Zimbabwe: Forcing the ZiG down our throats

The ZiG (Zimbabwe Gold) is a gold-backed currency introduced by the Reserve Bank of Zimbabwe (RBZ) in April 2024 to stabilize the country's economy and address chronic inflation. It replaced the Zimbabwean dollar (ZWL) and was designed to coexist with foreign currencies like the US dollar. The ZiG is backed by gold reserves and foreign currency, aiming to restore confidence in Zimbabwe's monetary system after years of economic instability

Despite its initial promise, the ZiG faced significant challenges. By September 2024, it had been devalued by over 40% due to rising demand for US dollars and insufficient gold reserves to back its value. On the black market, its value fell even further, undermining confidence among businesses and citizens. Structural issues such as limited gold reserves (only 2.5 tonnes) and inadequate foreign exchange reserves exacerbated the problem. Experts estimated that an additional $4.5 billion would be required to stabilize the currency effectively

Despite the introduction of the gold-backed ZiG currency in April 2024, Zimbabwe continues to face economic difficulties. The ZiG has shown some signs of stabilization, with recent data indicating it accounts for about 30% of all transactions, while the rest are conducted in US dollars.

The Reserve Bank of Zimbabwe (RBZ) maintained its benchmark interest rate at 35% on February 6th, 2025, for the second consecutive time. This decision indicates the central bank's commitment to a tight monetary policy stance to curb market volatility and anchor inflation expectations.

Zimbabwe experienced a significant spike in monthly consumer inflation, reaching 10.5% in January 2025, up from 3.7% in December 2024. This sharp increase was primarily driven by rising food prices and higher costs for housing, water, electricity, gas, and other fuels.

Inflation in US dollar terms also accelerated, reaching 11.5% in January 2025, a substantial increase from 0.6% in December 2024. This suggests that the economic challenges are affecting both local and foreign currency transactions.

Despite these challenges, there are some positive indicators. The World Bank projects Zimbabwe's economic growth to increase to 6% in 2025, up from 2% in 2024, driven by an anticipated recovery in agriculture and robust growth in industry and services

Ghana: Implementing the economic ‘Shock Therapy’

Ghana's new government, led by President John Dramani Mahama, is implementing significant fiscal measures to address the country's severe economic distress. Finance Minister Cassiel Ato Forson announced steep spending cuts in his first budget speech, describing the economy as burdened by debt, mismanagement, and accountability issues. Ghana faces external debt service costs of $8.7 billion over the next four years, with substantial arrears owed to power producers, the electricity company, and cocoa regulator Cocobod.

The government plans "shock therapy" measures, including scrapping poorly designed taxes and introducing targeted revenue generation strategies to reduce the deficit. These efforts aim to achieve real GDP growth of 4% and lower inflation to 11.9% by year-end. However, Ghana's international bonds have experienced declines following announcements of wider-than-expected fiscal deficits.

The country is restructuring its debt under IMF conditions tied to a $3 billion bailout program initiated under the previous administration. Despite progress in macroeconomic stabilization and reforms, challenges persist in key sectors like cocoa and energy. Cocoa production has been hampered by illegal mining, pests, diseases, and aging infrastructure, while economic growth slowed to 5.7% in 2024.

Ghana’s PMI returned to levels of above 50 with a reading of 50.5 in February, up from 47.9 in January.

This was mainly driven by a rise in new orders which signal new business and higher customer demand across the board. According to the Purchasing Managers, new order growth was a result of successful marketing and higher demand following the elections last year. These companies are optimistic that output will rise throughout the year. Due to higher capacity, the backlog has been under control even with rising new orders. Overall input costs continue to rise and companies are passing down these costs to consumers.

Yesterday Ghana released its GDP figures for Q4 2024. In nominal terms, Ghana's GDP at basic prices for the fourth quarter of 2024 stood at GH₵308,086.5 million. The GDP growth rate for Q4 2024 was 3.6% year-on-year, which is a decrease from the 7.2% growth rate recorded in the third quarter.

Here is a breakdown of the GDP figures for Q4 2024:

• Oil GDP: GH₵53,137.0 million at constant 2013 prices.

• Non-oil GDP: GH₵50,262.5 million at constant 2013 prices.

The Services sector remained the largest contributor to GDP, accounting for 49.2% of total output, followed by Industry (31.9%) and Agriculture (19.0%).

Kenya: Steady Growth & Inflation

The annual consumer price inflation rose to 3.5% in February 2025, up from 3.3% in January. This increase was primarily driven by higher prices in the Food and Non-Alcoholic Beverages category (6.4%) and the Transport sector (0.7%). The Consumer Price Index (CPI) increased from 142.68 in January to 143.12 in February, resulting in a monthly inflation rate of 0.3%.

Prices of sugar, cooking oil, and tomatoes increased by 3.2%, 1.6%, and 1.3%, respectively. However, wheat flour and potatoes saw price drops of 2.4% and 1.8%. The index rose by 0.1% due to a 0.6% increase in gas/LPG prices, while electricity prices declined. The index rose slightly, mainly due to a 4.8% increase in local flight prices, with no change in petrol and diesel prices.

Inflation remains below the central bank's target midpoint of 5%, but the increase reflects rising costs in key sectors

Kenya's private sector experienced marginal growth in February 2025, as indicated by the Stanbic Bank Kenya Purchasing Managers' Index, which rose to 50.6 from 50.5 in January. This marks the fifth consecutive month of growth, although the pace remains below the long-term average of 51.2.

Growth was driven primarily by agriculture, manufacturing, and construction, while wholesale, retail, and services sectors faced declines in activity and new orders. The overall economic environment showed stabilization, with easing inflationary pressures and improved cash flow supporting the growth. Despite current growth, businesses expressed a pessimistic outlook for the future, with only 5% of firms expecting output to increase over the next year. Firms continued to face challenges in boosting sales, and employment and inventory growth were minimal.

Overall, while Kenya's private sector continues to grow, the growth is marginal, and future expectations remain subdued.

Regal Capital Outlook

Given our analysis of Zimbabwe’s ZiG, stable currencies and reliable economics conditions are critical for developing industries and attracting foreign investments, experts maintain.

Across Africa, efforts are underway to enhance payment systems for local currencies. For instance, the Pan-African Payment and Settlement System (PAPSS), which was developed by the African Union and the African Export-Import Bank, is a centralized financial market infrastructure enabling the secure flow of money across African borders.

The PAPSS allows users to make near-instant payments in their local currency, without converting to a foreign currency or using a third-party institution or bank.

After a challenging 2024 marked by a severe drought that hampered agricultural and hydropower sectors, Zimbabwe anticipates a 6% GDP growth in 2025. This rebound is expected to result from improved agricultural output and power generation. However, the introduction of the gold-backed Zimbabwe Gold (ZiG) currency has faced hurdles, including public reluctance and currency devaluation. Addressing these challenges is crucial for sustained economic stability.

Ghana's government is implementing "shock therapy" measures, including significant spending cuts and tax reforms, to revitalize the economy and reduce a substantial budget deficit. The Finance Minister projects a GDP growth of at least 4% and an inflation rate of 11.9% by the end of 2025. Despite these efforts, poverty rates are expected to rise, peaking at 31.5% in 2025 due to limited growth in key sectors and rising prices outpacing income growth for the poorest.

Kenya's private sector showed marginal growth in February 2025, with the Stanbic Bank Kenya Purchasing Managers' Index (PMI) rising slightly to 50.6. This growth was primarily driven by the agriculture, manufacturing, and construction sectors. However, businesses remain cautious, with only 5% expecting output to increase over the next year. The Finance Ministry projects economic growth to accelerate to 5.3% in 2025 and 2026, up from an estimated 4.6% in the previous year. Inflation is expected to remain below the central bank's target midpoint of 5%, though the recent uptick to 3.5% in February warrants attention.

In summary, while these countries are implementing measures to stimulate growth, they face significant challenges, including currency stability issues in Zimbabwe, fiscal deficits and poverty concerns in Ghana, and subdued business optimism in Kenya. Continued policy reforms and strategic investments are essential to address these challenges and achieve sustainable economic development.

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