Choppies Forecasts Good Returns From Deflated Zimbabwe
Boitshepo Majube | Monday March 24, 2014 17:19
The retailer says that the Zimbabwean economy is US Dollar based and the strength of the currency will cushion it from any negative impact.
Zimbabwe moved into deflation after the annual rate of inflation for February shed 0.90 percentage points to minus 0.49 percent due to continuing price fall with some economists seeing this as a temporal phase of price self correction.
The Zimbabwe National Statistical Agency said on Friday that prices as measured by the consumer price index decreased by an average 0.49 percent in the 12 months to February 2014.
The Zimbabwe statistics agency stated that the year-on-year inflation rate for February 2014, as measured by the all items consumer price index stood at minus 0.49 percent, shedding 0.9 percentage points on the February 2013 rate of 0.41 percent. Deflation refers to a general decline in prices, often caused by a slowdown in supply of money or credit in an economy. An economy enters deflation when inflation falls below zero. Declining prices, if they persist, generally create a vicious spiral of negatives such as falling profits, closing of factories, shrinking employment and incomes, and increasing defaults on loans by companies and individuals.
At the presentation of unaudited group results for the six months ended December 3, 2013, chief executive officer, Ramachandran Ottapathu said they expect the growth of Choppies Zimbabwe to be the same as of that of Choppies Botswana.
“Zimbabwean economy is Dollar based, so it doesn’t affect us because of the strength of the dollar,” he said. He said the exchange rate of the Pula to the Dollar means the benefits of trading in Zimbabwe and Botswana are the same.
Ottapathu said they have confidence in the Zimbabwean market and they have lined up financiers from multi-national banks in the country. “For our expansion, we have negotiated a good rate from multi-national banks operating in Zimbabwe,” he explained. Zimbabwe has now experienced both extreme ends of the inflation continuum, after inflation peaked at 231% at the last official count in August 2008 and started at an all-time low of minus 7.7 percent in 2009 after the country dollarised.
The country is facing tight liquidity since the dollarisation after it scrapped its currency due to hyperinflation.
Many companies have found it difficult to access funding to support operations and replace old equipment to enhance efficiency and competitiveness against imported products. Generally, it is cheaper to import than to buy local goods due to the high cost of manufacturing owing to high-priced power, labour, inputs, water and old machinery. Zimbabwean economists point out that deflation is a symptom of a problem because it is an indication that people are not spending much. The country started in deflation in 2009 as the economy had a negative inflation rate of 7.7 percent.
While the country has technically descended into deflation, some economists believe it is a temporal period of gradual climb down from dollar-induced inflation the economy went through after adopting multi-currencies in 2009.
Harare-based economist, Witness Chinyama was quoted in the Herald newspaper saying that the deflation was only a period of price self-correction as people quoted high prices due to the Zimbabwe dollar mentality stemming from the era of the decade-long hyperinflation.
“Remember we had periods such as the diamond rush when the US Dollar was easy to find, during that period, we had some US Dollar (induced) inflation,” Chinyama said.