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Thursday, 11 April 2019

Fincheck, since being Dun&Bradstreet and then Transunion has always been giving out information to help businesses make decisions, but mainly to the credit related space. We still do that, but in this modern world of ever changing demands on businesses, we have decided to go a step further to help you have a better handle on the prevailing economic trends, what they mean for business and how to live with them.

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HAPPY READING

ECONOMY

SHOULD PRICES ALWAYS INCREASE BECAUSE OF EXCHANGE RATES?

RTGS$ prices of goods and services have for a few months now been constantly increasing at a rate just about proportionate to the US$ and RTGS$ exchange rate. Is it actually justified or traders are now just taking advantage of a difficult situation? Should it not just be those goods or services that have an import component whose prices increase? The RBZ governor certainly reckons so but it is far from being that simple and we'll show you why.

A typical service industry company's major costs excluding all import components:
Internet and Telephones- Tariffs were recently reviewed and adjusted using Interbank rates.
Bank Charges- Mostly unchanged regardless of exchange rates fluctuation.
Depreciation- Different companies account for it differently.
Insurance- Insurance providers now provide a US$ or RTGS$ plan with RTGS$ premiums adjusted for exchange rates.
Legal Fees- Generally rate adjusted.
Motor Vehicle Expenses- Fuel is regulated but other vehicle maintenance accessories are quoted in US$ or rate adjusted RTGS$
PAYE- No exchange rate effect.
Pension- No exchange rate effect.
Rent- Building owners are charging higher but not necessarily rate adjusted amounts.
Salaries- Adjusted for prevailing price hikes.

It is clear that not all costs have been affected by exchange rates but the intricacies of calculating the percentages by which product prices should be rate adjusted based on costs affected by exchange rates is incredibly complex. The exchange rates do tend to be fairly unstable anyway so better safe than sorry is the pricing strategy most traders are employing. In order to minimise possible losses, companies should use rolling forecasts that account for daily rate changes.

TELECOMS

TELONE DEBT TAKEOVER: SURELY THE FISCUS CAN'T TAKE MORE STRAIN

So cabinet has finally agreed for the government to assume Telone's foreign debt amounting to US$ 383 million as part of privatisation efforts of the fixed telecoms operator. Privatisation of parastatals usually turns out good with greater efficiency, increased profits and general better economic well-being. So all is in order then. Or maybe not? This is the same government that is already neck-deep in debt exceeding GDP. The same government implementing various austerity measures to curb spending and cut budget deficits. Furthermore, it is trying to juggle the little foreign currency the RBZ 'earns' to meet the import needs of the nation with varied success. How would this same government afford such a takeover when it in itself owes Telone up to RTGS$100 million?
Conclusion: The Finance Minister still has to sign off on the proposition but given his stance on government spending, the debt takeover is unlikely to go through. Therefore, for now at least let us try and live with our debt-ridden Telone and whatever that means for their service delivery.

AGRICULTURE

PRODUCER PRICES INCREASE...SORT OF

Government has announced a new set of producer prices for the country's major cash crops namely maize, wheat, soya beans and cotton. The increase is supposed to increase the incentive for farmers to grow more of the crops in the upcoming seasons. On the face of it, more money will push production but are these increases actually more money in 'real terms'?

We try and explore that below :

	2018 (US$)*	2019 (RTGS$)	2019 (US$)**	2019 (US$)***
Maize	390	726	235.95	159.56
Wheat	500	1089.69	354.15	239.49
Soya Beans	780	918	298.35	201.76
Cotton	520	1950	633.75	428.57

2018 (US$)*- Exchange rates were a Reserve Bank stipulated 1:1 notwithstanding the existence of a currency black market.
2019 (US$)**- Amounts calculated from Interbank Market exchange rate on 10/04/19. 2019 (US$)***-Amounts calculated using current parallel market rates. From the table, all the real US$ values of payments to farmers have actually decreased except for cotton. This is mainly because the government wants to encourage cotton production for export.
Bottom line: Look out for 'real value' income projections, factoring in exchange rates, input price fluctuations and payout structures like the new 50% forex retention system.

ANOTHER HALF MEASURE

The RBZ just announced that Cotton farmers will get half of their revenue from Cotton sales in US$. An arrangement similar to the one tobacco farmers are not too happy about. The general reaction to the news is that of disappointment as farmers were expecting forex for their White Gold as much of the produce is exported. Just as with tobacco, the major concern is now of the next cotton farming season. Will farmers, especially small scale be able to afford inputs for the next season given what they will be left with after servicing this season's debts or will cotton production fall. This situation thereby, limits the amount of foreign currency inflow at a time where the country badly needs some hard currency.

BRACE YOURSELVES, BREAD COULD GET EVEN MORE EXPENSIVE

The Grain Millers Association of Zimbabwe has reviewed downwards the National Wheat Contract Farming Committee target by 60 000 tonnes to at least 90 000 tonnes due to depleted dam levels emanating from this year's El Nino-induced drought. This development means that even more wheat will need to be imported to meet the needs of the nation at a time when foreign currency is scarce. Bread will undoubtedly cost more in the inevitable shortage that will ensue. Maybe it is time we seriously explored alternatives...potatoes are quite nice.

BANKING

THE BANKING SYSTEM'S BIG SECRET

Did you know you could save money and earn interest on it for years but still end up with less than when you started? No bank charges,no tax, no fraud and not even the RBZ devaluing the currency. Just plain and simple, clean banking. Better yet, you could borrow money and pay back the principle plus the interest and still end up having paid less than the value of the loan you took. No miracles, again no fraud and certainly no incredibly convinient monetary policy.

Here's how :
Interest Rate versus Real Interest Rate
The 'interest rate' sometimes called nominal interest rate is the rate of interest not adjusted to cater for inflation. This is the interest that the RBZ, commercial banks and other financial institutions publishes and uses for savings accounts and issuing loans. Real interest rate is the form of interest that incorporates expected inflation (which is pivotal in determining the future value of money.) thereby reflecting the true gains or losses from interest in terms of value. The mathematical computation for real interest rate is nominal interest minus expected inflation. As a result, the simple rule would be to save when real interest rate is positive and to borrow when real interest rate is negative. Live by this rule and you'll always pay less for your loans and earn more on savings in terms of the true value of the money. Unfortunately, there's a catch. Banks never disclose expected inflation so you'll have to visit an Economist near you or just ask us. We usually know.

VISION 2030

ZIMBABWE'S OWN INSTRUCTIONS MANUAL

"...we say “let ‘Bygones be Bygones’ and, accordingly, the New Dispensation commits to our departure from living in the past and focus on the future, also taking on-board valuable lessons from the history."

Okay great, the past is forgotten. Previous failed efforts at implementing reforms SHIFT+DELETE. Let us all forget ESAP (Economic Structural Adjustment Programme) and ZIMPREST (Zimbabwe Program for Economic and Social Transformation) because there's a new dispensation (pun intended).

Here's the plan and best we look for how we all fit into it :
• NEW DISPENSATION
This Policy Document seeks to share with the international community at large, as well as domestic stakeholders, our key reform initiatives and commitments, under the New Dispensation, on rebuilding and transforming Zimbabwe to become an Upper-Middle Income Economy by 2030.
• DEMOCRATISATION AND GOVERNANCE
Good governance based on Rule of Law, Human Rights and Freedoms, Accountability, Transparency, Responsiveness, Equity and Inclusivity, Efficiency and Full Participation of the people in socio-economic development, is the bedrock for a new democratic and developmental Zimbabwe.
• THE ECONOMY
Government is seized with implementing a number of reforms, prioritising fiscal consolidation, investment promotion and eliminating of inefficiencies in order to attain the required macro-economic stability and growth.
• EASE OF DOING BUSINESS
‘Zimbabwe is Now Open for Business,' and thus several investment inclined reforms are to be made. Chief among them is a revisit of the Indigenisation legislation.
• CROSS-CUTTING THEMES
Transparency, accountability and value for money are key pillars for cost effectiveness and efficient delivery of services. . It is with this objective that Government is implementing a number of measures on fighting corruption, one of the sources of increased cost of doing business, rent-seeking behaviour and inefficiency on service delivery in both public and private sectors. That is the gist of where Zimbabwe is supposedly headed. Best we all find our places in this grand plan and help make it a reality.

WHAT ELSE IS BREWING?

WORLD'S CHEAPEST CITIES

Caracas, Venezuela (rank: 133rd)
Damascus, Syria (rank: 132nd)
Tashkent, Uzbekistan (rank: 131st)
Almaty Kazakhstan (rank: 130th)
Bangalore, India (rank: 129th)
Karachi, Pakistan (rank: joint 127th)
Lagos, Nigeria (rank: joint 127th)
Buenos Aires, Argentina (rank: joint 125th)
Chennai, India (rank: joint 125th)
New Delhi, India (rank: joint 125th)
For the price of 1 litre of Petrol in Zimbabwe you could get 5000 litres of Petrol in Venezuela without having to queue for it. Let's all pack up and be off to Venezuela.

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