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Zimbabwe: Zimbabwe Economy Profile

2015/01/25

Zimbabwe economy expected to grow

 

Real GDP increase is estimated to have decelerated to 3.7% in 2013 from an estimated 4.4% in 2012. This reflects a continued slowdown in the economy as a result of limited sources of capital, policy uncertainty and the high cost of doing business. Real GDP increase is projected to marginally improve to 4.0% in 2014. In 2013, inflation averaged about 4.1% and is projected to slightly slow down to 4.0% in 2014.

Inflation developments will continue to be influenced by the USD/ZAR exchange rate, international oil prices and local utility charges. Persistent liquidity shortages combined with low effective request and a weak South African rand will dampen inflationary pressures in the economy. The country experienced a decline in money supply in 2013. At the same time, the South African rand depreciated by about 20% in 2013.

Zimbabwe is experiencing a structural regression, with the acceleration of deindustrialisation and informalisation of the economy. On an annual basis, the share of the manufacturing sector in GDP peaked at 26.9% in 1992 before collapsing to 7.2% by 2002.

The various Confederation of Zimbabwe Industries (CZI) Manufacturing Sector Surveys suggest that industrial capacity utilisation declined sharply from 35.8% in 2005 to 18.9% by 2007 and to less than 10.0% by 2008. It increased to 33.0% in 2009, 43.7% in 2010 and 57.2% in 2011, before declining again to 44.2% in 2012 and 39.6% in 2013. In 2004, 80% of jobs in Zimbabwe were in the informal sector, with the 2011 Labour Force Survey suggesting the rate had further increased to 84%.

The poor performance of domestic revenue inflows and the rise in recurrent expenditures will continue to constrain fiscal space, while the continued use of the multi-currency regime will result in monetary policy largely remaining unchanged. In 2013, the government unveiled the Zimbabwe Schedule for Sustainable Socio-Economic Transformation (ZimASSET, 2013-18). ZimASSET has a number of positive elements, such as the adoption of results-based management and a clear implementation matrix.

The policy blueprint as well correctly identifies a number of key binding constraints to development, but it does not clearly articulate the country's institutional and financial capacities to transaction with those constraints instantly within the five-year period.

 

  • Zimbabwe's economy remains in a fragile national, with an unsustainably high external deficit and massive deindustrialisation and informalisation. The average GDP increase rate of 7.5% during the economic rebound of 2009-12 is moderating. This economic slowdown is due to liquidity challenges (e.g. the lack of and high cost of capital and revenue underperformance), outdated technologies, structural bottlenecks that include power shortages and infrastructure deficits, corruption and a volatile and fragile world financial environment.
  • The constrained fiscal space has forced the government to adopt a contractionary fiscal policy stance, while the use of the multi-currency regime limits the use of monetary policy instruments.
  • Much remains to be done in Zimbabwe to improve the business environment. Key challenges to doing business in Zimbabwe include policy inconsistency, funding constraints, corruption, inefficient government bureaucracy and inadequate infrastructure.