Chinese slowdown to hit Zimbabwe
A NEW report has said that an economic slowdown in China, the world’s second largest economy, would have significant implications on Zimbabwe’s economy, with the potential of affecting projected growth targets this year.
The report comes as the country grapples with a worsening economic situation, characterised by a tightening liquidity crunch that has ruined many economic activities and wrecked industries, the majority of which have collapsed or are on the brink of collapse.
Zimbabwe, which exports the bulk of its commodities to the People’s Republic of China, whose president, Xi Jinping, was in the country last week on a two-day State visit, projects that gross domestic product growth would be at 2,7 percent next year.
In fact, minerals constitute the bulk of Zimbabwe’s exports. During the period from January to October 2015, exports were at US$2 billion, dominated by gold, tobacco, nickel and diamonds.
This year, exports are projected at US$3,4 billion, against imports of US$6,3 billion, giving a trade deficit of US$2,9 billion.
Growth for the current year was revised downwards to 1,5 percent, from an initial 3,2 percent.
But a looming drought has added to an already bad situation where commodity prices have been affected by the downturn in China, which has been consuming less and less raw materials like chrome and platinum.
In a report released two weeks ago, the Zimbabwe Economic Policy Analysis and Research Unit (ZEPARU) said the slowdown in China would affect African economies; Zimbabwe’s economy is likely to be worst hit because of its current circumstances.
“The Chinese slowdown and only modest global economic growth are likely to continue to hold down commodity prices. This would have implications for Zimbabwean export earnings. The slowdown in growth in the Africa region is also likely to be mirrored in Zimbabwe. In addition to the falling commodity prices, Zimbabwe is reeling from fiscal space constraints and the power challenges being experienced in the country,” ZEPARU said in the report, titled ZEPARU Economic Barometer.
Finance Minister, Patrick Chinamasa, has noted that the sub-Saharan region is projected to grow by 3,8 percent this year, down from the initial projection of 4,4 percent. The region is being negatively affected by low commodity prices, he said.
Gold, whose share of total exports is at around 15 percent per annum, plays a significant role in the Zimbabwe’s trade balance.
The bullion price lost 12,3 percent of its value to average US$1 124 per once in the third quarter of 2015.
Platinum prices slowed by 31,2 percent during the same period to average US$986 per ounce compared to the prior comparative period.
Prices of other minerals like nickel and ferro-chrome also registered declines.
“The implications of depressed international prices are being felt through both reduced profit levels for local mining companies and the risk of reduced revenue for government. For example, Zimplats, a leading platinum producer in the country, reported a loss of US$74 million in 2015, citing lower sales volumes and depressed prices as some of the limiting factors,” ZEPARU said.
The think tank noted that “falling prices would reduce exports, earnings resulting in a loss of foreign currency inflows and a higher current account deficit”.
Wheat and maize prices also declined during the review period, although ZEPARU said this was a positive development for the country that has to import food to feed over 1,2 million in over 30 districts who are facing starvation.
Analysts have already started speculating over the possible closure of some small gold mines, whose fortunes have been hardest hit by softening demand and tumbling prices.
Production costs in the sector have risen against declining prices.
The softening growth in China, said Chamber of Mines of Zimbabwe chief executive officer, Isaac Kwesu, in a recent interview, meant that Chinese markets were purchasing less gold, chrome, platinum, nickel, coal and other minerals from Zimbabwe and other countries.
“The mining industry has been seriously affected,” Kwesu told the Financial Gazette’s Companies & Markets.
“China was driving the growth that we have registered. They were buying most of the base metals and precious metals. We cannot ignore what is happening in China because this has been mostly responsible for the drop in prices. When growth is softening, demand weakens,” said Kwesu, an economist.
The slide in metal prices, whose effects have also hit resource-rich countries like oil-rich Angola and Africa’s biggest copper producer, Zambia, has worsened costs in gold and platinum mines.
Platinum group metals and gold are currently driving economic recovery in Zimbabwe.
In Zambia, the global commodities giant, Glencore, has suspended operations at Mopani Mine, a key asset near Kitwe.
At least one other copper mine has mothballed in the country’s Copperbelt region.
Chinamasa said exports are next year projected to increase to US$3,7 billion, from US$3,4 billion projected this year.
This, he said, would be on account of a “projected increase on account of the expected improved performance of minerals, namely gold, nickel, diamonds and ferro-chrome, chrome ore and fines; tobacco and horticultural produce”.
Follow us on Twitter on @FingazLive and on Facebook – The Financial Gazette