The decline in formal retail trade as customers gravitate towards the cheaper informal sector could hit local banks hard, a leading advisory has warned.
Imara, the leading investment advisory, said in a report titled ‘Zimbabwe Investment Notes’ that markets were generally gravitating towards goods being sold by informal operators.
These outlets sell cheaper goods as they incur less costs compared to big retailers, but they do not pay taxes to government.
“In 2024, the formal sector is weak,” Imara said it its research note.
“The retailers cannot sell product at prices that make economic sense and so trade goes elsewhere and government receives less VAT (value added tax) than it should. The banks receive limited amounts of deposits relative to the size of the economy and so their balance sheets shrink in real terms. They cannot meet the private sectors’ demands for loans as they have limited liquidity,” the report added.
It said financial institutions that have secured external lines of credit were seeing the funds ‘quickly exhausted’ due to higher demand.
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However, even if loan approvals may be made, recipients were not accessing funds immediately due to a liquidity crisis affecting the economy, the report noted.
“Indeed, loan requests might have been approved by the bankers but drawdowns are not taking place as the banks have insufficient funds. They cannot and no longer have the appetite for holding USD Treasury Bills as the last time they did that such assets ended up being more or less worthless.”
It is a new twist to the troubles affecting Zimbabwe’s economy, which continued to be confronted by power and foreign currency shortages, a depreciating local currency and growing lack of confidence in the economy.
Imara added: “Analysing our own industry, the pensions and insurance sector, the latest statistics from Insurance and Pensions Commission point to a similar picture.
At the official rate last September, total assets of pensions and insurance funds were valued at just US$1,9 billion; in real terms of course this number is much less. Cash at the bank, or true liquid funds, were valued at a mere US$31 million – for the entire industry.
Yet government wants them to invest in infrastructure development or buy more prescribed assets! 55% of pension fund assets were invested at that time in illiquid property and a further 8% in largely illiquid prescribed assets”.
Imara Asset Management is Africa’s leading independent financial services group engaged in asset management, investment banking and fiduciary and administration services.