1. international commodity price developments

1. INTERNATIONAL COMMODITY PRICE DEVELOPMENTS

Major macroeconomic and political developments continue to affect developments on the international commodity markets. Some of the major events that affected commodity prices in March were the banking crisis in Cyprus, which led to signifi cant uncertainty in global capital markets; renewed concerns about fi scal issues in the United States of America (USA); sovereign debt growth in the Eurozone; expected Italian elections and decelerating global industrial production.

Gold prices started the month on a downward trend before taking an upward trend in the third week and declined again in the fi nal week. During the month, gold reached its highest level at USD 1,611 on 21 March before it closed the month at USD 1,600.

The overall decline in the price of gold was largely attributed to the banking crisis in Cyprus, which caused signifi cant uncertainty in global capital markets and the USA’s Federal Reserve Bank’s Federal Open Market Committee pledge to maintain low rates till mid-2015. Another factor that contributed to the decline in the gold price was increased total gold supply. This fi gure reached 31,671 tonnes, with Russia’s gold holding for March rising by 12.1 tonnes.

Table 1: International Commodity Prices, February-March 2013

DateGold Platinum Copper Brent

Crude oil

USD/oz. USD/oz. USD/tonne USD/barrel

28 February 2013 1,590 1,597 7,783 112

7 March 2013 1,580 1,597 7,723 111

14 March 2013 1,586 1,584 7,764 110

21 March 2013 1,611 1,583 7,564 108

28 March 2013 1,600 1,580 7,574 109

Source: Bloomberg and Reuters

Platinum prices also registered a decline during the month. The price dropped from USD 1,597 per ounce, recorded at the close of February to

ISSUE NO. 12. APRIL 2013

ZIMBABWE MONTHLY ECONOMIC REVIEWZIMBABWE MONTHLY ECONOMIC REVIEW

TABLE OF CONTENTS

1. International Commodity Price Developments

2. Macroeconomic Developments

3. Stock Market Developments

4. Corporate Sector Developments

5. Political and Governance Issues

A publicationproduced by the

African Development Bank (AfDB)

Zimbabwe Field Offi ce

2 Zimbabwe Monthly Economic Review April 2013

USD 1,580 per ounce as at 28 March. Movements in major exchange rates could have been the main driver. The US dollar (USD) appreciated against major currencies. In March, the USD gained 3 percent against the euro, 2.8 percent against the Swiss franc, 2.7 percent against the pound sterling and 1.7 percent against the Japanese yen. This might have weighed down the prices of platinum since movement in these currencies tends to make platinum appear expensive to investors in countries with a depreciating currency. Electricity shortages, failure to increase production substantially and increased labor costs are the main factors that have been affecting the key platinum producing countries (South Africa, Russia and Zimbabwe), resulting in restricted total supply. The lower production failed to push platinum prices because the global auto industry, which represents about 40

percent of the global platinum consumption, is still suffering from the economic crisis.

Brent crude oil prices dropped from USD 112 per barrel recorded on 28 February to USD 108 per barrel recorded on 21 March, with a slight recovery on 28 March to USD 109 per barrel. This was mostly driven by the reduced refinery demand as a result of substantial maintenance works in most of the oil refineries in Europe. Maintenance peaked in March, which meant less demand for North Sea crude oil, resulting in a downward pressure on prices. The renewed concern over the Eurozone economic crisis also weighed in on the crude oil prices. However, it is critical to note that in the case of Zimbabwe, in most cases, there have been no significant reductions in local fuel prices, even when international oil prices have declined. Fuel prices in Zimbabwe tend to be sticky downwards.

Table 2: Maize and Wheat Prices (US) Free on Board (FOB) and Gulf, February 2013 to March 2013

DateMaize (US) FOB, Gulf Hard Red Wheat (US) FOB, Gulf

USD/tonne USD/tonne28 February 2013 305 3177 March 2013 308 31514 March 2013 312 32521 March 2013 316 32928 March 2013 300 317

Source: International Grain Council

Maize prices moved upwards for the greater part of March. The prices increased from USD 305 per tonne during the last week of February to USD 316 per tonne by 21 March before closing the month at USD 300 per tonne. This decline in prices can be attributed to China’s bumper harvest and potential record-breaking crops in Brazil and Argentina.

Assuming normal weather conditions, production is projected to rebound sharply in the 2013-14 season, with US output increasing by as much as 30 percent year on year.

Wheat prices fluctuated during the month of March mostly due to a combination of sluggish export demand and expected improved output following precipitation in previously dry winter wheat areas in the US. Wheat output is expected to rise by 4 percent and global wheat use is expected to increase by 5 million tonnes on a year-on-year basis.

2. MACROECONOMIC DEVELOPMENTS

2.1 Agricultural Sector Developments

2.1.1 Update on Tobacco Selling Season

In the week ending 22 March 2013, tobacco traded at an average price of USD 3.69/kg compared to USD 3.58/kg in 2012. This price was USD 0.40 firmer than the prevailing price in the previous four weeks. Of the total tobacco sold, 38.5 percent was traded at the three auction sales, namely Tobacco Sales Floor (TSF), Boka Tobacco Floor (BTF) and Premier Tobacco Floor (PTF), while the rest (61.5 percent) was traded through the contract system. In terms of value, about USD 44.7 million was sold through the auction floors, while USD 72.2 million was sold through contract farming arrangements.

April 2013 Zimbabwe Monthly Economic Review 3

Figure 1: Tobacco deliveries and composition of deliveries by auction, 2012 and 2013

Source: Tobacco Industry Marketing Board (TIMB)

Out of the 202,380 bales bought through the auction floors, 9.6 percent were rejected, while 5.52 percent of the bales received under the contract arrangements were rejected. Over the same period in 2012, the rejection rate under the auction system was 7.37 percent and 5.98 percent under contract arrangement. In 2013, the reasons for rejection included moldy, overweight or underweight bales and bales containing leaves from different grades. This outcome calls for Government and other key stakeholders to build the capacity of new farmers to improve the quality and packaging of their tobacco. In this case, the farmers would be able to get more value from their tobacco. As tobacco farming is becoming more and more attractive, a total of 77,604 flue-cured tobacco growers had registered by 22 March 2013 compared to 51,606 who had registered by the same period in 2012. According to the 2012 statistics report from the Agriculture Marketing Authority, the maximum sustainable yield should be 808kg/ha.

2.2 Mining Sector Developments

The Government of Zimbabwe has reviewed mining fees downwards in a move to help promote investment in the sector, particularly for small-scale miners. According to the Government Gazette of 8 March 2013, application fees for registering as an approved prospector have been reduced by 20 percent, from USD 5,000 for five years to USD 4,000 for five years. Fees for an

ordinary prospecting license have been reviewed downwards by 25 percent, from USD 1,000 to USD 750, while levies for inspections of gold claims have been reduced from USD 100/5ha to USD 100/10ha. Fees for base claims are now USD 100/5ha, down from USD 200/5ha. Registration fees for gold claims remain unchanged at USD 200 while first and second inspections for gold claims were reviewed downward by 50 percent from USD 100/ha and USD 200/ha to USD 50/ha and USD 100/ha, respectively. Protection fees for grounds that have not been mined have been reduced by 90 percent from USD 1,000 to USD 100 for two months. The fees for diamonds and platinum remained unchanged.

However, these fees are still too high since there was a substantial increase of the mining fees in January 2012. Application fees for registration as an approved prospector were increased by 233 percent, from USD 1,500 in December 2011 to USD 5,000 in January 2012. The current reduction of 20 percent is still above the USD 3,000 the Chamber of Mines of Zimbabwe recommends (Jourdan et al., 20121), thus acting as a barrier to companies entering the mining sector and reducing the profitability of those companies already in operation. Before the 25 percent reduction of the ordinary prospecting license in March 2013, it was reviewed upwards by 566.7 percent, from USD 150 to USD 1,000 in January 2012. Again, the new gazetted figure is above the USD 450 the Chamber

1 Jourdan P, Chigumira G, Kwesu I and Chipumho E (2012), “Mining Sector Policy Study”, Zimbabwe Economic Policy Analysis and Research Unit.


of Mines of Zimbabwe recommends (Jourdan et al., 2012). It has been observed that these instruments also apply to indigenous players in mining, and if they are too high, it contradicts the overall objectives of the country’s Indigenisation and Economic Empowerment program.

The Zimbabwe Platinum Mines (Zimplats) lodged an objection against the Government’s intention to compulsorily acquire 50 percent of its Impala Platinum subsidiary’s mining claims. This was in response to the preliminary notice published in General Notice 123 of 2013 in the Zimbabwean Government Gazette of 1 March 2013 with the intention to compulsorily acquire 27,948 ha of land held by Zimplats for the benefit of the public.

The Minerals Marketing Corporation of Zimbabwe (MMCZ) also revealed that it would soon conclude a joint venture agreement with Angolan state owned company Katoka for the mining of diamonds in the Marange diamond fields after holding discussions

with Angolan Government representatives at the annual Africa Mining Indaba in South Africa.

For gold, month-on-month total deliveries declined by 0.5 percent from January 2013 to February 2013 (Figure 2). However, from February to March 2013, total gold deliveries increased by 2.8 percent, from 962.2 kg to 990.4 kg. Deliveries by small-scale producers grew by 4.7 percent from January to February 2013. They then jumped by 32.1 percent, from 150.4 kg to 221.6 kg, between February and March 2013. However, deliveries by primary producers declined throughout the period. From January to February 2013, deliveries declined by 1.5 percent while from February to March 2013 they declined by 5.6 percent, from 811.8 kg to 768 kg. Total gold deliveries increased throughout the period from 967.5 kg in January 2013 to 990.4 kg in March 2013. The increase in gold deliveries would lead to an increase in Government revenue collections if gold prices also move in the same positive direction.

Figure 2: Total Gold Deliveries, March 2012 to March 2013

Source: Fidelity Printers Refineries

2.3 Inflation Developments

Annual inflation declined from 3.98 percent in March 2012 to 2.76 percent in March 2013 (Figure 3). In March 2013, annual food and non-alcoholic beverages and non-food inflation stood at 4.18 percent and 2.04 percent, respectively. The decline in annual inflation in March 2013 was underpinned

by the decline in prices of clothing and footwear (-0.80 percent), communication (-0.05 percent) and recreation and culture (-0.19 percent). The decline in clothing and footwear prices could be associated with increased importation of these products from South Africa where the rand weakened against the dollar.


Figure 3: Inflation Developments in March 2013

Source: The Zimbabwe Statistics Agency (ZIMSTAT)

Month-on-month inflation for March 2013 declined to 0.21 percent from 0.95 percent in February 2013. Month-on-month food and non-alcoholic beverages and non-food inflation stood at 0.32 percent and 0.15 percent, respectively. Factors underpinning the decline in month-on-month inflation include communication (-0.20 percent), and restaurants and hotels (-1.11 percent). However, the recent increase in excise duties on fuels (petrol and diesel) resulted in increases in prices of some of the commodities.

2.4 Interest Rate Developments

In February 2013, commercial and merchant bank weighted average lending rates for both individuals

and corporates softened from their January 2013 levels. Commercial weighted average lending rates for individuals softened from 15.58 percent per annum in January 2013 to 14.83 percent per annum in February 2013, while commercial weighted average lending rates for corporates softened from 10.81 percent per annum to 10.53 percent per annum over the same period. Merchant bank weighted average lending rates for individuals softened from 17.96 percent per annum in January 2013 to 17.93 percent per annum in February 2013, while weighted lending rates for corporates softened from 14.42 percent per annum to 14.36 percent per annum over the same period.

Table 3: Interest Rate Levels (Annual Percentages)

EndPeriod

Commercial Banks Lending Rates Merchant Banks Lending Rates 3-Month Deposit

Rate

Savings Deposit

RateNominal

RateWeighted Average Nominal

RateWeighted Average

Individuals Corporates Individuals CorporatesMar-12 8.00-30.00 16.04 12.53 14.00-35.00 18.17 13.26 5-20.00 0.01-12.00Apr-12 8.00-30.00 15.00 13.06 13.00-25.00 18.37 16.36 5-20.00 0.00-12.00May-12 6.00-30.00 14.98 11.86 15.00-30.00 15.78 14.47 5.20.00 0.00-12.00Jun-12 6.00-35.00 13.81 11.58 15.00-30.00 17.86 14.04 5-20.00 0.00-12.00Jul-12 6.00-35.00 14.32 10.88 15.00-30.00 17.92 13.93 5-20.00 0.00-12.00Aug-12 6.00-35.00 15.65 10.74 15.00-30.00 17.94 13.95 5-20.00 0.00-12.00Sep-12 6.00-35.00 13.25 11.14 15.00-30.00 17.98 13.92 5-20.00 0.00-12.00Oct-12 6.00-35.00 13.35 11.03 13.00-30.00 17.98 13.95 5-20.00 0.00-12.00Nov-12 6.00-35.00 15.25 10.88 13.00-25.00 17.91 14.42 4-20.00 0.15-8.00Dec-12 10.00-35.00 15.08 10.40 15.00-25.00 17.93 14.43 4-20.00 0.15-8.00Jan-13 10.00-35.00 15.58 10.81 13.00-25.00 17.96 14.42 4-20.00 0.15-8.00Feb-13 10.00-35.00 14.83 10.53 13.00-25.00 17.93 14.36 4-20.00 0.15-8.00Average 14.76 11.29 17.81 14.29

Source: RBZ Monthly Economic Review


The decline in average lending rates can partly be attributed to the signing of a memorandum of understanding (MOU) between banks and the Reserve Bank of Zimbabwe (RBZ), which stipulated that, effective 1 February 2013, only a maximum of 12.5 percent interest margin would be allowable over and above the bank cost of funds. The level of income losses following the implementation of the MOU vary across banks.

In line with the MOU on reductions in lending rates, Old Mutual and the National Social Security Authority (NSSA) reduced their lending rates to banks to 7%, from 10%, in support of the move to reduce lending rates in the economy.

In February 2013, the range of commercial bank three-month and savings deposit rates remained at the November 2012 levels of 4-20.00 percent

and 0.15-8.00 percent, respectively. In this regard, there is still need to encourage some of the banks to reward depositors and savers better as some of them are still offering very low rates (4 percent and 0.15 percent, respectively).

2.5 Banking Sector and Monetary Developments

Annual growth in broad money supply (M3), defined as total banking sector deposits net of inter-bank deposits, decelerated from 37.4 percent in February 2012 to 12.9 percent in February 2013 (Figure 4). The decline in M3 growth partly reflects slow economic activity in the country. On a month-on-month basis, M3 rose from -2.0 percent in January 2013 to 0.14 percent in February 2013.

Figure 4: Monetary Developments (M3)


In February 2013, annual total banking sector deposits increased to USD 3.81 billion from USD 3.38 billion in February 2012. However, the annual growth rate declined from 37.4 percent in February 2012 to 12.9 percent in February 2013. This annual growth rate (12.9 percent) is low compared to the

average M3 growth of 23.6 percent for Kenya, Malawi and Tanzania over the period 2009 to 2011. On a month-on-month basis, total banking sector deposits for February 2013 slightly increased from USD 3.808 billion January 2013 to USD 3.814 billion.


Figure 5: Level and Growth Rate of Total Banking Sector Deposits, February 2012 to February 2013


The slight increase in total bank deposits in February 2013 is attributed to a 6.02 percentage increase in savings and short-term deposits (Table 4). Demand

deposits and long-term deposits declined by 2.69 percent and 3.18 percent, respectively.

Table 4: Composition of Total Banking Sector Deposits (USD billion)

Type of deposit December 2012

January 2013

February 2013

Monthly increase (Absolute) USD billion

Monthly increase(percent)

Demand Deposits 2.09 2.03 1.98 (0.05) (2.69)

Saving and Short-Term Deposits 1.24 1.20 1.27 0.08 6.02

Long-Term Deposits 0.56 0.58 0.57 (0.02) (3.18)

Total Deposits 3.89 3.81 3.81 0.01 0.14


As at February 2013, the composition of total bank deposits was as follows (Figure 6): demand deposits (51.9 percent), savings and short-term

deposits (33.3 percent) and long-term deposits (14.8 percent).

Figure 6: Composition of Total Banking Sector Deposits in February 2013

Source: RBZ Monthly Economic Review, February 2013


The bank loan-to-deposit ratio, calculated on the basis of total bank deposits as well as external and domestic sources of funding increased from 93.4

percent in January 2013 to 93.7 percent in February 2013 (Figure 7).

Figure 7: Loan-to-Deposit Ratio


As from November 2012, the loan-to-deposit ratio has remained outside the internationally recommended ratio of 70 to 90 percent, which is not commendable. In addition, some banks could

be exposed to high repayment default rates if these loans are not used productively. In this regard, to adequately support higher levels of lending in the economy, the deposit base has to grow.

Figure 8: Distribution of Bank Credit to the Private Sector in February 2013


As of February 2013, bank credit to the private sector was distributed as follows (Figure 8): loans and advances (84.2 percent); mortgages (8.2 percent); other investments (3.1 percent); bills discounted (3.4 percent) and bankers’ acceptances (1.1 percent). Loans and advances have remained the largest proportion of bank credit to the private sector. In February 2013, these loans and advances were used for recurrent expenditures (78.2 percent); capital expenditures (11.2 percent) and purchase of durable household goods (10.6 percent). This expenditure outcome is adverse for

economic growth since recurrent expenditures dominate capital expenditures, which are critical for investment purposes. It is important to note that there is need to boost capital expenditure so that the economic growth process is not stalled.

The distribution of bank loans and advances to the private sector was as follows (Figure 9): agriculture (19.2 percent); distribution (17.2 percent); manufacturing (16.9 percent); individuals (14.8 percent); services (14.6 percent); other sectors (9.8 percent) and mining (7.5 percent).


Figure 9: Sectoral Distribution of Banking Sector Loans and Advances in February 2013


2.6 Other Financial Sector Developments

According to the RBZ, the 31 July 2014 deadline for meeting new minimum capital requirements was extended to the year 2020. However, most banks are largely still working with the old deadline while waiting for written communication from the RBZ on the new date. The new deadline of 2020 would allow some of the banks more time to mobilize resources.

2.7 Fiscal Developments

Total revenues for February 2013 amounted to USD 269.46 million, reflecting an improvement of 18.57 percent over the February 2012 collections of USD 227.26 million. Similarly, cumulative total revenues for the first two months of 2013 were 8.42 percent higher at USD 523.96 million, compared to the same period of 2012, during which an amount of USD 483.27 million was collected (Figure 10). Such improved revenue performance may be a reflection of improved efficiency in revenue collection by the Zimbabwe Revenue Authority (ZIMRA).

Figure 10: Fiscal Development (USD Millions), January to February 2013

Source: Ministry of Finance


In February 2013, total Government expenditure amounted to USD 324.56 million, against revenues of USD 269.46 million, resulting in a primary deficit of USD 55.11 million (Figure 10). This was a result of expenditure overruns mainly experienced in employment costs in which, at USD 167.98 million, the outturn was 17.88 percent higher than the target of USD 142.50 million. This was underpinned by the public sector salary adjustments effected in February 2013.

Cumulative total expenditures to February 2013 amounted to USD 550.04 million against cumulative revenues of USD 523.96 million. The Government incurred a cumulative primary deficit of USD 26.08 million (Figure 10).

2.8 External Sector Developments

Preliminary statistics from ZIMSTAT for imports and exports for 2013 reveal that exports continue to struggle to match imports, thus creating a trade deficit. In January 2013, imports were about USD 606 million (Figure11), which is not significantly different from their value in January 2012, although it is an increase of about 8.6 percent compared to January 2011. In February 2013, imports stood at about USD 500 million, an increase of about 6.3 percent compared to February 2012. However, imports were still below their value in February 2011. The high imports imply that the economy is failing to produce enough products that are competitively priced and in adequate quantities to offset import demand.

Figure 11: Imports and Exports for January and February, 2011 to 2013

Source: ZIMSTAT

Performance of exports remains worrisome. In January 2013, exports were about USD 280 million, an insignificant increase of only 8.5 percent compared to January 2012. However, this was a significant decrease of about 21.3 percent compared to the value of exports recorded in January 2011. This same trend is also apparent in February 2013, where exports increased by about 9.1 percent compared to February 2012 but fell by about 18.7 percent compared to the value in February 2011.

The trends reveal that imports have more or less been contained, but exports are not increasing at a rate that is high enough to wipe off the trade deficit. The trade deficit in February 2013 stood at

about USD 221 million, which is not significantly different from the value of USD 215 million in February 2012. Measures to boost exports should thus, continue to be prioritized, especially given that the trade deficit is being financed largely through further accumulation of arrears.

2.9 Tourism Developments

Zimbabwe attended the fourth meeting of the United Nations World Tourism Organization/Regional Tourism Organisation of Southern Africa joint national statistics capacity building program on tourism statistics and tourism satellite accounts (TSAs). The meeting was held from 18 to 21 March in Dar-es-Salaam, Tanzania. Zimbabwe’s


delegation comprised officials from the ministries of Tourism and Hospitality; Finance; Economic Planning and Investment Promotion; the Zimbabwe Tourism Authority (ZTA), the Reserve Bank of Zimbabwe (RBZ) and the Zimbabwe National Statistical Agency (ZIMSTAT).

The main objective of the meeting was to present member countries’ progress in the adoption of standards on the preparation of statistics on in-bound tourism issues; domestic tourism issues; out-bound tourism and international tourism consumption issues. The meeting also discussed methodologies used in the preparation of statistics on tourism production and domestic supply. With the exception of Tanzania and Zimbabwe, most countries in the region had already conducted the relevant surveys related to the compilation of statistics.

The regional meeting recommended that Zimbabwe should lobby for financial resources to support the TSA surveys and also organize stakeholder workshops for the technical team to coordinate and build up the preparatory tables for submission before the May 2013 deadline.

In other tourism developments, the Zimbabwe National Parks continues to receive more tourist

arrivals. The total tourist arrivals in parks rose from 23,999 arrivals in February 2013 to 30,815 arrivals in March 2013. The top four national parks performers for the month of March were the Rainforest National Park, which received 14,409 tourists, followed by Zambezi National Park with 5,880 tourist arrivals. Matobo National Park received 2,837 and Nyanga National Park received 2,042 tourist arrivals.

3. STOCK MARKET DEVELOPMENTS

The industrial and mining indices opened at 184.76 and 68.45, respectively. The industrial index remained flat throughout the month and the mining index declined marginally. They closed at 184.08 and 66.24, respectively. The biggest gainers for March 2013 were Old Mutual, Edgars, Zimre Property Investments and Bindura Nickel Corporation (BNC), which gained 19.4 percent, 22.7 percent, 21.7 percent and 33.3 percent, respectively. The biggest losers were Alco Africa, Dairiboard Zimbabwe Limited and OK Zimbabwe, which lost 31.25 percent, 15.25 percent and 10.89 percent, respectively.

Figure 12: Industrial and Mining Indices, March 2012 and March 2013

Source: Zimbabwe Stock Exchange

On a year-on-year basis, the average industrial index for March 2013 was 183.88, an increase of 34.45 percent from an average performance of 136.76 in March 2012 (Figure 12). On the contrary,

the average performance for the mining index was 22.12 percent lower, at 66.21 in March 2013, as compared to an average performance of 85.01 in March 2012.


Table 5: Summary of ZSE Statistics, March 2012 and March 2013

Mar-12 Mar-13 Percentage change

Turnover value (USD) 32,189,968.39 37,769,311.12 17.33

Turnover volume 190,464,164 231,096,198 21.33

Industrial index 136.76 183.88 34.45

Mining index 85.01 66.21 -22.12

Foreign bought (USD) 21,038,149.63 21,012,318.59 -0.12

Foreign sold (USD) 5,874,043.08 16,869,686.67 187.19

No of shares bought by foreigners 36,352,026 121,217,443 233.45

No of shares sold by foreigners 39,152,628 88,981,096 127.27

Market capitalization (USD) 3,458,055,450.00 4,726,336,602 36.68

Source: Zimbabwe Stock Exchange

In March 2013 there was a 36.68 percent increase in market capitalization, which was also boosted by the issuing and listing of new shares by Alco Africa, OK Zimbabwe, Seed Co and Delta Beverages (Table 5). This coupled with the increase in the stock market turnover value and volume, by 17.33 percent and 21.33 percent respectively, shows a renewal in stock market activities in March 2013 as compared to March 2012.

4. CORPORATE SECTOR DEVELOPMENTS

In March 2013, it was reported that Dairiboard Holdings had resorted to toll manufacturing for one of its products, given a relatively high cost of raw milk and other production costs at its main manufacturing plants. The feasibility of such arrangements for other manufacturing companies is thus worth exploring as a potential temporary solution to the production challenges in the economy.

Toll manufacturing is the sub-contracting of a manufacturing job to a third party with the necessary infrastructure and expertise. The sub-contracting firm is expected to provide the raw materials, which the toller transforms into a finished product for a service fee, which is structured to cover the toller’s supplementary inputs, all costs of production, a proportion of overheads and a fair profit.

Toll manufacturing is not new in Zimbabwe. It has been successfully done in the past. For example, Bindura Nickel Corporation used to toll process nickel for mines in Botswana. Rio Tinto Zimbabwe also used to toll process nickel for

Botswana mines at its Empress Nickel Refinery in Kadoma. Cottco Zimbabwe was toll ginning raw cotton for its Mozambican sister company, Cottco Mozambique. Cottco Mozambique had no ginneries in Mozambique and was transporting raw cotton into Zimbabwe for conversion into lint at Cottco Mutare ginnery. However, following hyperinflation’s erosion of production capacity, it was no longer feasible for such arrangements to continue.

With dollarization, the scope for toll manufacturing in Zimbabwe now exists from two perspectives. Firstly, it is easy for companies with a multi-country presence to use their associated companies in other countries for toll manufacturing arrangements. Given that imports are cheaper than locally produced goods, such arrangements could result in goods being produced cheaply for local companies. The only caveat with such an arrangement would be that production activity in Zimbabwe would slow down further as the products would be produced outside the country.

Second, the current excess capacity, which is put to waste, could be an opportunity for local manufacturing companies. Foreign companies that are exporting to Zimbabwe could utilize the capacity by engaging domestic companies in toll manufacturing activities. Although this would call for sub-contracting firms to invest more in low cost production technology, it could be feasible if proper incentives are provided. If domestic companies are contracted for toll manufacturing, activity at local manufacturing plants is bound to increase. If arrangements for such activities are properly structured, local companies could stand to benefit


from the low cost production technology once sub-contracting companies eventually exit. Thus, the low capacity utilization in the market can be turned into an opportunity through toll manufacturing.

5. POLITICAL AND GOVERNANCE ISSUES

On 16 March 2013, Zimbabwe held a referendum in which 3.08 million voters, accounting for

93 percent of the votes cast, endorsed the draft constitution, while 179 489 (5 percent) voted against the draft, with the remaining 2 percent being spoiled votes. This paved the way for the gazetting of the Constitutional Bill on 28 March 2013. Government is expected to start aligning various laws, particularly legislation relating to the conduct of elections, such as local government and electoral laws, with the new constitution to ensure their adherence.

1. international commodity price developments

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