According to a local research firm, the growing gap between parallel and official market rates which are being fuelled by the increased use of the US dollar, is likely to hinder the country’s economic performance in the second half of 2021.
FBC Securities stated in its research paper, 2nd Half Investment Space, that the outlook of the second half of 2021 was estimated to remain positive but however warned that the widening gap between the official rate and the parallel market rate could hinder the economy’s performance.
As said by FBC securities, possible threats going into second half of 2021 are widening parallel market premium which is more than 60%, wage pressures in both the public and private sector, repricing of goods and services and cash dollarization.
According to the International Monetary Fund (IMF), after an estimated contraction of 3.3% in 2020, the global economy is estimated to grow by 6% in 2021 then moderating to 4.4% in 2022.
Supported by the recovery of the agricultural sector, monetary and fiscal stability, treasury has projected an economic rebound with a growth of 7.8% expected in 2021.
FBC stated that in the first half of the year local companies performed fairly well and the industry as a whole remains bullish about the second half of the year but however, critical challenges that were experienced in the first half include the delays in the settlement of auction market bids, high labour costs as companies adhered to COVID-19 regulations and digitalisation of operations.
“These challenges meant that the industry remained sceptical about sustainable economic growth and medium-to-long-term business prospects. It also meant that costing and pricing of goods remained a challenge as not all foreign currency needs could be met from auction allocations,” as said by FBC Securities.
The reduction of inflation from 837% in July last year, easing to 56.37% last month has been contributed by the foreign currency auction hence making this the first time the country has registered a two digit inflation figure in two years after it skipped to 175,66% in June 2019 from 97,85% in May of that year.
FBC Securities further added that opportunities in the first half were accelerated by an auction system which enabled some economic stability.
The Corona Virus pandemic halted economies in several states but however did create an opportunity for industrial growth through increased local demand as supply chains remain disrupted.