The new poor and implications for the Zim Investor


Recent research from the World Bank estimates that approximately 40-60 million people will be pushed into extreme poverty (number people living on less than USD1.90 a day) in 2020 as a result of the Covid-19 pandemic. This would be the first increase in world poverty in 22 years. While Sub-Saharan Africa (SSA) has been hit relatively less by the virus from a health perspective, projections suggest that it will be the region hit hardest in terms of increased extreme poverty.  Major factors include (i) limited social-safety nests, (ii) commodity-driven economies and (iii) inadequate national financial reserves. Estimates show that 23 million of the people pushed into poverty are projected to be in Sub-Saharan Africa (SSA) and 16 million in South Asia as illustrated in the infograph;

Another important dynamic is that global remittances are projected to decline sharply due to the economic crisis induced by the Covid-19 pandemic. This has been triggered by a fall in the wages and employment of migrant workers, who tend to be more vulnerable to loss of employment and wages during an economic crisis in a host country. Remittances to low and middle-income countries (LMICs) are projected to fall by 19.7% percent to USD445.bn, representing a loss of a crucial financing lifeline for many vulnerable households. Remittance flows are expected to fall across all World Bank Group regions, most notably in Europe and Central Asia (27.5%), followed by Sub-Saharan Africa (23.1%), South Asia (22.1%), the Middle East and North Africa (19.6%), Latin America and the Caribbean (19.3%), and East Asia and the Pacific (13%). Remittances are a vital source of income for developing countries given that they also serve as a source of the much-needed foreign currency.

In the case of Zimbabwe, the limited economic activity that has come as a result of Covid-19 social distancing measures has created new risks such as (i) company closures, (ii) increased levels of formal unemployment and (iii) shrinkages in the value of exports receipts. As a result, we are seeing the emergence of a new poor. This new class is different from the existing poor. The new poor are mostly based in urban areas and employed in informal services. They also depend on remittances for food, healthcare, and basic needs. While the Government of Zimbabwe has put in place an ZWL18.0bn package and launched safety net programs to get cash into the pockets of some of the existing poor relatively quickly, this has not been the case for the new poor.  Overall, we expect a significant decline in disposable incomes that will translate to reduced demand for consumer products. Piggy maintains a view that investors should take positions in consumer stocks that offer defensive, mass-market products. This includes food items such as bread, mealie-meal, rice and cooking oil. Investors can play this theme through exposure in Innscor Africa, National Foods, Dairibord Holdings, OK Zimbabwe, SeedCo and SeedCo International.

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