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Can Zimbabwe’s economy rise again?

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ZIMBABWE’S economic performance has been subject to many questions. The questions many have is when will bank queues end? And will the 2018 elections bring economic solutions? Has the government managed to control the economy well?

BY KUDZAI GOREMUSANDU

Zimbabwe’s real GDP growth forecast is stronger at 2% on the back of optimism about a larger tobacco crop
Zimbabwe’s real GDP growth forecast is stronger at 2% on the back of optimism about a larger tobacco crop

According to the International Monetary Fund (IMF), Zimbabwe’s real gross domestic product (GDP) growth declined yearly from 2011 reaching a mere 0,5% in 2016. The 2017 forecast is somewhat better at 2% on the back of optimism about a larger tobacco crop. Encouragingly, leaf auctions were around 40% year-over-year higher in value by the middle of April. There are various reasons for this lacklustre trajectory in economic growth in Zimbabwe, as economic development over the long-term will be largely dependent on the success of reforms. Slowing population growth means that robust levels of economic growth will be dependent on the government’s ability to attract investment and improved productivity, following a number of painful-but-inevitable reforms. These reforms include de-dollarisation and controlling expenditure to further clear arrears with international financial institutions.

Foreign investment

Since 2009, the government has tried to implement various measures to attract foreign direct investment (FDI). However, there are significant barriers in the country, such as the indigenisation law and economic empowerment laws, as well as little protection of property rights. Business Monitor International ranks Zimbabwe 45th out of 48 countries in Sub-Saharan Africa for investment attractiveness due to deteriorating economic growth, political instability and doubts over the credit-worthiness of the Zimbabwean government (which does not have a sovereign rating). The country’s FDI prospects are also hampered by the shifting implementation of indigenisation laws, with a lack of clear guidelines pertaining to the country’s empowerment legislation.

While the government is attempting to improve the ease of doing business climate, investors are still elusive due to the poor economic conditions and unpredictable policies. According to UNCTAD, FDI flows into Zimbabwe were valued at $421 million in 2015, down from $545 million in the previous year.

Economies in sub-Saharan Africa

After half a decade of economic growth averaging about 6% from 2010 to 2014, sub-Saharan Africa’s (SSA) GDP growth descended to its lowest level in more than 20 years, declining from 5,1% in 2014 to 3,4% in 2015 and further down to 1,5% in 2016.

This economic situation was expected due to the crash in commodity (oil and natural resources) prices that the world witnessed since mid-2014, considering that many of the largest sub-Saharan African economies depend heavily on commodity exports. Also many countries in Eastern and Southern Africa have been experiencing severe drought influenced by climate-change, all these coupled with a global environment that has become increasingly unfriendly.

In reality, the weak economic condition is not parallel across the region. The continent’s three largest economies — Angola, Nigeria and South Africa — are the worst-hit countries. These countries account for about 60% of SSA’s GDP and they are responsible for the overall picture of poor economic performance on aggregate level. Thus, a different scenario is revealed when broken down into each country’s economic circumstance.

In its recent report on sub-Saharan Africa, the IMF classified the countries in the region into two groups — the group of 23 countries with high reliance on commodity exporting, which now suffer serious economic pressure — and another group of 22 countries that are non-resource intensive and, thus, have continued to maintain high economic growth.

According to the IMF, the strong growth momentum of non-resource intensive countries remains undiminished, since they are oil importers and they benefit from lower oil import prices and other conditions such as improved business environment and continuous strong infrastructure investment. These countries include Cote d’Ivoire, Ethiopia, Kenya, Tanzania, Senegal and Rwanda each with a GDP growth that ranges between 6 and 8% in 2016 and projection for a similar growth trend in 2017.

Based on the region’s uneven growth level, foreign investors and other trade stakeholders would need to assess the potential and stability of each country against considering the latest regional growth rate of 1,5%, which appears misleading and discouraging. In my opinion, there should be moderate concern over this result as the IMF has also hinted that the outlook for SSA is a short-term challenge. It expressed optimism that medium-term growth prospects of the region still remain favourable to the extent that the key fundamentals of growth such as investment in infrastructure, strong private consumption and favourable demographics continue to be in place.

The economic acceleration recorded over the last decade was enabled by reforms and improved domestic policies across the region. As stated in the World Bank Doing Business 2017 report, the continent is the second-highest adopter of reforms and it accounts for over a quarter of all reforms globally.

Many countries in SSA have made pronounced efforts to improve the business climate for investment, which has driven economic growth, reduced poverty and expanded the middle class with disposable income. The increased economic activity during this period can also be attributed to substantial progress made in financial development, technology and advanced systems in banking and telecommunications, which supported growth and reduced volatility in the region.

Finally, major steps have been taken by some governments in SSA to boost investor confidence and trust through more transparency in regulatory procedures including taxation and property. Trust in the political system is a critical tool that influences investors’ decision in channelling investment flows and as SSA continues to address issues that can hold back investment flows such as institutional frameworks and corporate governance; the region remains a favourable destination for trade and investment.

Kudzai Goremusandu is a strategic and innovate business consultant. He offers consultancy services to local and international investors. Contact: kgoremusandu@gmail.com.

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