Covid-19 challenging Zimbabwe’s business sector

 Covid-19 challenging Zimbabwe’s business sector

Covid-19 challenging Zimbabwes business sector.

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Businesses operating in Zimbabwe will have to be nimble enough to manage switching suppliers and maintain liquidity   to survive periods of low sales in 2021 while investors should seek exposure in companies that have defensive business models.

These include those that are cash   generative, export oriented and not dependent on local economies.

The comes as the Covid- 19 pandemic is  seen   presenting hurdles  associated with deteriorating   disposable incomes  that can translate  to limited  aggregate  demand during the year .

Companies   that focus on   luxury   or non- essential   goods are seen taking the fall while tourism and hospitality will likely remain in the doldrums.

An Equity strategy paper by Morgan & Co however notes that consumer facing companies offering defensive mass market oriented goods could be able to surf the tide.

The paper also notes that while Zimbabwe has remains a hard sale on the global investment   matrix, there are however certain   themes that   continue to attract a lot of attention among investors.

These include sectors such as agriculture, mining and financial services.

Zimbabwe economy is dependent on agriculture and the sector is expected to recover by 11,3% in 2021 according the Ministry of Finance.

One of the main concerns has been low productivity as output of different sectors of the economy drops.

However rapid population growth and increased economic prosperity in the future is set   to increase substance demand for food.

“Overall there is  an opportunity for a country like Zimbabwe to increase food production  output given that  these dynamics can translate to an uptick   in agricultural produce  there is no silicon valley in Zimbabwe  but agriculture can grow the economy  and generate the much needed foreign currency . The advantage here is that   Zimbabwe has arable land in economics   competitive advantages are conditions   that allow a country   to produce   a good   of equal value at a lowest price or in a more desirable manner. These conditions allow the productive entity to generate more sales or superior margins compared to its rivals.” said Morgan & Co.

Agricultural businesses that provide key inputs into the food production chain are seen positioned to take advantage of this growth.

The mining sector on the other hand contributes 7-8% to GDP and presents long term solution to the foreign currency shortages in the country.

The sector is expected to recover by 11% in 2021 as gold proceeds have been on an awards   trend given the safe haven status of the yellow mineral.

Global risks and geopolitical uncertainties are expected to help maintain the bullish trend   in the outlook period.

“We note that most  commodities rebounded in the second half of 2020.In oil   priced lagged the broader  recovery   in commodity prices  due to   the prolonged impact   of the pandemic  on global   oil demand .Base metals  prices were on net broad  flat in  2020. As sharp falls   in the first half of the year were followed by a strong recovery   in the second half due to rising   demand from China. Prices are expected to increase 50%  in  2021 alongside the expected rebound   in global demand,” Morgan & Co said.

The dynamic has been that governments all over the world are pushing towards renewable energy vehicles given that they are ingredient  for the achievement of  low  carbon societies.

Mining groups such as BNC (Bindura Nickel Corporation)   are set to experience  growth   as the story of EVs play out. Gold producers such as Rio Zim and Padenga holdings are set to benefit from the gold price trend.

The financial services sector and insurance in Zimbabwe is also expected to grow by   72% in 2021.

“Our research reveals that there is scope for M & A (Mergers and Acquisitions)  activity in the sector in 2021 and this could present interesting   opportunities for investor in in the banking sector as NSSA   disposed its  ZBHF stake , increasing its stake in   CBZH. There is also scope of activity   in the insurance sector. We opine there is scope for consolidation in the insurance space.” Morgan& Co said.



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