Zimbabwe’s Economy
The economy of Zimbabwe is a complex mix of traditional subsistence agriculture, world markets, and small-scale trading. Reminiscent of its pre-colonial history, Zimbabwe saw a steep decline in economic activity following the land reform of 2000 and a regime change in 2008. After almost two decades of dismal economic performance, the government has been working hard to enhance macro-economic stability, and restore investor confidence.
This article serves to examine the challenges that Zimbabwe has and continues to face, and how it is tackling them to drastically change fortunes and move back to stable ground.
Current State of the Economy
Zimbabwe’s GDP has been slowly recovering since 2016, however the rate at which it is increasing is seen as too slow. Poor economic planning and mismanagement of the economy has traditionally hindered any progress Zimbabwe has seen. The rise in commodity prices on the international market in 2019 and 2020 has helped to damper their economic woes. Nevertheless, Zimbabwe remains one of the poorest and most vulnerable countries in the world, with an inflation rate of 800%.
Exacerbating the economic challenges, Zimbabwe is a water-scarce country, and as noted by the African Development Bank, “economic growth will remain suboptimal without a comprehensive and comprehensive water security strategy.”
Key Challenges Faced When Rebuilding the Economy
Limitations on Foreign Investment
The foreign investment climate of Zimbabwe has been fraught with some challenges in the recent past. Investors have primarily been hampered by the government’s attitude towards foreign-owned businesses, and therefore, it has not been deemed attractive enough to cultivate investments in the country. Despite some reforms, investors are still wary of investing, due to memories of indigenization policies that saw expropriation of businesses.
Inflexible Fiscal Policy
The government of Zimbabwe also has an inflexible fiscal policy that has contributed to the stagnation of growth in the economy of Zimbabwe. This fiscal policy is characterized by high spending coupled with minimal revenue collection. This causes an imbalance in the government’s fiscal position, leading to an inability to finance economic reforms and stimulate economic growth.
Unstable Political Environment
The political landscape of Zimbabwe is still a cause for concern for potential investors. Reports of human rights abuses and chronic shortages of basic necessities have usually come from a contested electoral process, along with a growing militia culture that some believe pose a threat to national security. As such, the business environment of Zimbabwe is still considered risky and unstable, further deterring potential investors.
Efforts To Overcome Challenges
The government of Zimbabwe has made concerted effort to address the challenges that have presented themselves during the years of economic hardship. This includes the implementation of several reforms which are indicative of the government’s efforts to revive the economy of this country.
Recent Economic Reforms
The government has implemented certain reforms to improve its investment climate. This includes such reforms as allowing foreign investors to repatriate profits, abandoning its local currency (Zimbabwean Dollar) for a multi-currency system, making general improvements in the regulatory environment, and discussing the introduction of Special Economic Zones (SEZ).
Economic Stimulation by Partner Countries
International organizations and foreign countries have also taken steps to stimulate growth and the development of infrastructure in Zimbabwe. This includes the International Monetary Fund’s US$349 million emergency loan to help the government meet essential budget needs, and additional stimulus packages from the African Development Bank and other donor countries.
Subsistence to Commercial Agriculture
The government has provided farmers with fertilizers and seeds and encouraged them to switch from traditional subsistence farming to commercial farming. The government has also started subsidizing low-interest credits for the farmers, in addition to providing technical assistance.
The Way Forward
In order to rebuild the economy and become a leading destination for the global community, Zimbabwe needs to effectively tackle the three major road blocks hindering its progress—foreign investment, an inflexible fiscal policy, and a fragile political environment. The progress seen in economic reforms, investments from partner countries, and the transition from subsistence to commercial agriculture show promise, but there still remains much to be done. Zimbabwe must prioritize stability and open its doors for business, in order for it to move towards economic stability in the 21st century.
Zimbabwe has had a difficult economic run in the past two decades, with much of the direction of its economy determined by unpredictable cycles of monetary and fiscal mismanagement. However, with the implementation of recent reforms and international stimulus, the country is moving towards a more stable point. Zimbabwe needs to actively embrace the foreign investment climate, become more financially flexible, and create a secure political atmosphere in order to embrace long term growth. With the right combination of effort, Zimbabwe has the potential to come back and become a success story of the 21st century.
