and inflation spiral. The
it is not sincere with citizens on policy. ics of gold coin minting is widely premised on coins will be sold in both US dollars and Zim
The reason why the Bank has not been thinking its value proposition as an investment asset. dollars. Let’s simulate the US dollar route. If the
through its policies is that the economic terrain in The case for Gold Coins in Zimbabwe is not pre- coin is sold in USD, will it achieve its intended
Zimbabwe, unlike elsewhere in the world, is very mised on it being an investment asset but rather purpose?
volatile and thus more fluid causing authorities to a value-preserving asset. An investment asset has From a government perspective, the issuance of
rush their decisions. Authorities are largely reac- the potential not only to preserve value but to gold coins is meant to divert ZWL demand for
tive than proactive and, in the process, miscalcu- provide a positive return in the forecasted future. USD cash to gold. Holders of USDs are likely
late or deliberately proffer short-term, one-sided A value-preserving asset may increase in value, to retain their USD cash for value preservation
policies. These policies have negative mid to but its purpose is largely to retain or preserve the than hop onto an asset they have little knowl-
long-term ramifications. I would also hasten to initial value it was bought for. The case for gold edge over. This means much if not all of the
say, the short-termism associated with economic coins is therefore not premised on the projected demand for the coins will be from ZWL balance
policy crafting in Zimbabwe is a creature of pop- future growth of funds utilized but on the promise holders. Now if the government pursues this
ulist politics with remnants of communism. It of simply maintaining value. The challenge here path, it will have to forgo forex earnings that
defies market-based economics as it has no indul- is that government cannot guarantee the future will be naturally accrued from gold exports and
gence in key principles such as opportunity cost. stability in the price of gold and therefore the Zimbabwe cannot afford that given that gold is
The bond note was not supposed to be issued in value of the money spent by buyers of the coins. the country’s top export earner.
the first place. The challenges with the underlying The gold market has experienced fewer but very The move to sell in ZWL will cause serious
RTGS money supply in the system had to be wide swings relative to the currency market spe- forex challenges and arbitrages. However, even
fixed before the idea was fancied and this perhaps cifically the USD. if this path is preferred, it is not as perfect a
meant another full re-dollarisation. Instead, author- Using historical data for the last two years, gold replacement for the USD as a store of value.
ities dug in and the results are here for all to see. has fluctuated rising by 25% between January There are processing costs and the risk associat-
The underlying challenge facing the Zimbabwe 2020 to July 2020 before easing by -5% over the ed with exchange rate differentials between the
economy is that money is disproportionately high next 12 months. Gold is a safe haven asset and formal and informal currency markets, which
and the market is averse to the risk of holding typically moves inverse to the USD. It thrives in may cause huge losses to value. Like the bond
on to the Zimdollar. Data by the RBZ shows that notes, the Gold Coins will speed up the demise
of the Zimdollar as a currency.

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Economic News & Analysis The AXiS XXXV Friday 08 July 2022 6

Arbitrage in Zimbabwe:

Opportunists get richer as economy recesses…

A s a basis, opportunism is the act of The Central Bank of Zimbabwe introduced the instead of owning the real gold. If the nation
taking advantage of a situation without bond note in 2016 which was pegged at par had enough gold in its coffers to meet demand,
concern for morality or the repercus- with the United States Dollar (US$). However, then the economy would likewise have a stable
sions on other people. Opportunist behaviour it did not take long before the note started currency backed by gold.
refers to expedient activities that are primarily losing value against the greenback on the paral- Due to limited gold, in reality, buyers of gold
motivated by self-interest. Opportunist behaviour lel currency exchange market. coins will be issued certificates of ownership. In
is usually every investor’s primary attribute, but The Central Bank maintained its stance of parity return, they will give the bank their money in
in collapsing economies, it is quite staggering. to the US$ despite what the market was dictat- either foreign currency or the local unit. Arbi-
The base for opportunistic actions in such econ- ing. As a result, most asset classes were deval- trage then comes on the pricing of the coins.
omies is “arbitrage”, and this is the new order ued in real terms. Arbitrage started at the high The Gold Coins are pegged or priced according
of business in Zimbabwe. ranks as authorities and those with access would to global gold coin prices. However, in Zimba-
An investor uses the investing technique of arbi- buy the greenback from the formal currency bwe, one can obtain the coins using either
trage to purchase and sell an asset at the same market using the bond note at par before selling foreign currency at the prevailing rate of the
time in various marketplaces in an effort to ben- the foreign unit on the parallel market at a pre- US$ or local currency at the prevailing interbank
efit from a difference in price. Although pricing mium. exchange rate.
variations are frequently tiny and transient, when Local debt dating back to the parity era was The exchange rate between the interbank market
amplified by a big volume, the rewards can be also settled at par with the US$ even after floa- and the parallel market has maintained a premi-
spectacular. tation of the exchange rate. This led to the Cen- um close to 100%. That, therefore means one
At least two comparable assets must be in a sce- tral Bank clearing its obligations using arbi- can buy the coins in local currency at the inter-
nario with different prices for it to occur. Arbi- trage-gotten money. bank exchange rate, informally or formerly
trage, in its simplest form, is a circumstance The market never stopped dictating the true dispose of them in foreign currency then sell the
where a trader may benefit from the imbalance value of the local money, so much so that the foreign currency on the parallel market to make
of asset values in several marketplaces. The formal currency market had to catch up. Due to a profit.
most basic kind of arbitrage is buying an item the market pricing based on the informal curren- The Central Bank might, as a measure, require
at a cheaper price in one market and concurrent- cy market, government bodies had to borrow those who bought the coins in local currency to
ly selling it at a higher price in another market. from the Central Bank using the parallel market only be able to liquidate the coins in local cur-
value. This has led to an exponential growth of rency as well.
The primary condition for arbitrage is asset price local debt for the government. This would mean the buyer has to monitor
imbalance. The imbalance may come in different However, as the local currency chases real value exchange rate movement on the interbank market
markets where the same asset is traded at differ- on both currency markets, the Central Bank had across the movement on the parallel market
ent prices; assets with similar cash flows are to create another arbitrage in-order to raise which is often quoted by economic players for
traded at different prices or an asset with a money through market inefficiencies. pricing. For example, if the parallel exchange
known future price currently traded at a price While the country is producing less gold than it rate moves up by 25% while the interbank
different from the expected value of the future is capacitated, the Central Bank has moved to moves by 7%, that means the difference is the
cash flows. Another condition for arbitrage is introduce Gold Coins into the economy. These value loss to the buyer of coins.
simultaneous trade execution. coins are a liquid asset class meant to be an In all this, however, the bank is mopping money
This refers to the purchase and sale of identical investment option for investors seeking to pre- in exchange for a certificate in promise of gold.
or equivalent assets simultaneously to capture serve the value of their liquid assets. This comes However, on the upside, arbitrage opportunities
the price differences. If the transactions are not after the government attacked the most viable are short-lived, and therefore the results will not
executed simultaneously, the trade will be asset class that existed in Zimbabwe- the stock take long to show. Once investors take advan-
exposed to significant risks. market. tage of the opportunity, prices will respond so
The baseline factor is arbitrage opportunities The Gold Coins are due to be circulated later that the buying and selling price becomes equal.
exist due to the inefficiencies of the market. this month. However, the circulation follows that
Zimbabwe has, for a long time, suffered from the buyer will get a certificate of ownership
weak macro-economic fundamentals and has
therefore allowed a chance to arbitrage opportun-
ists to enrich themselves. Zimbabwe has been
battling forex arbitrage since de-dollarisation and
has dismally failed to completely eradicate it.
The tactic of taking advantage of pricing differ-
ences in the currency markets is known as forex
arbitrage. The arbitrage, which may take many
different forms, aims to purchase and sell cur-
rencies whose exchange rates are currently
disparate but very likely to quickly converge.
The idea is that the arbitrage will grow increas-
ingly profitable and close, often in milliseconds,
as prices return to the average.

7 The AXiS XXXV Friday 08 July 2022 Economic News & Analysis

The road to a digital economy

Zim targets substantial digital footprint

The future of Business, According to the Digital Economy for Zimba- key strategic playing field presently and in the
bwe Country Diagnostic Report, Zimbabwe has future. The sector has witnessed unprecedented
of development, wealth made digital advancements, including a revolu- growth over the last few years, thanks to Covid
tion in mobile money, resulting in about 7.1 which has accelerated the move towards digital-
creation, now depends million mobile wallet holders in a country of isation. This includes mobile payments,
less than 15 million. Zimbabwe also has a rela- exchanges, and initially platforms related to
on the digital economy tively well-developed digital payment system, cryptocurrency which were last dismantled to
where 96% of all transactions in the country’s gain control of the finance sector. The RBZ is
At the World Economic Forum in formal sector are conducted through digital National Fintech framework that it hopes will
Davos, President Emmerson Mnangag- means and only 4% are cash-based, and the guide the further development of the sector
wa said that embracing science and government uses digital money almost exclu- while ensuring it is regulated.
technology, particularly in the field of educa- sively. Zimbabwe already has a strong digital infra-
tion, will help to boost the global economy. However, despite these advances, Zimbabwe is structure, but regulatory roadblocks and policy
He also stated that such a focus would better currently capturing only a fraction of its digital inconsistencies continue to hamper its growth.
prepare youngsters to pursue careers in a digi- transformation growth potential, and the report Zimbabwe’s international connectivity infrastruc-
tal economy. He further expressed to the recommends strategic investments in digital ture is relatively well-developed with fibre con-
media that the future of business and the skills and infrastructure, as well as accelerating necting major cities and urban areas. However,
creation of wealth is largely dependent on the the creation of digital platforms and digital large gaps remain in rural areas.
"digital economy." In reality, Zimbabwe still entrepreneurship to create the foundations for The report also delved into digital financial
has a long way to go in creating an economy the digital economy of the future. services, which are the strongest foundation for
with a digital backbone. The government, The government of Zimbabwe sees the tech the further development of the digital economy
however, has taken steps in the right direction sector (in particular financial technology) as a
in order to ensure growth and sustainability. *To Page 8

Business News & Analysis The AXiS XXXV Friday 08 July 2022 8

*From Page7 zation. The country has immense potential for and post-secondary education with a special
the development of digital entrepreneurship, yet focus on digital skills development.
in Zimbabwe, even at the height of macroeco- challenges abound, including limited access to The report concludes that to move the digital
nomic woes. The country has a well-developed market data, limited access to start-up capital, economy forward, Zimbabwe needs to make
payment system, where 96% of all transactions and a complex tax regime for entrepreneurs. regulatory improvements as well as investments
in the country are through digital means and Zimbabwe has a good foundation upon which in four interconnected areas across all pillars:
only 4% are cash-based. The government uses digital skills could be leveraged if training for policy and regulatory framework, resource man-
digital money almost exclusively. However, there both teachers and students is scaled up, and agement and coordination, governance, and
is still no interoperability among mobile money coordination and data flows improved. The rapid capacity building.
operators and the cost of transactions is high pace of innovation, together with a supply-side Much work remains to be done both on fixing
and the rural penetration in internet banking is failure to deliver the required digital skills, the macroeconomic fundamentals, and yet these
low due to limited internet coverage. means that many businesses, service providers, also create an opportunity for leapfrogging and
The other key element of this drive is the digi- and organizations struggle to obtain employees incentive for further innovation, just as the case
tal entrepreneurship scene in the economy. In with the right skills to harness technological of digital financial services illustrates.
Zimbabwe, digital entrepreneurship is a nascent opportunities. Serious investment by the govern-
yet growing area, conditional on key regulatory ment and related players will be needed in basic
reforms, improved coordination with the private-
sector, and at least some macroeconomic stabili

The art of strategic management:

How to evade business risk in Zim

B usiness risk poses a major threat to com- of data breaches, Zimbabwe has finished its
pany operations when viewed in the con- Cyber Security and Data Protection Bill.
text of the entire global business commu- Solution: Zimbabwean businesses must spend
nity. Companies in Zimbabwe are not exempt money on solutions for cyber security. Dande-
from this, and this article will examine the haz- mutande is one such company that provides
ards that are particularly hurting Zimbabwean such solutions. Along with other services, the
businesses. company offers cloud and cybersecurity solu-
tions with round-the-clock client assistance to
The paper will also discuss ways to manage these improve business performance and lower risk
risks in the specific context of Zimbabwe. Any appetite. Unfortunately, unless they experience a
exposure to a factor that could affect a company's hack, many Zimbabweans do not realize the
profits or lead to its bankruptcy is referred to as value of cyber security solutions.
a business risk.
Climate Change
Business risk comes from many different places,
including shifts in consumer preferences and Natural disasters and extreme weather brought
demands, the health of the wider economy, and on by climate change will pose the biggest oper-
governmental rules and regulations. Businesses ational hazards to organizations. Numerous par-
may not be able to prevent business risk, but they ties are virtually certainly involved in this risk
can take measures to lessen its effects, such as as stakeholders, and businesses' ability or inabil-
creating a strategic risk plan. ity to manage this risk is closely scrutinized.
Businesses are under a lot of pressure to con-
Situations of corporate crises are foreshadowed by The Yahoo data breach, which ultimately tribute to the fight against climate change, there-
risks and threats. While certain risks are relative disrupted the data and private information of fore it's crucial to be ready for the fallout.
and dependent on the nature of an organization's about 3 billion users, must rank as the greatest To appeal to the consumer, retailers are now
business or industry, others are universal and pose data breach to date. When Yahoo said that choosing suppliers who use ecologically friendly
a hazard to every corporation. Only scenarios hackers had gained access to 1 billion accounts procedures. Because they understand how sus-
relevant to the situation in Zimbabwe will be in its database, the breach took place in 2013. tainability impacts profit, other companies are
taken into consideration in this case. Yahoo was attacked once more despite the com- sharing sustainability data with investors. Fur-
When the danger materializes, there needs to be pany's advice to customers to change their ther, some companies are creating their regula-
a current crisis management strategy in place to passwords and upgrade its encryption tech- tions rather than waiting for the government to
handle it. Managers should use risk management niques. In 2017, Yahoo announced that there do so. To stay afloat and competitive in a
as a key tool while managing their companies. had been data breaches affecting all 3 billion of market that prioritizes the environment, all of
its accounts. Names, phone numbers, and dates these businesses are gradually transforming.
Data Breaches of birth were exposed although some informa- These modifications in reaction to the impact of
tion, such as credit card numbers and pass- climate change on business are a result of two
The largest risk that businesses are currently words, was not. hazards: value chain risks and physical risks.
facing is the possibility of having their data com- Facebook has also received a lot of attention The process by which a business enhances the
promised as a result of globalization. The ques- lately for abusing its users' right to privacy. value of a product is known as the value chain.
tion of whether or not a corporation would expe- Another significant example, though, aroused a This procedure could cover a product's design,
rience a breach has changed to one of when. lot of questions. On the Amazon Cloud Com- manufacture, price, and distribution. For
Organizations have seen several data breaches as puting service, information about the Facebook instance, a business that mines raw materials
a result of the constantly growing digital universe. activity of more than 540 million people was from the ground processes them in a factory,
In 2018, Zimbabwe's head of the electoral man- available for public viewing. On Amazon's sets a price, and sells the finished product has
agement authority, Justice Priscilla Chigumba, said Cloud services, the likes, comments, and other invested new value in the raw materials. Every
that alleged hackers had recently accessed the information of the 540 million users were avail- step of the value chain may be impacted by
database and stolen vital data on the biometric able for anybody to view. To address the issue climate change.
voters' roll. This serves as an illustration of a
significant data breach that occurred in Zimba- *To Page 9
bwe.

9 The AXiS XXXV Friday 08 July 2022 Business News & Analysis

Jet fuel dynamics:

Prices place African airlines in Jeopardy

T he African aviation industry was now on Notably, jet fuel prices have risen by an aver- to secure deliveries for jet fuel for 12 months
a recovery trajectory owing to firming age of almost 40% of operating costs for Afri- starting in July. This after several African carriers
vaccination campaigns across the conti- can airlines, compared to previous figures of had reeled from fuel shortages.
inent with a notable recuperation in international about 20%, with strong indications the aviation In April Malawi Airlines cut baggage allowance
travel. Players in the sector were looking to industry operation costs and flight prices will by 70% to allow for extra fuel to be carried from
recover from the billions of losses in revenue the mount further — negating regional and interna- South Africa because of shortages at home. In
sector suffered because of the pandemic. Howev- tional travel, in the short-to-medium term. May, the Airports Company South Africa (ACSA)
er, the industry’s fortunes are once again threat- In 2021, African airlines cumulatively lost $8.6 announced it lost R1.5 million as a result of a
ened by spiking jet fuel prices on the back of billion in revenues due to the impact of the shortage of jet fuel at Johannesburg’s OR Tambo
supply chain disruptions because of the Rus- pandemic, representing 49.8% of 2019 earnings. International Airport.
sia-Ukraine conflict.

Africa’s aviation industry body, the Africa Air- Lower vaccination rates had dampened the The supply chain disruptions may be here for a
lines Association (AFRAA) projects that African region’s air travel recovery in recent years. while, as long as the Russia-Ukraine conflict
airlines will suffer $4.1 billion in losses this year However, some catching up was likely this remains unresolved. This translates to high jet
on the back of big-ticket jet fuel. This is the year, which would probably contribute to fuel prices and higher than normal operational
equivalent of 23% of revenues recorded in 2019. improved financial performance. The surge in costs for African carriers.
The International Air Transport Association jet fuel prices will now potentially cut into the Jet fuel prices are up 98% over the past twelve
(IATA) had earlier warned that rising jet fuel African revenues for airlines months for the Middle East and African region.
prices were likely to cause airfares to increase A committee was formed in May for African The fuel price ended last week down 7.6% at
this year, as airlines grapple with higher operating airlines -- including major carriers such as $159.5/bbl.
costs. South African Airways and Kenya Airways --

If you are not willing to risk the usual,
you will have to settle for the ordinary

-Jim Rohn

*From Page 8 lack of innovation. Even the most prosperous The fear of inflation is shared by all business
business that controls the market share in its owners. The biggest threat to their company,
Physical risks: These hazards arise when a weath- sector may have issues if it rests on its laurels. according to them, is rising costs. Business
er incident damages or incapacitates a company's A lot of experimentation goes into innovation, owners must raise prices to offset the effects
infrastructure, raw materials, or other assets. and most of it fails. Therefore, it can be said that of inflation to combat this.
These dangers may include climatic catastrophes having a high tolerance for failure is a key According to the graph above, Zimbabwe's
like floods and droughts. While no business can requirement for every successful innovation initia- inflation increased from 132 % to 192 %.
stop an impending weather disaster, businesses tive. This forces business owners to try and pre-
can be ready for physical hazards by analyzing Solution: Zimbabwean businesses should constant- dict future movements of inflation, inadver-
their exposure and adopting precautions against ly be aware of emerging market trends and look tently raising prices in the process. Such
the most likely outcomes. for opportunities to copy and create original prod- levels of inflation are damaging to how busi-
As a result of weather-related catastrophes, scarce ucts from what they observe to be popular in nesses operate in Zimbabwe. Price increases
or difficult-to-access goods may become more their local marketplaces. Innovation helps busi- frequently result
expensive as a result of climate change. Lower nesses maintain a competitive advantage. Solution: Companies must cut costs on their
supply, higher demand, and higher pricing are the own to deal with rising inflation. Zimbabwe-
results. The rate of climate change may have an Inflation an businesses should automate operations to
impact on consumer behaviour. For instance, con- streamline them and avoid hiring more staff.
sumers may switch to alternative energy sources Small firms can reduce their costs by out-
or renewable goods, making standard items and sourcing to save money and get ready for
systems unpopular. price hikes.
Solution: As they become more worried about Business owners should take advantage of
the environment, governments around the world this chance to borrow money to expand their
are gradually putting additional regulatory limits enterprises without having to worry about
on corporations. In Zimbabwe, banks must now filing for bankruptcy.
have a person in charge of ensuring that the The optimum time to take on debt is when
boards of directors adhere to the ESG principles. there is high inflation since this lowers the
Businesses will search for ways to run in this interest rate that must be repaid on debt,
that are eco-friendly. which benefits businesses.

Failure To Innovate

The biggest risk for Zimbabwean businesses is a



11 The AXiS XXXV Friday 08 July 2022 Economic News & Analysis

Day 66:
Tobacco weekly update

day 66, the average bale price for 2022 was US$3.03/kg, somewhat higher
than the US$2.76/kg for the prior year. Additionally, the YTD sales value was
US$520.62m, which is 0.91% higher than the same period last year.

Notably, this year saw 19.26% less rejected tobacco sales from both auction
and contract market participants, a sign that 2021–2022 tobacco farmers are
producing tobacco of higher quality. However, despite slightly improved tobacco
yields that reach the shelves, this season's reduced trade volumes harm Zimba-
bwe's agricultural sector export projections. Given that the tobacco season is
almost over, sustainable tobacco production, which includes replanting, is pro-
moted.

The nation is projected to once again see gold export's top export charts in
2022 as the primary export revenue generator from that industry. Year-end per-
formance estimates
are somewhat more
difficult to make
because of the sea-
sonal volume
swings in the tobac-
co industry, and
consequently the
commercial agricul-
ture industry as a
whole. This also
Based on contract and auction floor sales data that have been amassed refutes the govern-
as of July 5th, 2022, the comments for the tobacco season of 2022 are ment narrative that
provided below (day 66). The 66th trading day of this year is just over agriculture can and
the midpoint of a typical tobacco season based on 2021 sales and mar- will be the main
keting statistics, giving the most recent data a respectable baseline for driver of national
the overall performance to be anticipated around September 2022 when economic develop-
mop-up sales have ended. ment. The graph
According to the most recent sales data, this year's overall volumes were below depicts the
171.75 m kg, 7.98% less than last year's 186.66 m kg. However, as of tobacco season from
the prior year.

Economic News & Analysis The AXiS XXXV Friday 08 July 2022 12

Insatiable thirst for debt: Insurance
firm
Auction market review
frets over
L iquidity on the auction market contin- 1.2 Interbank Bids Trend sustained
ues to average way below prior-year ballooning
averages, a possible indicator of a dip The chart above shows the movement inflation
in demand. Data shows that year-to-date aver- between the auction rate and the parallel
age turnover levels on the auction market are market rate and the wider the gap between “Inflation is as
at US$30 million which compares to an aver- the two lines the higher the parallel market violent
age of US40 million, a week in the prior premium. The chart shows that the premium
year, a dip of 33%. between the two markets has been widening as a mugger, as
However, the same data reports that all quali- since the beginning of June 2022 from a low frightening as an
fying bids are being fully met implying that of 40%, the premium is now almost 100%. armed robber and
demand is being matched in its entirety. This As of Thursday 8 July, the parallel market
latter statistic is disputable in the face of wid- premium had widened to about 90%. The gap as deadly as
ening parallel market premiums now nearing between the two is largely an indication of a a hit man,”
100%. failed currency or an inefficient exchange rate
The wider premium shows that the auction system and in some instances a combination With ballooning inflationary pressures
market is not sufficiently catering for demand of both. continuing to define the Zimbabwe
refuting the notion of full demand cover on In its present modified form, the auction economic environment, insurance
the auction market. market is incapable of matching demand from companies have not been spurred.
In fact, over the latest 5 weeks, the value of the wider economy. Simply put, there is a The continued increase in inflation has cap-
forex exchanged on the auction market has greater demand for forex than the formal tured many headlines in Zimbabwe and
dipped to an average of US$25 million a market can match. market expectations suggest inflation rates are
week, which is lower than the year-to-date This demand is coming from arbitrage oppor- likely to remain higher over the long term.
average of US$30 million. tunities, which are fuelling money supply as Insurers, just like other businesses can be hurt
The interbank market continues to trade very well as the insatiable thirst for debt by gov- in many ways by inflation. Inflation impacts
small values although it has been instrumental ernment. The government is therefore issuing the real values of the portfolio, income and
in price discovery which the auction market sovereign securities to finance off-budget returns. The impact on liabilities can be more
has realigned with. expenditure. complex and it can have a greater effect on
The weak confidence and less preference for insurers with longer tail risk.
1.1 Premium Trend Zimdollar equally drive commerce to bench- In higher inflationary environments like Zim-
mark and sometimes demand payment in babwe, expenses for insurance operations and
In the week under review, the Zimdollar stable currency in turn driving demand for claims increase more than expected, resulting
eased by 3.41% on the auction market to forex up. in lower income.
settle at 379 to the US dollar. the Zimdollar The above factors are key in understanding To counter this, insurance companies will
has been easing by an average of 4.3% per the currency crisis in Zimbabwe. The underly- need to adjust their premiums according to
week over the last 5 weeks. Cumulatively the ing challenges are not behavioural on the part the inflation trends, something that might be
Zimdollar has lost 71% since the beginning of citizens only. They are in fact behavioural exorbitant to the insures as salaries and wages
of the year. in the main, due to government behaviour. usually don’t chase inflation. Companies are
The year-to-date loss of 71% within the first The behaviour of tampering with money reluctant to increase salaries to match up with
6 months shows that 2022 is likely to be the supply above the acceptable threshold is a inflation trends and this will affect insures
worst year since de-dollarisation in terms of historical weakness for the government in with some succumbing to defaulting their pol-
exchange rate loss. Harare. Money supply in broad terms is up icies.
If that holds, it is also likely that inflation about 151% year on year and this is largely It is against this background that one of the
will rise to hyperinflation levels within the a function of government securities and leading short-term insurance companies in
next few months. In 2021, the Zim dollar lost private sector credit. Zimbabwe, Alliance Insurance challenged the
only 24% which was its most conservative These are the fundamental challenges. To government to put in place meaningful resolu-
loss position since 2019. Between 2019 and solve the challenge government ought to tions to address the raging inflation.
2020, the Zimdollar lost an average of 75% make the tough decisions to aggressively cut In its financial results for the year ended 31
per annum. back on expenditure, settle debts and re-char- December 2021, Alliance Insurance (the Com-
This data shows that a loss of 71% by the ter a more sustainable path to growth. pany) bemoaned continued inflationary pres-
first week of July, is shaping up to drive the This path is devoid of corruption, and anchors sures characterised by a volatile exchange rate
yearly outturn to the worst position, since on broad economic reforms which include environment and scarcity of foreign currency
de-dollarisation. In the final week of May, the parastatal restructuring increased transparency which reduced market competitiveness. This
ZWL tumbled by 33% in 1 session, marking in government dealing, re-engagement, policy constrained the capacity utilisation within the
the biggest fall per session since June 2020. consistency, rule of law and free-market prac- manufacturing sector to below 40%.
tices. As a result, the company’s positive perfor-
mance was dampened resulting in increased
insurance limits.
“The company’s investment strategy will
remain biased towards real assets to hedge
against inflation,” the company said in a state-
ment accompanying its full-year results.

* To Page 13

13 The AXiS XXXV Friday 08 July 2022 Business News & Analysis

* From Page 12 shareholders narrowed by 8% to ZWL 73.9 mil- drought, structural deficits of an unstable cur-
2021 year-on-year inflation trends lion from ZWL 80.2 million registered during rency management framework and increasing
the COVID-19 pandemic era. momentum for general price increases.”
Between 1 January 2021 and 31 December Gross premium written dwindled to ZWL 2.1
2021, the battered local currency depreciated by billion from ZWL 2 .2 billion in the full-year How government can respond to
24% after capping the year at 108.7 from 82.1 20020 while monetary loss due to the rapid inflation
in January 2021. depreciation of the Zimbabwe dollar stood at
The depreciation trend spilt over to 2022 with ZWL 161.7 million. As part of measures to curb the skyrocketing
the currency widening losses in 2022 alone by However, the Net premium written advanced to inflation, the government through the RBZ has
70%. ZWL 1.1 billion from ZWL 852 million in introduced gold coins which will be circulated
Currency depreciation continues to define the 2020 anchored as reinsurance ceded declined to effective 25 July this year. Gold coins are a
economy despite command economics by the ZWL 930 million from ZWL 1 billion in 2020. form of investment security. They derivatives
government through statutory instruments and Underwriting profit soared by 49% to ZWL 52 their value from the underlying gold asset.
arguments by the RBZ that there is no econom- million from ZWL 35 million mainly anchored However, the involvement of the Zimbabwe
ic crisis in Zimbabwe. by net commissions received which increased to dollar to purchase the gold coins using the
As a result, the company’s profit attributable to ZWL 75 million from ZWL 4 million during interbank rate will make the whole thing dumb.
the comparative period. As usual, people are likely to sell their USDs
Cash generated from operations rose to ZWL on the black market rate where the premium is
170 million from ZWL 52 million while net higher, buy gold coins using the interbank rate
cash flows from operations were up at ZWL and finally sell them in USDs.
137 million from ZWL 70 million which trans- This situation is also likely to make gold coins
lates to a 96% increase. and both the USD scarce with the ZWL left in
Resultantly, net cash flows from operating activ- circulation.
ities grew to ZWL 117.6 million during the Therefore, the only solution left to solve the
period under review from ZWL 97.6 million. currency problem is either to forgo the ZWL
“The Zimbabwean economic prospects are for good or governor John Mangudya and Min-
expected to remain tenuous in the short term ister Professor Mthuli Ncube should resign for
reflecting the downstream effects of a protracted failing the economy or the ZWL and its two
bosses should go together.

Invictus Energy:

Mukuyu-1 prospect doubles from initial estimates

Invictus Energy Limited says its Mukuyu prospect has grown significantly in its scale and now
prospect resource estimates have been represents one of the largest conventional exploration
upgraded to 20 trillion cubic feet (Tcf) plus targets globally.
845 million barrels of conventional gas conden- This updated estimate is the culmination of the
sate, a 2.7-fold increase from the initial esti- excellent work from the Invictus technical team over
mates. the last 12-18 months to deliver this result in the
According to the 2019 independent assessment lead up to our drilling program.”
by Getech Group plc, the resource which is Macmillan added, “The estimate for the newly iden-
within the Group’s Cabbora Bassa project in tified 200 horizon in the Dande formation within
Zimbabwe was initially estimated to hold 8.2 Mukuyu is 1.9 Tcf + 77 mmbbl which provides us
Tcf and 247 million barrels of conventional gas with a material first up target in the Mukuyu-1
condensate, on a gross mean unrisked basis. well.”
“Based on the Company’s 80% share in the
Cabora Bassa project, Invictus’ net share of this About Invictus Energy Limited
prospective resource would equate to 16 Tcf
and 676 million barrels of conventional gas Invictus Energy Ltd is an independent upstream oil
condensate, or about 3.44 billion boe,” Invictus and gas company listed on the Australian Securities
said. Exchange (ASX: IVZ).
Drilling at Mukuyu is expected to commence The Company’s principal asset is SG 4571 located
in August this year after the drill rig was held in the Cabora Bassa Basin in Zimbabwe which con-
up in customs in both Tanzania and Mozam- tains the world-class Mzarabani prospect – the larg-
bique en route to Zimbabwe. est undrilled prospect onshore Africa independently
Commenting on the developments, Managing estimated to contain 8.2 Tcf and 247 million barrels
Director, Scott Macmillan said, “The Mukuyu of conventional gas condensate (gross mean unrisked
basis).

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Business News & Analysis The AXiS XXXV Friday 08 July 2022 14

Bindura Nickel Corporation:
Pessimistic about Zim's economic outlook
Bindura Nickel Corporation (BNC) is pes-
simistic about the country’s 2022 eco- states review that broad money rose by more than In line with the Group’s new strategy, head
nomic outlook due to an environment 100% year-on-year since Jan 2022 hitting 113.4% grade declined to 1.30% from 1.52% for the
characterised by high inflationary pressures, in January and 23.8% in February while by prior year while recovery efficiency was 85.0%
ballooning exchange rates, shortages of foreign 151.4% in March. In June 2022 year-on-year versus 85.9% for last year. Consequently, Nickel
currency and erratic droughts. inflation continued in the three digits territory, a in concentrate production declined by 5% to
The Group, which is listed on the US dol- record high since June 2021 while from a 5,082 tonnes from the previous year’s 5,363
lar-denominated bourse, Victoria Falls Stock month-on-month basis, inflation continued within tonnes. However, nickel production decreased by
Exchange (VFEX), and also the largest nick- the double digits zone, the highest outturn since 5% to 5,082 tonnes while nickel sold decreased
el-producing company in Zimbabwe revealed July 2020 when it was recorded at 35.5%. by 14% to 4,720 tonnes due to lower production
this in its financial statements for the year Since 2019 when the Zimbabwe dollar was rein- and delayed the signing of a new offtake con-
ended 31 March 2022. troduced, the market started rejecting the currency tract.The Group’s aged and obsolete underground
This is despite the Group capping its year in fuelling black market rates, which in turn drove mining mobile equipment resulted in poor and
record profits, from revenue, operating profit inflation. Due to 2008 memories, the public has inconsistent availabilities during the year under
and profit after tax as demand for the metal no confidence in whatever policies officials will review and thus compromised production while
grew during the period. put to stabilise the currency. BNC also pointed significant challenges associated with changes in
“While the commodity price boom has contin- out that scarcity of foreign currency will also be the massive orebody footprint were experienced
ued into 2022, partly aided by the uncertainty a major driver of economic meltdown going in September and October 2021. Resultantly, the
arising from the Russia-Ukraine war, Zimba- forward. Despite being an exporter, the Group is unit cash cost of production increased by 43%
bwe’s economic prospects for the calendar year forced to relinquish 40% of its foreign currency to US$10,749 per tonne while the all-in-sustain-
2022 are not as promising due to a poor to the RBZ in exchange for the Zimbabwe dollar, ing cost of production increased by 45% from
2021/22 agricultural season and the adverse resulting in shortages of the greenback to buy US$8,552 per tonne for the prior year to
impact of the high inflation and persistent equipment, and raw materials and expand. US$12,396 per tonne mainly due to the decrease
foreign currency shortages,” the Group’s chair- The underfed Auction Market continues to fall in nickel production and the high cost of main-
person Muchadeyi Masunda said in a statement short in fulfilling its mandatory duty resulting in taining the old and obsolete underground mining
accompanying the full-year financials. many economic groups like the Zimbabwe Coali- mobile equipment. “The disparity between the
Due to the impact of climate change which is tion on Debt and Development (ZIMCODD), the official auction and parallel market rates contin-
heavily affecting Africa though the continent is Zimbabwe National Chamber of Commerce ued to widen during the year. With local suppli-
the least polluter at 3% according to United (ZNCC) and the Confederation of Zimbabwe ers using the parallel market rates rather than
Nations data, Zimbabwe has been succumbing Industries (CZI) calling for its suspension or total the auction rates in their pricing models, the
to rainfall setbacks for the past five farming abandonment. Due to surrender taxes, raging discrepancy in the two rates hurt the Company’s
seasons affecting agriculture, which is the inflation and skyrocketing exchange rates, the costs of local inputs” added Masunda.
backbone of the economy. Group lost US$2.5 million and it is against this Current assets increased by 65% to US$34.1
Agriculture is one of the top foreign currency background that BNC remains cautious of the million due to an increase in trade debtors, out-
earners in Zimbabwe alongside mining and economic environment. “A combination of the standing VAT Refunds and unsold Nickel stocks.
tourism and its disturbance has far-reaching discrepancy between the auction foreign exchange The Group’s VAT Refunds balance as of 31
effects even on mining corporates like BNC. rates and the rates prevailing on the alternative March 2022 amounted to US$5.2 million from
According to the World Food Organisation of markets, coupled with the regulated surrender of US$2.2 million in 2021. “ZIMRA is taking
the United Nations, Zimbabwe’s agricultural 40% of the Company’s export revenue in much longer to process VAT Refunds, resultingin
sector contributes almost 17% to GDP under exchange for Zimbabwe Dollars at the auction the average age of the refunds increasing to 467
normal rainfall seasons and it is agriculture that rates, resulted in a loss of value amounting to days (FY2021: 242 days) but despite that, the
feeds into the services and heavy industries. US$2.5 million for the year under review,” group balance sheet remains strong, with a sus-
However, normalcy seems to be unfounded and Masunda said. tainable level of borrowings,” Masunda said.“The
this is the signal to the government to invest global electrification agenda and the shift to
more in irrigation schemes. BNC financial overview in FY’2022 greener forms of energy are likely to support
Besides being pessimistic about the rainfall Nickel prices in the medium to long term. Prices
patterns, BNC also highlighted that the infla- Meanwhile, the Group’s revenue, operating profit will be supported by global infrastructural spend-
tionary pressures currently prevailing are far and profit after tax increased by 25%, 263% and ing if previously set targets are met. It is envis-
from ending and will birth a negative outcome 361% to US$74 million, US$11 million and aged that a resolution of the conflict in Ukraine
on business performance. US$8 million respectively ahead of the prior year. will likely be bullish for Nickel as more infra-
Zimbabwe’s inflation is a combination of poor Profits were attributed to high nickel prices structural spending will be needed to rebuild the
management from the Treasury and RBZ and driven by the global increase in the demand for country after the scourge of war.”
the manifestation of behavioural economics the metal. “High energy prices, macro-environ-
from the public. mental fears over simmering geopolitical tensions BNC’s pending capital projects
Since the re-introduction of the Zimbabwe between Russia and Ukraine, industrial growth
dollar in 2019, the government has failed from government stimulus in Europe and China, Trojan Nickel Mine down dip exploration and
dismally to deal with the ballooning inflation and expectations of demand increase from energy extension project is aimed at further down-dip
rates. Countless measures have been put but storage systems and electric vehicles all supported exploration of the massive ore body beyond 59
these have failed to restore the confidence and prices,” said Masunda. Level, to increase the life of the mine beyond
stability of the Zimbabwe dollar. Those mea- Property, plant and equipment grew by 7% ten years. This will be coupled with the execu-
sures harmed business operations, including reflecting the capital expenditure incurred during tion of the second phase of the shaft re-deepen-
BNC itself. For instance, in 2021 as the gov- the year, which included the acquisition of new ing project to access the deeper high-grade
ernment battled to control the raging inflation, exploration, face and support rigs which are part resources. Exploration has started at Kingston
it resorted to command economics, as usual, of the retooling exercise currently underway. Cap- Hill which is a potentially open pitable
passing the Statutory Instrument 127 f 2021 ital expenditure for the year amounted to US$6.5 low-grade deposit located 4 kilometres from the
and reviewing surrender taxes upwards from million against US$8.9 million in 2021 while net Trojan Nickel Mine. It is aimed at evaluating a
30% to 40%, a scenario that did not go well interest expenses amounted to US$940,757, up potential ore resource. If proved viable, this ore
with BNC operations. Granular analysis shows from US$235,648 due to new loans accessed resource will significantly enhance the mining
that the current inflation crisis started manifest- during the year. capacity of the Company, while extending the
ing in 2019 driven by the Reserve Bank of The income tax charge for the year amounted to life of the mine. BSR Slag Dump Retreatment
Zimbabwe’s reckless liquidity and exchange US$3.0 million, giving an effective tax rate of Project Test work is in progress to establish the
rate management coupled with the Treasury’s 27% compared to the corporate tax rate of extent to which a slag dump of approximately 3
fiscal indiscipline and short-term financing 24.75%. “This was due to prepaid income tax of million tonnes, which accumulated on-site at
model for its major projects and programs. US$1.2 million on the tax dispute with ZIMRA, Trojan Nickel Mine over the years could be
RBZ data shows that ZWL market liquidity which was previously reported as a contingent treated for the recovery of Nickel, Copper and
remains above the roof as the broad moneysup- liability but was recognized as an income tax Cobalt. If proved viable, the project will poten-
ply continues to mount by more than 100% expense in the current year, upon withdrawal of tially generate additional revenue for the Compa-
year on year, a major inflation amplifier. RBZ the appeal that had been lodged with the Special ny.Hunters Road project’s review is underway
Court of Income Tax Appeals.” Meanwhile, intending to progress the project to the next
tonnes of ore mined for the year increased by stages if proved viable on technical, economic,
13% to 463,338 from the previous year’s 412,605 safety and sustainability criteria. This project is
tonnes while tonnes of ore milled of 461,130 expected to generate additional ore resources for
were 12% higher than last year’s tonnage of the Company, thus significantly increasing the
411,754, in tandem with the higher tonnage capacity of the business.
mined. Last but not least, Smelter and Refinery Prelimi-
nary discussions have been held with interested
parties on possible partnerships towards the
resuscitation of the Smelter and Refinery plants.

15 The AXiS XXXV Friday 08 July 2022 Guest Column

Gold coins don’t address root causes of currency crisis

By Zvikomborero Sibanda Ownership Certificate. As for the trading mo- However, the public has exhibited scepticism
dalities, the coin will have liquid asset status on RBZ’s plans to introduce gold coins. Eco-
Z imbabwe is facing a tightening macro- (capable of being easily converted to cash), will nomic agents lack trust in the central bank
economic environment characterized by be tradable locally and internationally and its because of its policy inconsistencies -a history
rampant depreciation of the local curren- pricing will depend on the foregoing interna- of reneging on its prior announcements. In
cy and skyrocketing inflation. As a result of tional prices of gold together with the cost of 2016, under the guise of providing export
this mounting crisis, the Monetary Policy Com- producing gold. incentives, RBZ introduced bond notes which
mittee (MPC) of the Reserve Bank of Zimba- On face value, the introduction of gold coins were purportedly backed by a US$200 million
bwe (RBZ) introduced gold coins dubbed ‘Mo- will provide investors with alternative means of loan extended by Afreximbank. Unfortunately,
si-Oa-Tunya Gold Coin’ to help investors pre- storing value and help central bank reduce cur- this turned to be misleading and false as the
serve the value of their investments. rency volatility. Before it collapsed in the bond notes later became de facto local curren-
1970s, the global monetary system depended cy.
The gold coins will be minted by Fidelity Gold on the gold standard where values of curren- From an outsider’s perspective, the introduction
Refineries (FGR) and will be traded in both cies were fixed to the price of gold. This of bond coins in 2014 and later bond notes in
the domestic and international markets through allowed central banks to effectively control 2016 was a mere RBZ scheme to re-introduce
the RBZ, its subsidiaries, and banks starting inflation as the system could not allow them to the local currency as US dollars were in due
from the 25th of July 2022. print money excessively without increasing the to massive externalization and unsustainable
quantum of gold backing it. Generally, gold is government spending that led to fake electronic
The coins will be sold to investors both in US described as a safe haven asset during uncer- US dollars in the form of RTGS balances.
dollars and Zimbabwe dollars (ZWL). Accord- tainties like geopolitical tensions, natural disas- Official statistics show the central bank accu-
ing to a statement by the RBZ Governor, these ters, and galloping price inflation. This is mulating legacy debts to the tune of US$3.8
coins will weigh one (1) troy ounce and carry because gold is a scarce resource, has the high- billion during this period as it failed to facili-
a purity of 22 carats (about 28.5 grams) of est Stock to Flow Ratio of all commodities, tate forex transactions of 855 local firms to
gold, adorned with serial numbers, and upon and also enjoys a long history of use as a store their foreign suppliers. From the domestic
purchase, the buyer shall take physical posses- of value and medium of exchange. front, the cash-strapped government was forced
sion of the coin and be issued with a Bearer

Term of The Week

Accounting Rate of Return (ARR)

lDa'etfihnaittiroenfl:eTchtsetahcecopuenrctienngtaragteeroaftereotfurrent(uArRnRe)xips eacftoerdmoun- Advantages
an investment or asset, compared to the initial invest- • The accounting rate of return is a simple calculation that does
ment's cost. not require complex math and is helpful in determining a proj-
Understanding ARR: The accounting rate of return is a ect's annual percentage rate of return. Through this, it allows
capital budgeting metric that's useful if you want to calcu- managers to easily compare ARR to the minimum required
late an investment's profitability quickly. Businesses use return.
ARR primarily to compare multiple projects to determine • ARR comes in handy when investors or managers need to quick-
the expected rate of return of each project, or to help ly compare the return of a project without needing to consider
decide on an investment or an acquisition. the time frame or payment schedule but rather just the profit-
ability or lack thereof.

ARR factors in any possible annual expenses, including Disadvantages
depreciation, associated with the project. Depreciation is • It doesn't consider the time value of money. The time value of
a helpful accounting convention whereby the cost of a money is the concept that money available at the present time is
fixed asset is spread out, or expensed, annually during the worth more than an identical sum in the future because of its
useful life of the asset. This lets the company earn a profit potential earning capacity.
from the asset right away, even in its first year of service. • ARR does not take into account the impact of cash flow timing.
Let's say an investor is considering a five-year investment with an
Calculation: ARR = Initial Investment initial cash outlay of $50,000, but the investment doesn't yield
Average Annual Profit any revenue until the fourth and fifth years.

Guest Column The AXiS XXXV Friday 08 July 2022 16

to monetize the fiscal deficits it incurred More importantly, FGR is just a gold middleman ued maintenance of the failing forex auction
between 2016 and 2018 when it introduced the without its own gold mines. The proposed selling system, selling the new gold coins in ZWL
corruption-infested Command Agriculture pro- of gold in ZWL spells disaster for gold miners surely entrenches rent-seeking behavior which
gram. To this day, the country is still struggling who are already choked by the 40% forex retention only benefits the rich and connected few at the
with exchange rate depreciation and high infla- thresholds. These retention thresholds are set to expense of the majority poor. ZWL is depreciat-
tion caused by the lack of fiscal discipline. rise to 65% as those companies which would fail ing at an alarming pace and inflation is raging
Zimbabwe is facing weak institutional and legal to utilize forex proceeds within 120 days face a havoc. The latest official statistics released
frameworks to curb forex leakages emanating mandatory liquidation of 25% of those remaining show that prices increased by a staggering
from public corruption and illicit financial flows forex balances. The Bank will likely use overval- 191% in the last 12 months ending June 2022.
such as gold smuggling. The government esti- ued official exchange rate and start to issue US As such, the gold coins are unaffordable to
mates that it is losing about US$100 million in dollars Treasury Bills (TBs) to finance gold pur- most citizens, particularly public workers who
gold revenues per month through smuggling. chases. are earning paltry salaries.
The side marketing and smuggling of gold are The created debt will likely end up on the shoul- Therefore, it is my view that the gold coins are
aided by FGR’s long history of paying gold ders of poor citizens through the usual tactics of not addressing ZWL depreciation and price
prices that are not in sync with global market RBZ debt assumptions. Zimbabwe is in debt inflation but are only a way to increase the
dynamics. distress, with public and publicly guaranteed debt wealth of the rich. The only viable solution to
Currently, the RBZ is facing forex shortages and (PPG) now recorded at over US$17 billion as of stabilize the ZWL is to print less of it and back
has minimal if not nonexistent gold reserves in December 2021. This is an increase in public debt it with fiscal discipline, low levels of public
its vaults to enable it to sell gold locally. Due of more than 50% from the US$10.7 billion that corruption, and strict implementation of eco-
to burgeoning public debt and resultant inability was recorded in 2020. High indebtedness con- nomic reforms to subdue existing structural
to borrow on concessional terms from interna- strains countercyclical effects of government poli- rigidities causing pricing distortions in the mar-
tional financial institutions (IFIs) such as the cies and affects economic activity and investment kets. Also, it would be better if Treasury spends
World Bank, Zimbabwe is forward selling its through elevated long-term interest rates, height- the forex it is collecting on paying living
minerals and also engaged in collateralized bor- ened tax rates, currency volatility, and high price wages, and strengthen social safety nets to
rowing (resource-backed loans) to fund some of inflation. increase aggregate demand and locally generat-
its developmental programs and projects. Currently, US$1 is trading for about ZWL750 in ed economic growth.
Recently, Bloomberg revealed that the country is the parallel market against the official rate of about Zvikomborero Sibanda is an Economic Analyst
paying Trafigura’s US$225 million fuel loan ZWL380. This gives parallel market exchange for Zimbabwe Coalition on Debt and Develop-
contracted in 2019 using revenues from nickel premia -the percentage difference between official ment (ZIMCODD). He writes in his own capacity;
and gold mines owned under Kuvimba Mining and alternative rates- above 90% against a global his views do not represent those of the organiza-
House. threshold of at most 20%. So, just like the contin tion he works for. Email: bravosibanda@g-
mail.com. Twitter: @bravon96

Did you
know?

Seed Co Ltd (Seed Co) was founded in 1940
as the Seed Maize Association (SMA) of Zim-

babwe. In 1983, the SMA merged with the
Crop Seeds Association to form Seed Co and

has since grown throughout Africa.

NB: Interactive Tincture gold coin concept
Not RBZ issued coin -

U.S. F-35 fighters arrive in South Korea as joint Politics Around The World The AXiS XXXV Friday 08 July 2022 18
military drills ramp up
U.S. Air Force F-35A stealth fighters arrived in 2021."It's a great joy for all of us, for the society Russia claimed Monday that its air force hit
South Korea on Tuesday on their first publicly because our economy had gone down.I think that seven Ukrainian command posts in eastern
announced visit since 2017 as the allies and with the opening of the borders, there will be Ukraine.
nuclear-armed North Korean engage in an escalat- progress for everyone. The claims were made by the Russian Ministry
ing cycle of displays of weapons. For operators, for carriers", said Abdoulaye of Defense (MoD) in a statement. They also pro-
Joint military drills had been publicly scaled back Traoré, company manager for Africa Tours Trans. vided this press briefing footage, during which
in recent years, first in 2018 because of efforts to The sanctions have badly hit the landlocked Sahel Igor Konashenkov, the chief spokesman for the
engage diplomatically with North Korea and later state, whose economy is already under severe MoD, claimed that the targets included the com-
because of the COVID-19 pandemic. strain from a decade-long jihadist insurgency. mand post of the Ukrainian 25th Air Assault Bri-
South Korean President Yoon Suk-yeol, who took – Africanews gade, deployed near Siversk.
office in May, has sought to increase public Pressure points: threat of violence builds as Ken- Siversk is a city in the Bakhmut Raion of the
displays of allied military power, including exer- ya’s elections approach Donetsk Oblast region in eastern Ukraine. Russia
cises, to counter a record number of missile tests As Kenya’s presidential elections draw closer, the and pro-Russian forces are now shifting their
conducted by North Korea this year. – Reuters country’s vulnerability to violence is back in focus to the Donetsk region after having captured
Romanian President Iohannis rules out austerity evidence. the city of Lysychansk in the Luhansk region.
plan Politicians here are infamous for inflaming under- – Newsweek
In the week when the Government published for lying ethnic tensions, by touching on national UK ‘backsliding on human rights’, Council of
open debate the changes to the Fiscal Code, pressure points, such as historical grievances over Europe official warns
expected to bring some 0.9% of GDP in supple- land. And this year’s vote comes at a time when The UK is “backsliding on human rights” and
mentary revenues, President Klaus Iohannis ruled the rising cost of living has left many households must be stopped, a Council of Europe official
out the option of an "austerity plan" in response struggling. has warned.
to the expected dire economic situation in the The country has a difficult history with disputed The organisation, which was co-founded by Win-
coming quarters. The Government's plan works elections. A contested 2007 poll resulted in more ston Churchill following the Second World War,
quite well, he stressed. than 1,000 deaths. The potential for violence took aim at proposals to repeal the Human
"We do not have a plan to enter an austerity pro- during August’s elections stands at about 53%, Rights Act, as well as new protest laws and
cess for very simple reasons: we underwent the according to a report by Kenya’s National Cohe- moves to criminalise asylum seekers crossing the
economic crisis of 2009-2011 when we tried to sion and Integration Commission (NCIC), due to English Channel.
fight the crisis through austerity measures. The pre-existing conflicts, possible triggers and weak Dunja MijatoviÄ , its commissioner for human
result was not good, and I do not intend to accept electoral management institutions. – The Guardian rights, said: “Legal reforms should not weaken
a new experiment of this type with Romania," Sudan's army says it will withdraw from political human rights protections in the United King-
President Klaus Iohannis said at a press confer- talks eight months after coup dom.” – The Independent
ence on July 5, Ziarul Financiar reported. Sudan's leader has said the army will withdraw Ukraine can retake land recently captured by
– Romanian Insider from ongoing political talks, eight months after Russia, Johnson tells Zelensky
Why Kenya must remain neutral in new Cold the military seized power in a coup. Boris Johnson has told Volodymyr Zelensky he
War In a televised speech, General Abdel Fattah believes Ukraine can retake territory recently
Following G7 and NATO meetings last week it al-Burhan said the withdrawal would allow politi- captured by Russia in a call about the latest situ-
was evident that two distinct geopolitical and cal and revolutionary groups to form a transitional ation in the war-torn nation.
ideological groups are currently competing for government. The Prime Minister on Tuesday reiterated the
global economic, political, and military control. He made the announcement on Monday evening UK’s commitment to helping Kyiv defend itself
On one side is the West (US and Europe) with after nine people died on Thursday during protests and rebuild, as the Ukrainian president thanked
Russia and China jointly on the opposite side, against his military leadership. Mr Johnson for a further £100 million in sup-
alignments which are similar to pre-1989 cold war The ruling sovereign council, led by Gen Al-Bur- port.
alliances. han, will also be dissolved when a new govern- Defence Secretary Ben Wallace meanwhile said
Oil has become a geopolitical weapon in this new ment is formed, he added. – Sky News the first group of Ukrainian soldiers had recently
Cold War, in a way that is upsetting global energy Congo and Rwanda to meet for talks amid arrived in the UK as part of a programme to
security. The new Cold War has been evolving for tensions over rebels train up to 10,000 new Ukrainian recruits.
some time, with the ongoing Ukrainian war only Democratic Republic of Congo's President Felix The UK remains committed to helping Ukraine
succeeding in making various countries to identify Tshisekedi will meet his Rwandan counterpart defend itself and rebuild. – The Independent
which side of the geopolitical divide they sym- Paul Kagame for talks in Angola this week, offi- Spain boosts military spending to close gap with
pathise with, or confirmation of neutrality. cials said on Monday, June 4. NATO goal
When the West was busy containing global terror- It is not clear what the subject of the meeting is, Spain is increasing military spending as it works
ism post 2000, China was expanding its global but it is expected that this would be an opportuni- toward meeting a NATO commitment by dedicat-
control of natural resources (energy and minerals), ty to discuss current diplomatic issues between ing 2% of gross domestic product to defence, the
while expanding export trade and global infra- both countries. government said Tuesday.
structure development. By 2010, China was There has been a surge of attacks in eastern Cabinet members approved a one-off expenditure
already second largest global economy after the Congo by the M23 rebel group - which Kinshasa of almost 1 billion euros (around $1.04 billion)
US. – Business Daily accuses Kigali of backing. for Spain's Defence Ministry that the government
Ethiopia PM meets Sudan's Burhan, says both Rwanda denies supporting the rebels and has, in said was needed to cover unexpected expenses
endorse 'dialogue' turn, accused Congo of fighting alongside insur- produced by Russia’s invasion of Ukraine.
Ethiopian Prime Minister Abiy Ahmed said he gents - a face-off that has raised fears of fresh Spain has sent military and humanitarian aid to
met Sudan's coup leader Abdel Fattah al-Burhan conflict in the region. – Africanews Ukraine, and deployed more troops and aircraft
in Nairobi on Tuesday and that both committed to Pakistan arrest militant suspect in deadly bomb- to NATO missions in Eastern Europe.
"dialogue" to resolve any differences. ing of Chinese nationals – Associated Press
Their talks follow a clash in a volatile border Pakistan on Tuesday said it had arrested a militant NATO nations sign accession protocols for
region last month in which Khartoum said that who provided technical support for a deadly Sweden, Finland
Ethiopian forces had captured and killed Sudanese suicide bomb attack on Chinese teachers at Kara- The 30 NATO allies signed off on the accession
troop’s claims denied by Addis Ababa. chi University in April. protocols for Sweden and Finland on Tuesday,
"We have both agreed that our two countries have A suspected female suicide bomber killed three sending the membership bids of the two nations
plenty of collaborative elements to work on peace- Chinese teachers, drawing strong condemnation to the alliance capitals for legislative approvals
fully," Abiy said in a Twitter post, accompanied from Beijing, in the first major attack this year and possible political trouble in Turkey.
by a picture of the two men. – AFP against nationals of long-time ally China working The move further increases Russia's strategic
Mali reacts to lifting of sanctions by ECOWAS in Pakistan. isolation in the wake of its invasion of neigh-
Malians have expressed hope and joy at the deci- Four people died in total, including the minibus bouring Ukraine in February and military strug-
sion of regional bloc ECOWAS to lift the sanc- driver and the three Chinese staff from the Con- gles there since.
tions imposed on Mali's military regime. fucius Institute, a cultural and educational program “This is truly a historic moment for Finland, for
West African leaders accepted on Sunday a March that China operates at the university. – Reuters Sweden and for NATO,” the head of the alliance,
2024 plan to return to civilian rule. Russia Says Its Air Force Hit 7 Ukrainian Com- Secretary-General Jens Stoltenberg, said.
Mali underwent coups in August 2020 and May mand Posts – Associated Press

Interactive Tincture 08677 197 791
equityaxis.net
sianec.it[at]gmail.com

The Science of

STORYTELLING

then if 80,000 92% 60X
faster
digital words are consumed of consumers want brands to
by the average Zimbabwe make ads that feel like rate at which the brain
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Keep it short (and A Deliver content Show, dont tell.
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to a process called CORTEX ACTIVITY before, But our brains
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experience the similar engage many additional areas, including
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A FORMULA FOR SMARTER CONTENT

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with the right collaborators. 42% of front of the right eyes,. Consider to message consumers who are to the sponsoring company. which
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BY B2C BRANDS 88% 78% 76% 72%

20 The AXiS XXXV Friday 08 July 2022v Business Around The World

High cost of Russian gains in Ukraine may limit Food, housing, fuel, industrial inputs, rent, and Somali Central Bank said in a statement.
new advance virtually every other product have skyrocketed in
After more than four months of ferocious fighting, price. Food staples such as edible oil, bread, bot- "The review of the applications of these two
Russia claimed a key victory: full control over tled water, and milk are quickly becoming unaf- banks has been the subject of a lengthy process
one of the two provinces in Ukraine's eastern fordable to most. – Quartz of several months," the institution said, adding
industrial heartland. that they had the green light to establish and oper-
But Moscow's seizure of the last major stronghold EU rolls out $1.3 billion to help Nigeria diversify ate branches. – Africanews
of Ukrainian resistance in Luhansk province came its economy
at a steep price. The critical question now is Nigeria minister: 'wrong time' to remove fuel
whether Russia can muster enough strength for a The European Union (EU) and its development subsidies
new offensive to complete its capture of the finance institutions will provide Nigeria with 1.29
Donbas and make gains elsewhere in Ukraine. billion euros ($1.3 billion) to help Africa's most Now is the wrong time to remove Nigeria's costly
"Yes, the Russians have seized the Luhansk populous country diversify its economy away from fuel subsidy, Information Minister Lai Mohammed
region, but at what price?" asked Oleh Zhdanov, oil, a document from the bloc showed on Monday. said on Monday, noting many other nations were
a military analyst in Ukraine, noting that some Nigeria has been trying to broaden its economy introducing measures to help citizens cope with
Russian units involved in the battle lost up to a and exports outside the oil sector, which accounts high oil energy prices.
half their soldiers. – United News of Bangladesh for about 7% of Nigeria's gross domestic product
India restaurants reject service charge ban and 90% of its foreign currency earnings. Africa's largest oil exporter, which still has to
The main association of restaurants in India says import almost all its fuel needs due to lack of
it will continue to levy service charge on bills The funding will be provided until 2027 under the refining capacity, scrapped plans to abolish fuel
despite a government order banning it. EU's "Green Deal" initiative and will, among subsidies earlier this year - a move that raised
On Monday, the consumer protection authority other things, focus on enhancing access to renew- concerns with the International Monetary Fund.
said restaurants could no longer add service able energy and boosting the development of the
charge by default. agricultural sector. – Reuters "When you consider the chaos, the social dishar-
The order came after an increase in complaints mony and ... instability such an action (of abolish-
from customers being forced to pay the charge. 62% Nigerians without electricity, 90% lack cook- ing subsidies) would facilitate, is it worth it? I
But the National Restaurant Association of India ing fuels –FG don't think so," Lai Mohammed said in a
(NRAI) defended the practice, saying it was not wide-ranging interview with Reuters. – Reuters
"illegal". – BBC News The Federal Government on Tuesday said about
Pakistan central bank may raise rates by 125 bps 62 per cent of citizens in Nigeria lacked access to US, China officials address trade concerns amid
to tame 13-year high inflation electricity, while 90 per cent had no access to Ukraine war
modern cooking fuels.
Top representatives from the United States and
It, however, stated that efforts were ongoing to Chinese held a virtual meeting on Tuesday to
address the situation by harnessing the potential in discuss a range of economic issues against the
the gas sector through the development of critical backdrop of soaring inflation in the US and much
infrastructures across the country. of the world, and the war in Ukraine.

Pakistan's central bank looks set to raise its key The Minister of State for Petroleum Resources, US Treasury Secretary Janet Yellen and Chinese
policy rate by 125 basis points at its review on Chief Timipre Sylva, who disclosed this during Vice Premier Liu He discussed issues ranging
Thursday, as it attempts to tackle 13-year high his address at the ongoing 2022 Nigeria Oil and from the impact of the Ukraine war on the global
retail inflation, according to the median estimate Gas conference in Abuja, said the government was economy, supply chain disruptions, and US tariffs
in a snap poll of 10 economists and market also working hard to minimise gas flaring in on Chinese goods, according to the two countries'
watchers. Nigeria. – The Punch statements on the talks afterwards, which focused
The economists, analysts and senior professors Zimbabwe to start selling gold coins as local cur- on different issues.
surveyed were widely split on the quantum of rency falters Both countries released statements that addressed
increase by the State Bank of Pakistan (SBP), Zimbabwe will start selling gold coins this month their own concerns. – DW-South Africa
with views ranging from 50 to 200 basis points. in a bid to tackle runaway inflation which has Calls to kick-start production of electric vehicles
Two respondents did not see a need for a rate hamstrung the local currency. South Africa's automotive sector needs to start
increase. Central bank governor John Mangudya announced producing and selling more electric vehicles.
The central bank raised the benchmark interest the move on Monday amid economic woes in the The National Association of Automobile Manufac-
rate by 150 bps in May, taking the total increase southern African nation. turers of South Africa says if it doesn't, the econ-
to 400 bps so far this year to counter rising infla- The gold "Mosi-oa-tunya" coins - named after omy risks losing out on billions of rands in
tion. – Reuters Victoria Falls - will contain one troy ounce of exports.
Sri Lanka is 'bankrupt,' says PM Wickremesing- gold (around 31 grams) and can be converted into The association has warned that as the internal
he cash and traded both locally and internationally, combustion engine is phased out and new energy
With debts of more than $50 billion, Sri Lanka is the central bank said. – Sky News vehicles become the norm, South Africa's domes-
"a bankrupt country," Ranil Wickremesinghe said. South Africa business activity expands at faster tic car market will no longer have an export
The prime minister said the once-prosperous coun- pace in June –PMI market as countries across the world move away
try would go into deep recession this year amid South African private sector activity expanded at from combustion engines and their parts.
the shortages. a faster rate in June, helped by growth in demand The company's CEO, Mike Mabasa, says global
Sri Lanka is bankrupt and its unprecedented eco- and employment, a survey showed on Tuesday. manufacturers are adapting their factories, and
nomic crisis is set to last until at least the end of The S&P Global South Africa Purchasing Manag- working with policy makers to develop legislation
next year, Prime Minister Ranil Wickremesinghe ers' Index (PMI) rose to 52.5 in June from 50.7 that supports the environmentally friendly move.
told lawmakers in parliament on Tuesday. in May, posting its highest reading in just over a – eNCA
Wickremesinghe said the island nation's bailout year. Anything above 50.0 indicates growth in the China mulls dipping into pork reserves to rein in
talks with the International Monetary Fund (IMF) sector. costs
were reliant on finalizing a debt restructuring plan "Output and new orders increased at quicker rates, Chinese authorities could dip into strategic pork
with creditors by August. – DW driving employment growth to the strongest in a reserves in a bid to rein in prices of the staple
Hyperinflation in Ethiopia is the product of year," S&P Global economist David Owen said. meat, Beijing's top economic planner said on
cascading missteps South African companies surveyed attributed Tuesday.
Battling inflation is nothing new for Ethiopians. higher sales to a recovery in economic conditions, Pork prices in the world's second-biggest econo-
While global markets were stable, Ethiopia’s con- particularly in regions affected by recent floods. – my spiked late last month, with the meat selling
sumer good prices were wobbly. Only five years Reuters for 32 percent more than in June 2021 as market
of the two decades since the 2000s have seen Somalia authorizes first foreign banks in decades supplies dropped, state media Xinhua News
inflation below 10%. Now, for the first time in a Somalia announced Sunday that it has granted Agency reported.
decade, inflation in Ethiopia has remained above banking licenses to two foreign institutions, open- The spike came on the back of "irrational
25% for a year. ing the country to international investment for the behaviours such as blindly holding supplies and
This time around, though, life has become almost first time in decades. reluctance to sell in the live pig market," the
intolerable for the working class, whose wages The Egyptian bank Banque Misr and the Turkish National Development and Reform Commission
have more or less stagnated over the years, bank Ziraat Katilim thus become the first foreign (NDRC) said in a notice on social media. – AFP
making Ethiopian workers, among the lowest paid banks to be allowed to operate in Somalia, the
people in the world.



22 The AXiS XXXV Friday 08 July 2022 Commodities

Weekly Commodity impact on operations and the commitment by buyers using other currencies. The benchmark
Pulse industry players to build beneficiation facilities. three-month nickel contract on London Metal
The Finance and Economic Development Minister Exchange declined 12 per cent on Friday
revealed during a recent interview, that govern- morning to hit a lower circuit, CNBC report-
ment agreed with the reasoning presented by ed. The price of nickel hit $36,915 a tonne as
miners, hence the suspension of the levy. The it opened for trade. Heavy selling in interna-
Treasury announced the tax in 2020, giving the tional metal markets weighed on the contracts.
country's platinum miners two years to prepare
before its planned introduction early Economists Nickel
at Commerzbank expect the precious metal to
trade at $1,050 by end of 2022.

Copper

Gold The copper further plummeted by 2.8% as Nickel futures traded below the
demand from the largest consumer, China, slightly $25,000-per-tonne level, moving back to where
Gold posted a weekly fall of 0.56% as the fell in the week. Copper for delivery in July fell the LME market closed on March 4, the last
non-yielding asset wrestled with the prospect of 2.7% from Friday’s settlement, touching $4.17 per trading day after unprecedented low trading
higher interest rates in the week under review. pound ($9,188 per tonne) on the Comex market volumes triggered a liquidity crisis for one of
Risks of a recession and signs of an imminent in New York. The most-traded July copper con- the most crucial industrial commodities. In
slowdown in global growth are driving inflows tract in Shanghai fell 0.5% at 72,490 yuan early March, prices briefly topped the
into gold as a safe haven. On the other hand, the ($10,831.53) a tonne. Beijing raced to contain a $100,000 mark amid a vicious short squeeze
Fed's commitment to fighting inflation is contrib- ferocious outbreak, with millions facing mandatory as China's Tsingshan Holding Group, one of
uting to a significant rise in real rates. The bul- testing and thousands under targeted lockdowns, the world's top producers, bought large
lion is considered an inflation hedge but higher after the capital city recently relaxed curbs. In amounts to hedge its short bets on the metal.
U.S. interest rates increase the opportunity cost of other news, there has been no change in control Now, the market moves signalled a return to
holding it. The dollar index hit a multi-decade of Tenke Fungurume Mining, majority owner normal after several weeks of chaos, with trad-
peak, supported by fears of a global economic China Molybdenum has said, contradicting author- ing volumes at average levels and investors'
slowdown and bets on steep interest rate hikes by ities in the Democratic Republic of the Congo focus turning to concerns that slowing global
the U.S. Fed, to become the preferred safe-haven who said a temporary administrator had taken growth will hit metals demand, particularly in
at the expense of gold. Some analysts said gold control of one of the world’s largest cobalt and top consumer China. Nickel futures are avail-
is getting some support from hikes being copper mines. able for trading on The London Metal
front-loaded with rate cuts sooner along the curve. Exchange (LME). The standard contact weighs
This had sent many investors to decide to either Aluminium 6 tonnes. The nickel prices displayed in Trad-
go to cash or offload gold to attend margin calls ing Economics are based on over-the-counter
across other markets. Aluminium prices hit their lowest in nearly six (OTC) and contract for difference (CFD)
months in the week and copper also dropped as financial instruments. Our nickel prices are
Platinum investors fretted over the prospect of weak eco- intended to provide you with a reference only,
nomic growth hitting metals demand after rather than as a basis for making trading deci-
renewed COVID-19 lockdowns in China and sions. Trading Economics does not verify any
increases in interest rates. Three-month aluminium data and disclaims any obligation to do so.
on the London Metal Exchange (LME) slid 2.8%
to $2,685 a tonne after touching the lowest since Brent
December last year. Equity Axis research team
believes the price pressure is due to uncertainty Oil prices settled lower as the week began to
on growth prospects, weaker demand from the end with the dollar trending higher, hence
auto sector as well as the ongoing recovery in worsening commodity market performance as
China's domestic output. The lockdowns are not investors pursued the greenback, being the
ending as quickly as hoped and China's high yielding at the moment. This had come
zero-COVID policy is very damaging to economic after the U.S. central bank hiked rates by 50
growth, and this has a great impact on the com- basis points at its meeting two weeks ago. But
modity side. after Friday's surprisingly strong consumer
price index (CPI) data for June, more expect
China's Shanghai commercial hub will lock down a rate hike of 75 basis points. Brent crude
millions of people for mass COVID-19 testing futures settled down to $121 a barrel, repre-
this weekend, only 10 days after lifting its gruel- senting a weekly marginal loss of 0.9%. In
ling two-month lockdown. Other risky assets also other news, the United States will allow
In the week under review, platinum prices edged fell, with equities hitting a two-week low as the certain energy-related transactions with Sber-
lower as investors’ preferences continue to favour European Central Bank interest rate outlook and bank, VTB Bank, Alfa-Bank and several other
the greenback. In other news, the government of higher-than-expected U.S. consumer price data for Russian entities to continue through Dec. 5,
Zimbabwe suspended the platinum levy, the 5% May stoked concerns over global growth. The the U.S. Department of Treasury in the week.
levy on raw platinum exports after miners lobbied dollar index climbed to a three-week high, making
the Treasury for its removal citing its detrimental greenback-denominated metals more expensive for

23 The AXiS XXXV Friday 08 July 2022

Markets
watch

Zimbabwe dollar widens YTD losses by 70%

The Zimbabwe dollar (ZWL) has widened Meanwhile, South Africa’s higher-than-expected to a highly informalised market.
year-to-date (YTD) losses by 70% on the inflation data in June points to a further interest
RBZ-governed auction market, barely seven rate hike in July. The South African Reserve Klawr atrcahdaeoovfer1r6i.d3es Rand after a stel-
months since the year started. The unwelcomed Bank last month unveiled its biggest rate
currency fell by 3% during the latest auction increase in more than six years and signalled The Zambian Kwacha continued on an upward
market on Tuesday to 379.2280 from 366.2687 further rate hikes in the context of the gradual trajectory, closing higher than the South African
during the prior week against the United States policy normalization. Rand.
dollar, which is the much-preferred currency. Despite a boost from the precious minerals
The Zimbabwe dollar started trading in January KdoewnynawnardShtrilelinndg continues on the which are trading on a higher note, the currency
2022 at 112.8 but within six months, the deficit is also finding strength due to the business com-
has more than tripled to 379.2 against the USD. The Shilling traded on the back-foot at 118 munity’s confidence in Hichilema’s leadership.
Meanwhile, US$23 million was allotted this against the greenback from 116.4 traded last Meanwhile, USAID is set to arrange a US$30
week, down from the US$25 million allotted last week Thursday. million package which will in part help Zambia
week signalling the scarcity of the greenback in boost food exports to two east African countries
the market. The continued depreciation against the stronger suffering from surging prices due to Russia’s
Raw material continued getting the lion’s share dollar came amidst the falling of Stanbic Bank invasion of Ukraine.
followed by machinery and equipment and con- Kenya PMI to 46.8 in June of 2022 from 48.2 Two companies in Zambia, one of southern
sumables. in May, pointing to the third consecutive month Africa’s biggest corn producers, will start
Due to a lack of sound economic fundamentals of contraction in the country's private sector and moving 17,500 metric tons of corn and soybeans
that supports currency performance including at the steepest pace since April of 2021. to Rwanda and Kenya in the coming days, with
proper management of exchange rates, tightening Both output and new orders declined at quicker 30,000 more tons to come, according to a state-
of broad money and provision of sufficient rates, amid weaker demand due to rising price ment.
foreign currency to businesses, the ZWL has lost pressures. The firms will be assisted by a revolving credit
most of its fundamental duties such as acting as Cash flow shortages and the upcoming elections facility structured by USAID.
a measure of value, as a store of value and as a were also noted as contributing factors. Purchas- East African countries including Kenya were
medium of exchange as the market prefers the ing activity also fell further, although inventories already suffering from the worst drought in
stable US dollar. continued to rise due to stockpiling efforts. more than four decades before the war in
To deal with the ballooning inflation and rates At the same time, staffing numbers decreased Ukraine hit grain and fertilizer exports, signifi-
which are succumbing the local currency to fractionally, leading to a slight increase in back- cantly adding to global inflationary pressures.
immense pressure, the government recently intro- logs of work. On the price front, input costs Zambia has a corn surplus of 1.2 million tons
duced gold coins which are fit for circulation increased at a strong rate, driven by higher fuel from the last growing season.
effective 25 July 2022. However, the involvement prices, supply shortages and a strengthening US
of the ZWL in the gold currency episode is dollar, leading to a record uptick in firms' sell- PUuSl$a slides further to 12.5 against
likely to reduce the whole thing to a farce. ing charges.
According to the Gresham rule, bad money drives
good money out of circulation and people are However, expectations for future activity The Pula extended its poor performance on
likely to horde both the gold and the US dollars improved for the first time in four months Thursday against the greenback after pairing
under their mattresses and only the dreadful ZWL during June, after reaching a record low in May. losses to 12.5.
will be ubiquitous as everyone dumps it in Naira slips to 119. However, the economy of Botswana advanced
exchange for the real money, (gold and USD). Sub-Saharan Africa’s biggest economy saw its by 7% year-on-year in the first quarter of 2022,
currency dipping to119. against the United States accelerating from a 5.6% rise in the previous
Regional Markets dollar as inflation continues to surge. three-month period.
pRoawnedrdcirpissisto 22 low amid deepening
Nigeria is grappling with rising prices of food, It was the fifth consecutive quarter of expansion,
The South African rand traded at16.8 against the as the continent is still largely dependent on mainly boosted by the mining sector (23.2% vs
USD, the lowest since September 2020, pressured agricultural imports, especially grains. 18.9% in Q4), amid higher production of
by severe power cuts in the country, as Also, soaring diesel prices and the ongoing diamonds (25%) and coal (6%).
state-owned Eskom contends with multiple plant dollar shortage contributed to the upward trend Manufacturing activity also grew solidly (10.3%
breakdowns due to labour protests over wages. in inflation. vs 6.7%), amid favourable growth rates in the
There is widespread concern that the current Africa's biggest economy has been in double sub-industries of diamond cutting & polishing
round of load-shedding could have long-term inflation since 2016, and national authorities (79.8%), beverages & tobacco products (58.9%)
effects on the country's economic growth. have said persistent inflationary pressures are and textile & leather products (17.5%).
The currency was also pressured by the dollar- structural, linked to deficits and not solely to the
strength amid the Fed's firm hawkish stance and money supply, and largely imported. Quarterly, the GDP rose by 6.5%, recovering
fears of a global recession. Lack of transparency, side marketing and corrup- from a 2.8% decline in the previous quarter
tion are ripping the country's resources leading

ZSE WEEKLY COMMENTARY

The ZSE continued its bearish trend during the week under review as sell-offs exacer-
bated the weakening effect of increased supply on demand. The mainstream ZSE All
Share Index fell by a staggering -14.91 percent to end the week at a 3-month low
of 17,521.72 points. Market heavyweights and medium caps dwindled by -12.51 per-
cent and -9.68 percent, respectively, driving the week's losses by outpacing penny
stock gains of 1.1 percent. The introduction of Gold Coins and the controversial mea-
sures announced by the Central Bank and Ministry of Finance to combat the rampant
inflation have sparked a pessimistic trend. For investors looking to maintain the value
of their liquid assets in the uncertain economy, gold coins are a type of liquid asset
class and an investment choice. Annual inflation, on the other hand, sparked to 191%
in June. According to statistics from African Markets, the nominal gains for the ZSE
as a whole have been reduced to 61.9 percent, representing a loss of -51.48 percent
in US dollar terms. The bourse lost -11.47 percent in the first week of July, which
is the third worst monthly outturn in more than two years.

ZSE ASI 19,791.94 ZSE TOP 10 12,273.75 MEDIUM CAP INDEX 38,857.16
ZSE TOP 15 19,590.05 12,209.39 38,151.54
19,340.56 12,036.36 37,615.28
18,810.17 11,631.30 37,075.91
18,363.47 11,319.88 36,431.30
17,521.72 10,738.02 35,094.68
-11.47% -12.51% -9.68%

13,721.95 SMALL CAP INDEX 513,602.97 ZWL INTERBANK 370.9646
13,559.50 507,512.80 372.8740
13,405.19
12,993.11 508,318.87 375.4440
12,648.65
11,978.28 522,073.44 376.8387

-12.71% 520,654.50 380.0225
519,250.86 380.4024
1.10%
2.54%

In contrast, activity on the US dollar-denominated exchange, VFEX, was incredibly
low in the week under review, with trades being logged in only 1 session. However,
more players were recorded as 3 counters traded with the exception of Caledonia
Mining Corp. In the week under review, a total of US$194,682 was traded, compared

to US$72,094 the week before.

The government established the interbank exchange rate as the only permitted
exchange rate in the economy on the official currency market. The auction market
exchange rate jumped by 3.5 percent at the end of the most recent auction trading

week to close at ZWL379.228 for each US$, while the interbank exchange rate
increased by a smaller magnitude of -2.54 percent in the week to conclude at ZWL$
380.4024 per each US$. The parallel market exchange rate, which is now hovering

around ZWL$ 650 per US$, is where the two separate currency rates are trying to
converge.

FINANCIAL MARKETS AT A GLANCE 2022

ZSE All Share Index ZSE Top 10 Index ZSE Small Cap Index Interbank Market Rate

17,521.72 10,738.02 519,250.86 380.4024
-11.47% -12.51% 1.1% -2.54%

ZSE Top 10 Index ZSE Small Cap Index ZSE Medium Cap Index

All Share index ZSE Top10 index All Share index Small Cap index All Share index

Medium Cap index

WOW -11.5% MOM -20% 17521.72 WOW 1.1% MOM 8% 519250.86 WOW -9.7% MOM -7% 35094.68
10,738.02 17,521.72 17521.72

YTD 57.6% YTD 28.9% YTD 72%

ZSE Financials Sector ZSE Financials index ZSE Consumer Discretionary Index ZSE Consumer Staples Index
27664.49
All Share index All Share index ZSE Consumer Discretionary index All Share index ZSE Consumers Staples index

WOW -4.8% MOM 19% 17,521.72 WOW -13.2% MOM -15% 21233.72 WOW -11.3% MOM -15% 21710.41
17,521.72 17,521.72
YTD 97.3% ZSE ICT Index
YTD 73.3% YTD 58.8%

ZSE Industrials Index (New) ZSE Industrials Index (new) All Share index ZSE ICT Index ZSE Materials Index ZSE Materials Index

All Share index All Share index

WOW -11.6% MOM -14% 18092.83 WOW -13.6% MOM -32% 17521.72 WOW -16.6% MOM -24% 17521.72
17521.72 25554.65 12851.26

YTD -4.4% YTD 55.6% YTD 47.1%

ZSE Real Estate Index ZSE Real Estate Index Interbank Market 27.4% JSE All Share Index

All Share index Interbank All Share index JSE All Share index

11105.64 -16% 65756.38
17,521.72
WOW -20.4% MOM 27% 17521.72 WOW -0.71% MOM -6.7%
YTD -10.79%
YTD 26.7%

BSE All Share Index LUSE All Share Index NGSE All Share Index

BSE All Share index LUSE All Share index NGSE All Share index

WOW -0.07% MOM -0.8% 7177.47 WOW 0.44% MOM 1.4% 6884.04 WOW -0.5% MOM -4.7% 51556.54
17,521.72 17,521.72 17,521.72

YTD 2.39% YTD 13.6% YTD 20.69

Company Latest Price Previous Week Consumer Latest Price Previous Week Materials Latest Price Previous Week TOP 5 WEEKLY RISERS
Staples ZWL Cents ZWL Cents ZWL Cents ZWL Cents Sector ZWL Cents ZWL Cents
African Sun COUNTER PRICE CENTS CHANGE % CHANGE
AFDIS 39100 34000 AXIA 1137.4 1250 ARTZDR 1582.14 1900
ARISTON 270.45 309.68 EDGARS 8486.07 10743.75 LAFARGE 12766.19 15000 ZBFH 13200 5500 71%
BAT 238000 280000 NTS 569.93 515.27 PROPLASTICS 3090 5000 TRUWORTHS 229 42 22%
CFI 37000 37000 RTG 1192.27 1200 TURNALL 540 500 AFDIS 39100 4900 14%
DELTA 30453.05 33270.16 SIMBISA 850 1050 Willdale 250 279.46 EDGARS 569.93 59.93 12%
DAIRIBORD 2297.68 3035 TRUWORTHS 17905.49 19989.69 RioZim 11000 11000 FBCH 7500 500 7%
HIPPO 25003.57 27600 229 187
INNSCOR 35582.32 39741.65 ICT Financial Latest Price Previous Week TOP 5 WEEKLY FALLERS
MEDTECH #N/A #N/A Sector Latest Price Previous Week Sector ZWL Cents ZWL Cents
MEIKLES 12002.48 13287.5 Ecocash ZWL Cents ZWL Cents COUNTER PRICE CENTS CHANGE % CHANGE
NATFOODS 177498.75 200000 ECONET 6847.3 First Capital Bank 1100 1130
OK 3100.76 3669.55 ZIMPAPERS 5993.3 16575.52 CBZ 14000 16495 PROPLASTICS 3090 -2855 -48%
SEEDCO 13492.93 15500 13760.67 500 FBCH 7500 7500 DAIRIBORD 2297.68 -1877.32 -45%
STAR AFRICA 172.25 178 Real Estate 468 FIDELITY 2200 2200 BAT 238000 -112000 -32%
TSL 11010 13000 Sector Previous Week FML 2400 2700 AXIA 8486.07 -3424.46 -29%
Tanganda 17564.29 19000 MASHHOLD Latest Price ZWL Cents GBFS 1600 1600 MASHHOLD 481.73 -180.77 -27%
FMP ZWL Cents 526.65 NMBZ 2866.67 2866.67
1165 ZBFH 13200 10100
481.73 ZHL 464 535
900

JSE All Share Index BSE All Share Index LuSE All Share Index NGSE All Share Index

65756.38 7177.47 6884.04 51556.54
-0.71% -0.07% 0.44% -0.5%

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