daniel chigunwe
Persistence Gwanyanya
Herald Correspondent
Despite experiencing a severe drought and pressure from depressed international mineral prices, Zimbabwe recorded positive economic growth in 2024, demonstrating resilience.
The economy was estimated to have grown by two percent in 2024, from initial projection of 3,5 percent.
However, growth is expected to accelerate to six percent in 2025, on account of improved agriculture performance, which demonstrates susceptibility to external factors. Policy focus has shifted to building resilience in the economy as an urgent imperative. The thrust of 2025 National Budget presented by Minister of Finance, Economic Development and Investment Promotion Minister Prof Mthuli Ncube is instructive.
While maize production was impacted by the 2024 drought, the strong performance of the wheat sector offers hope for a sustained recovery of agriculture.
Last year, wheat production was around 540 000 tonnes against national requirement of 360 000 tonnes. Wheat production is expected to continue increasing to around 600 000mt in 2025, which is the highest in the history of Zimbabwe. This bumper wheat production complements maize in the strategic grain reserve guaranteeing food security. Food distributions by Government and development partners mostly in rural areas has helped the country to avert hunger in 2024.
Support from the diaspora community, demonstrated by growth in remittances to an estimated US$2,5 billion also went a long way in alleviating the effects of drought.
Following last year’s drought, the consistent and widespread rains being received are a welcome relief for the country. Importantly, authorities are pinning their hopes of economic recovery on the performance of the agriculture sector, which is also sustaining the current stability.
Investment in irrigation infrastructure to build resilience of the agriculture sector is one of the key achievements of the Government so far. Going forward we expect performance of the agriculture sector to be spurred by increase in irrigable land. Government is targeting to increase irrigable land to 496 000 hectares from the current 217 000ha with financial support for the 133 000ha having already been provided in the 2025 Budget. While the efficacy stability measures by monetary authorities are being felt, sustained stability will depend on the performance of the real economy. As the local currency, Zimbabwe Gold (ZiG) gains, the market is increasingly regaining confidence in this currency.
The RBZ is positive about achieving month-on-month inflation of not more than 2,5 percent in 2025. The bank is determined to maintain the tight monetary position needed to achieve this.
Reflecting its commitment to tight monetary policy stance, the Monetary Policy Committee (MPC) hiked the bank policy rate to 35 percent from 20 percent and statutory reserve in September last year. The statutory reserve ratio for demand deposits was increased to 30 percent from 20 percent and 5 percent for ZiG and US dollar statutory reserve respectively.
For time and savings deposits, the statutory reserve ratio was increased to 15 percent from 10 percent and five percent for ZiG and US dollar statutory reserve respectively. However, pressure from external factors such as drought and depressed mineral prices may result in re-emergency of instability as experienced in the last quarter of 2023.
Thus, there is need to rebuild credibility and track record of the local currency, which is the essence of ZiG. At any given time, ZiG reserve money is supposed to be covered by foreign reserves; precious minerals and gold.
Commendably, the foreign reserves continue to increase since the launch of ZiG, providing adequate cover to even total ZiG money supply.
Total foreign reserves have increased to US$540 million in November from US$285 million on April 5, 2024 when ZiG was launched. At ZiG13,6 billion, ZiG equivalent total foreign reserves more than cover the total ZiG money supply of ZiG12,9 billion in November 2024, which guarantees convertibility of the total ZiG money supply in the economy.
There is need to focus on the efficiency of interbank market, including timeous interventions by the RBZ to balance demand and supply matrices in the market. The MPC approved the Targeted Finance Facility (TFF) to ease liquidity challenges and unlock potential market gridlock. We expect challenges relating to timeous honouring of maturities by Treasury, as they fall due, to be sorted out as market liquidity improves.
While there are challenges with power supply, the ZETDC is hopeful about the prospects of electricity sub-sector in 2025 and beyond.
The company projects increase in electricity generation by more than 4 000MW, making Zimbabwe a surplus producer in the next two years.
The growth in electricity production is expected to be driven by Captive Power Projects (CPP) reflecting the semi restructuring of the electricity market.
This restructuring entails the increased participation of the private sector, especially intensive power users in the generation of electricity for own use with the excess generation sold to the national grid.
So far Zimplats has commissioned a 35MW solar plant, while ZIMASCO is establishing electricity generating capacity for its ferrochrome business. Similarly, Dinson Iron and Steel Company (DISCO) has commissioned a 50MW solar plant for its energy intensive iron and steel plant.
More inspiring is the recent launch of the 720MW coal plant by Titan New Energy Company in partnerships with ZESA Holdings with additional 200MW solar plant planned for next year in Gweru. This plant will support the energy requirement of the iron and steel operation by DISCO, while complementing current electricity supplies in the country.
Government has been supporting independent power projects with off-take arrangements as well as guarantees, which are necessary to support efforts to mobilise funding needed for these capital intensive projects.
The country is currently producing about 937MW of electricity out peak requirements of 1 805MW giving a deficit of 868MW.
Improvements in the electricity sector are expected to benefit the mining, agriculture, and manufacturing industries. As the electricity situation improves, we can anticipate a growing appetite for investment in these three sectors. Improvements in electricity will support mainly platinum, lithium and chrome, which are key foreign currency earners of the economy. As such we expect foreign currency inflows to continue increasing towards the US$12 billion mark in 2025, this supporting our local currency, ZiG.
Despite projected improvements, the informal business needs urgent redress before it causes massive destruction to the formal industry.
The porosity of borders has seen smuggled goods into the non-tax paying informal sector, leaving a few compliant business carrying the burden of tax. Commendably, Treasury has sought to address smuggling of goods by directing ZIMRA, with the help of security forces, to tighten the boarders and deal with incidences of non-payment of taxes.
Treasury has also sought to widen its tax net to the non-paying constituencies by targeting widely consumed products and services such as fast foods and betting with appropriate taxes.
Successful implementation of these measures, creates a credible case for Treasury to relook at the tax regime, with a view to reducing the burden of tax and incentivise compliance.
There is scope for the manufacturing sector to grow faster than projected.
The rapid pace of infrastructure development, pull factors from economic challenges in key regional economies; South Africa and Zambia, are seen as driving the pace of reindustrialisation in 2025 and beyond.
The progress on the construction front could be an indication of tight global conditions, which has increased Zimbabwe’s attractiveness on account of its potential.
We remain positive about the future of manufacturing sector as these investments give us confidence that with continuous improvements in the operating environment, accelerated growth in the manufacturing sector is possible.
The US$1,5 billion Dinson Iron and Steel Company investment is expected to drive reindustrialisation, employment and resolve debt and BOP challenges. DISCO investment invokes a sense of urgency to revitalise the rail system. The Mutapa Investment Fund seems to have stepped up efforts to mobilise funding for the resuscitation of the rail system and we expect to see meaningful developments in 2025 and beyond.
While focus has mainly been on the real economy, there is also need to continue improving livelihoods of people as the nation goes into NDS2.
Looking ahead, I am cautiously positive about the prospects of 2025 and beyond.
Persistence Gwanyanya is the CEO of Bullion Group International, economist, chartered banker and a member of RBZ Monetary Policy Committee. He writes in his personal capacity. For feedback email: [email protected]
