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Monday, 6 May 2019

Monday again and what better way to start your day than with the Fins Brew.In today's Brew we feature:

•We won't get to be Trillionaires this time 😢.

•Inflation=Increment=Inflation=Increment:How to break the cycle 🤔.

•It's back to fliers. Facebook posts aren't so great for marketing anymore.

•We welcome back old heroes 😃.

Comments and suggestions are most welcome on email finsbrew@fincheckzim.com

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HAPPY READING

MARKETS


RAINBOW TOURISM GROUP	2.80	+20.17%

STAR AFRICA CORPORATION	1.20	+9.09%

FIRST MUTUAL PROPERTIES	5.52	-7.38%

GOLD	1278.91	-0.02%

RTGS$	US0.20	6.25%

•Hotel giants Rainbow Tourism and Star Africa saw a surge in stock prices mainly due to positive first quarters and the emergence of the tourism sector as one of the most reliable foreign currency earners at the moment.
•First Mutual properties fell victim to a considerable fall in stock prices mostly due to the effects of the economic challenges on the property sector. High rental default levels and low absorption rates have consistently hounded First Mutual Properties with all indications being the trend will persist.
•The RTGS$ lost quite a bit of value due to increased demand for the US$ during the back to school rush. It could lose even more still in the near future if the current fuel woes are to be attended to. We've explained how in the Exchange Rate Fortuneteller a few Brews ago. View more updates on exchange rates here

ECONOMY

We Won't Be Trillionaires This Time

Remember the joy and bliss we had in 2008 with so much money to spend? The hourly changes of prices we so dearly loved. The shortages we came to cherish and even better still, the thrill of 'burning' money in dark corners away from the selective gaze of the law.
Fast-forward 11 years and we're right back again to that amazing time. However, there is a little bit of a difference now.
The record-breaking 2008 hyperinflation was fuelled to a large extent by the wanton printing of money. The RBZ was incredibly generous with money supply which left too much money chasing too few goods. Right on cue, hyperinflation. Our current situation is a bit different. The inflaton we currently have is mainly fuelled by the US$/RTGS$ exchange rate.
Most importantly, the RBZ is not currently increasing money supply. In addition to this, the finance ministry has implemented 'austerity' measures which limit the amount of consumer disposable income and government spending. This of course creates a liquidity crunch.
Conclusion: The ultimate result of this limited money supply and spending is a relatively contained inflation. Prices will rise but not to hyperinflationary levels because of the constrained money supply.Sadly, we probably will not get to be trillionaires this time just as long as the RBZ maintains the current money supply.

INFLATION

SOLVING THE SALARY INCREMENT PARADOX

What better time to get a pay raise than when you actually really, truly, positively need it. Fingers crossed we all get a bit of a cushion from inflation but not the sort of cushion that actually makes matters worse.
The temptation for most companies when increasing salaries is to put the full cost of the increment on the consumer so as to maintain profit margins. In the real world, in Zimbabwe, right now, that sort of strategy would be self-destructive.
Unless you are selling an absolute essential like oxygen or life itself, your product is absolutely dispensable and as a result its demand is price elastic. As we illustrated in the last Brew, higher prices simply mean lower revenues due to the effect of price easticity of demand. In trying to maintain profit margins by transferring the full cost of an increment to the consumer, one could lose even previously assured margins because of a drop in demand.
Furthermore, from a macroeconomic perspective, raising prices by the value of the salary increment contributes to and compounds the problem of inflation. A bit like chasing one's own shadow.
Bottomline The economic situation calls for some unorthodox measures; like an intentional cut in profit margins to maintain prices whilst also cushioning workers. We're not saying make no money at all but plan to make less at least for the moment.Stable prices will maintain revenues and the customer base.It could be the key to sustainable survival.

BUSINESS

GOODBYE SOCIAL MEDIA MARKETING

The increase in mobile data charges has far reaching consequences even beyond people's ability to view each other's Whatsapp statuses and Facebook posts.It has also taken away the power of one of the most efficient and cost effective form of marketing.
Small businesses usually rely on social media marketing as they cannot afford to advertise on radio, television and in newspapers. The increase in data tariffs now means their audience or customer base has limited access to whatever content they put out. Getting to new customers or even maintaining existing ones consequently becomes an incredibly difficult exercise.

CREDIT

NOT ALL LOANS ARE GOOD LOANS

The ever reliable 'rule of thumb' on borrowing is to borrow in times of inflation. It is then when you can actually get away with paying back less than you borrowed as we have previously illustrated.However,banks and other lending institutions always adjust to that. They generally will not provide credit at times like these and when they do, tread carefully.
High Interest Loans- The main factor in perfecting the art of borrowing is ensuring inflation rate is higher than the loan's interest rate. Zimbabwe's inflation rate whilst quite high is not really high enough 🤔.What does that mean? The year to date inflation rate is thought to be around 70% which is high but not high enough to take out a loan with a monthly interest rate of up to 15% as some microfinance institutions are offering.The interest rate is much higher than the inflation rate so borrowing is not too advantageous.
Always compare inflation rate and interest rate to be on the safe side.Generally avoid high interest loans because the lender is trying to hedge themsleves.
US$ Loans- US$ are great. They will in the very least maintain their value and sometimes even appreciate. That is also the worst thing about borrowing them. You are guaranteed to pay back more than what was borrowed. If for whatever reason the US$ suddenly appreciates versus the RTGS$,financing the loan could turn out to be quite a struggle.
Conclusion:Remember, borrowing is best done when real interest rate is negative and if possible do not borrow US$.

WHAT ELSE IS BREWING?

WELCOME BACK OMALAYITSHA

Even we do not know the english name for these heroes of society but you'll know them by their great deeds. These are the guys who cross borders to 'hostile' neighbouring lands with our shopping lists, buy us all we need, grease a few palms at the border, drive right back in the deep of night with all we need. All done at a very low premium. So kind of them to come to our aid at a time of crippling local pricing.

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