Home » Industry » Economy Not All Gloomy – Banker – ‘Deflation a Correction of Prices’ – Growth Prospects High – Mushayavanhu

Zimbabwe’s economic outlook is not all “doom and gloom” and the so-called deflation in the economy is more a correction of prices than a sign of a shrinking economy, a leading banker has said. FBC Holdings group chief executive Mr John Mushayavanhu said this at Wednesday’s launch of the Central African Stock Exchanges Handbook in Harare.

“If you look at our inflation, I believe that is a correction of past mischief and for me it is a good thing,” said Mr Mushayavanhu.

Zimbabwe’s deflation thawed substantially after the annual inflation rate gained 0,65 percentage points to minus 0,26 percent in April as revenue from tobacco eased the liquidity crunch.

According to the Zimbabwe National Statistical Agency, the annual rate of inflation improved from minus 0,91 percent in March 2013 to minus 0,26 percent in April.

This means that prices, as measured by the all-items consumer price index, decreased by an average of 0,26 percentage points between April 2013 and April 2014, Zimstat said.

“I believe that what we are seeing in this country is not deflation, but a correction of pricing caused by the depreciation of the rand and increased competition.

“Unfortunately, many people hung on to those huge margins from the hyperinflation era and dollarisation has allowed us to understand what the price should really be.

“In the past, people were used to making higher margins but I think now that we have adopted the US dollar, many have realised that there is still an opportunity to make money with lower margins. This is why we have seen prices falling and that does not necessarily mean that the country is headed towards deflation.

“The message that I want to say is that if you can’t make it in the US dollar then you cannot make it.”

Zimbabwe adopted a multi-currency regime in January 2009. Of the the four currencies adopted then – the South African rand, the Botswana pula, the British pound and the US dollar – the greenback become the main medium of exchange.

The Reserve Bank of Zimbabwe has since expanded the foreign currency basket, adding the Chinese yaun, Japanese yen, Australian dollar and Indian rupee.

Mr Mushayavanhu said economic outlook was not as poor as pronounced by some sections of the media.

“Firstly, Zimra collected two percent more revenue in the first quarter of this year – this is no mean feat. Secondly, trading on the (Zimbabwe Stock Exchange) in the first quarter was in line with 2013 activity – foreigners dominated.

“Thirdly, fuel consumption has nearly tripled since dollarization … you need money to drive a car.

“Fourthly, we have an RBZ Governor (Dr John Mangudya) who is respected by the local business community.

“And lastly, we have a negative inflation rate, which is a good thing. We do not control money supply, so I would find it hard to accept that the economy is shrinking.

“Deposits have remained stable at US$4 billion, which is as much as they have in Zambia, which statistically has an economy twice our size.”

Mr Mushayavanhu said the situation gave local entrepreneurs opportunities to lower prices of certain goods and services “and that is a good thing for this country”.

“If we cannot make it using dollars, then we are not global players. Much is said about the state of manufacturing in Zimbabwe, but some companies like Cafca and Zimplow’s Mealiebrand have consistently made profits since dollarisation,” he said.

Source : The Herald