This briefing note is the result of a collaborative research process with the Zimbabwean private sector, government representatives, industry organizations and experts, drawing on best practice and senior-level insights to identify policy options for long-term economic revival and expansion in Zimbabwe, and pathways for inclusive development.
Annex: Roundtable Summaries
Zimbabwe Futures 2030: Policy Priorities for Economic Expansion
28 February 2019 | Harare, Zimbabwe
This roundtable drew on current best practice and senior level expertise to identify policy options for long-term economic expansion in Zimbabwe and pathways for inclusive development. Participants – including leading private-sector decision-makers and government representatives – discussed the policies and business strategies necessary to enable effective implementation of government’s long-term economic objectives and national development plans. The discussion highlighted the requisite conditions for a business-driven and inclusive process towards Zimbabwe’s long-term economic recovery.
The meeting was organized by the Chatham House Africa Programme, in partnership with the Zimbabwe Business Club and the Konrad-Adenauer-Stiftung.
The following is a summary of key findings from the roundtable:
- The government of Zimbabwe has committed itself to facilitating an open-market economy. The assumptions for such a system are: private ownership of enterprise assets, the adequate provision for fiscal and monetary security, contract enforcement and the provision of a sound currency. Prices should be set by the market. Such a system must be supported by an education system that provides appropriate skills, and by a good and equitable health system. An open-market system presupposes a market-governing authority that legitimizes transactions under the rule of law and facilitates economic activity through the provision of transport and communications infrastructure. Individual economic actors need to have the right to buy property, the right to sell when they want to, and the right to enforce contracts. Long-term economic strategy must focus on the accumulation of assets as a legacy for the next generation rather than saddle it with debt. Economic policy formation must be clear, coherent and consistent.
- The private-sector representatives at the meeting were broadly supportive of the Reserve Bank of Zimbabwe’s Monetary Policy Statement of 20 February 2019, which established an interbank foreign exchange market that officially de-pegged RTGS (real-time gross savings) accounts and bond cash from the US dollar. The move has created a mechanism for businesses to trade currency and reset their cost base. It has decriminalized trading activity that was already happening on the parallel market. The move has also increased Zimbabwe’s export competitiveness in regional markets with soft currencies. It was understood that the currency float needs to be managed in order to prevent market shocks; however, the continuation of multi-tier pricing and maintenance of a parallel market rate meant there was still some scepticism regarding the implementation and progression towards a liberalized exchange rate. It was argued that there is a need for an independent reserve bank and an independent currency board.
- It was stated that Zimbabwe’s finance ministry has reduced the government fiscal deficit since October 2018, and the decision to issue no new treasury bills was a positive step. In the long run, preserving the value of the treasury bills within the banking system is important so that banks do not have to write down their balance sheets to below capitalization requirements. There was support for a social protection plan to guarantee a minimum amount of RTGS savings at dollar rates. It was stated that 90 percent of deposits, representing those of 3 million people, are under US $1,000. There is a need for a communication strategy to manage expectations during the transition from a managed to an independent market. It was argued that there is still a need to find new fiscal revenue sources, for example the recent increase of the intermediary financial transactional tax.
- There is demand for an industrialization policy that recognizes and builds on Zimbabwe’s resource endowments. The government must adopt a value-chain approach, taking a holistic view of sectors in which Zimbabwe can build a competitive advantage and asking businesses throughout each value chain to identify what is required to incentivize development and unlock potential, such as tax incentives or depreciation allowances. It was argued that deregulation would also stimulate expansion. Any industrialization would need to be supported by investment in high-grade infrastructure, and there is a role for the private sector in developing bankable projects in this area. Industrialization also requires the development of an appropriately skilled workforce. It was argued that, despite high literacy rates, at a broad level the Zimbabwean workforce lacks capacity and skills to enable it to compete within the region in industries that require high levels of technical competency. There is a need for the private sector to take a more active role in working with universities and technical colleges to promote capacity and skills development.
- Zimbabwe is one of the 49 African Union member countries that that have signed the Continental Free Trade Agreement, but the government has not yet identified what value the country could generate from this continental market. Zimbabwe is in a key strategic location for logistics, but the Kazungula Bridge and Border Project, between Botswana and Zimbabwe, is an example of how trade is bypassing the country. Other African economies can also provide case studies and examples of best practice to inform how the government of Zimbabwe can achieve its liberalization and reform ambitions, while minimizing the shocks associated with such processes.
- There was broad agreement on the need for additional discussion on defining sector-specific policy recommendations. For example, the finalization of the new mining code is an important step towards attracting investment in that sector, and it was stated that the mining codes of Australia or Canada could be used as benchmarks for best practice. There is scope to develop a commercial agriculture industry and value chains in cash crops such as citrus fruits and macadamia nuts, but this requires development of a farming ‘meritocracy’. Both mining and agriculture have long investment gestation periods, and so security of land tenure and protection, access to futures markets, and pricing are all critical. Finalization of bilateral investment protection agreements will help encourage investment. The development of green energy solutions will also support advancement in these sectors.
- There was a call for the private sector to be more assertive and collaborative in its relationship with government, as well as for better cooperation between companies. For example, public-private partnerships are easier to establish if firms work together. It was stated that private sector actors can improve their relationship with government by demonstrating the value that they bring to the people of Zimbabwe as well as to their shareholders. However, it was also noted that in 2009–15, in the period after dollarization, producers were more focused on consumer benefits, and businesses invested in improved packaging and more products, as they were operating on razor-thin margins in a highly competitive environment. Companies have a role in ensuring arbitrage takes place and that prices are stable.
Zimbabwe Futures 2030: Sector Priorities for Policy Implementation
4 June 2019 | Harare, Zimbabwe
The following is a summary of the Zimbabwe Futures 2030 roundtable held in Harare on 4 June 2019, as part of an ongoing research process that aims to draw on senior private-sector expertise to develop policy recommendations to support inclusive economic growth in Zimbabwe. The meeting was organized by the Chatham House Africa Programme, in partnership with the Zimbabwe Business Club and the Konrad-Adenauer-Stiftung.
The roundtable drew on current best practice and senior level expertise to identify sector-specific policy options to generate inclusive long-term economic growth in Zimbabwe and support the implementation of the Transitional Stabilisation Programme and National Development Plan. The roundtable was attended by representatives of the business and diplomatic communities, academia and government.
The key findings from the roundtable were as follows:
- The discussions focused on mining, financing the privatization of state-owned enterprises (SOEs), and manufacturing and agribusiness. Participants agreed that Zimbabwe’s government and private sector have a joint responsibility to better articulate the country’s competitive advantage in key sectors. Sector ‘guide books’ can help with this; and showcasing positive examples of companies whose investments in Zimbabwe have performed well can help build confidence on the part of other potential investors. It was argued that experiences elsewhere show that ‘winner picking’ that targets specific businesses – through tax incentives or preferential access to foreign exchange, for instance – does not bring about the desired objective of promoting overall economic growth. But supporting specific sectors can be effective in generating economic expansion.
- Mining is Zimbabwe’s main foreign currency earner, but it was argued that the government is not doing enough to support the sector. The case was made that the mining industry and government need to work together to build a model that can both sustain equitable growth and generate stakeholder value.
- Zimbabwe’s specific history of land ownership, tenure and usage rights across private, state and communal land must be acknowledged in policy design – for example, by recognizing the separation of economic activities that occur on the same land, such as competition between mining and farming. In order to build industry confidence, calls were made for the transparent and accountable enforcement of economic usage rights, and for the establishment of incentives for companies to submit geological survey data to a central repository.
- Mining legislation needs to be sufficiently flexible not to inadvertently create market distortions. The institutions that manage, implement and regulate mining legislation are critical to ensuring that the industry contributes to national development objectives. It was argued that institutions and organizations with regulatory responsibility should not also be active participants in the market. More broadly, the industry would benefit from a more competitive business environment.
- Informal mining makes a significant contribution to the sector’s output, and to foreign currency generation. There are regional examples of best practice for creating pathways to formal status, including through certification schemes. Rwanda was cited as an example in this regard. Linking small-scale miners to big companies can lead to skills transfers and improved health and safety. It was stated that 80 per cent of artisanal mining in Zimbabwe takes place on land that is owned by mining companies, so both parties have an incentive to work together. There needs to be a more joined-up approach between artisanal, small-scale and large-scale mining.
- There was extensive discussion of the process and financing of privatization of Zimbabwe’s SOEs and state-operated agencies. Privatization has been on the government’s agenda for many years, and firm commitments must now be made in order to attract the right investment. The priority is to ensure that SOEs are accurately valued: in many cases, there has been significant capital depreciation or value extraction. The government needs to state the value of these entities clearly, and send a message to potential investors that is built on trust and merit. It was noted that the volatile currency situation is not conducive to attracting long-term capital. Ensuring good accounting practices is a critical first step towards privatization.
- Privatization must happen in an equitable manner: the people of Zimbabwe must be able to buy shares in their privatized assets. The case was made that a proportion of local ownership should be included in the targets for the regulatory oversight body. This argument was in line with the broader conclusion that the government’s mantra of ‘open for business’ should not be interpreted by international investors as ‘open for exploitation’. The interests of ordinary citizens must be at the forefront of policy design.
- The biggest impediment to inclusivity is the misperception that business is too complicated for ordinary people. There is a need for financial education on share ownership, as well as for education on the role of the individual in a privatized economy; this must highlight that buying shares is neither complicated nor just for the elite. The divestment strategy needs to be clearly communicated by the government in order to encourage broad participation and prevent privatized assets being captured by a few individuals. The process needs robust mechanisms, checks and balances in place in order to protect the interests of ordinary citizens; and there must be proper dissemination of information so that people need to know what they are buying into.
- A number of examples were discussed as possible case studies of best practice in privatization, including Kenya’s Safaricom, as well as the experience of countries in Central and Eastern Europe. It was noted that the World Bank is looking at telecoms as a first sector for privatization in Zimbabwe. Most of the cited examples of privatization in Africa were viewed as being too focused on international capital rather than on local citizens. The diaspora was identified as an important source of international finance.
- Manufacturing and agribusiness were identified as sectors with potential for expansion and the capacity to generate jobs. However, there are short-term fundamentals – such as currency stress – that need to be addressed in order to ease pressure on business. In the medium to long term, the government needs to identify key export markets. China and South Africa were identified as Zimbabwe’s current key export markets, although use of different data sources gave rise to some disagreement between workshop participants as to which is more important. The port of Beira continues to be highly significant for Zimbabwean exports beyond the immediate region.
- Despite the known challenges affecting the agribusiness sector – among them currency volatility, insecurity of land tenure, and market distortions caused by subsidies – there is also significant opportunity for the sector to expand. Issues of land tenure need to be addressed, but solutions do not need to be driven by international models. Instead, it was argued that the structure of land ownership in Zimbabwe can underpin agricultural growth; it was noted, for example, that communal ownership can be a basis for agricultural development. What is needed is policy consistency that can induce farmers to make long-term decisions, rather than short-term ‘hit and run’ agriculture that only focuses on one season at a time.
- Zimbabwe has the potential to produce several internationally competitive agricultural products. Tobacco is currently the main cash crop, but coffee, macadamia nuts, almonds, sweet potato, butternut squash and pumpkin were all identified as potential cash crops. New technology has the potential to support expansion in the agricultural sector, notably in areas of product traceability, crop- and land-mapping, and sharing information.
Zimbabwe Futures 2030: Policy Priorities for Industrialization, Agribusiness and Tourism
6 June 2019 | Bulawayo, Zimbabwe
The following is a summary of the Zimbabwe Futures 2030 roundtable held in Bulawayo on 6 June 2019, as part of an ongoing research process that aims to draw on senior private-sector expertise to develop policy recommendations to support inclusive economic growth in Zimbabwe. The meeting was organized by the Chatham House Africa Programme, in partnership with the Confederation of Zimbabwe Industries, the Zimbabwe Business Club and the Konrad-Adenauer-Stiftung.
The roundtable drew on current best practice and senior level expertise to identify sector-specific policy options to generate inclusive long-term economic growth in Zimbabwe and support the implementation of the Transitional Stabilisation Programme and National Development Plan. The roundtable was attended by representatives of the business and diplomatic communities, academia and government.
The key findings from the roundtable were as follows:
- The meeting acknowledged that the government’s Transitional Stabilisation Programme (TSP) and its development strategies to 2030 are designed to attract foreign direct investment. To this end, there have been some positive outcomes from the TSP, including reducing the fiscal deficit, and monetary reforms that have allowed for more competitive exports. At the time of the meeting, it was stated that more needed to be done to create an effective interbank foreign exchange market. However, it was recognized that the basic economic fundamentals are sound provided the government allows markets to function properly. Moving forward, policymakers need to identify how to build ‘stakeholder wealth, not just shareholder wealth’.
- The development of Zimbabwe’s rail infrastructure was a product of the demand for movement of goods and products for business and mines: the National Railways of Zimbabwe (NRZ) thus became the ‘backbone’ of the economy. There is once again the need to create further infrastructure capacity to support emerging economic activity and new mining areas. As a regional hub, linked to neighbouring Zambia, Mozambique, Botswana and South Africa, Zimbabwe needs to be part of a regionally coordinated approach – via the North-South Corridor, for example. Its primary focus should be to promote national and regional competitiveness. Zimbabwe’s government must invest in infrastructure because the private sector has not been willing to do so alone. New approaches to financing could include ring-fencing – the legislated requirement for companies to move a set percentage of certain bulk goods by rail – as in Zambia for example, or through joint ventures.
- The manufacturing industry has been seriously affected by infrastructure deficits in providing key inputs such as power and water. It was argued that the manufacturing decline can be traced back to the Economic Structural Adjustment Programme (ESAP) adopted under IMF auspices in 1990. Today, Zimbabwe’s businesses are predominantly engaged in short-term crisis-management, rather than looking to long-term planning horizons. There is a need to revitalize industrial policy and value chains, and the private sector must take a lead in bringing this about. Effective innovation in industry will be a partnership between stakeholders including the private sector, academia, youth and the public sector. All of these factors are prerequisites for growth. More value-adding activity must take place within Zimbabwe; and special economic zones may be one way of fostering domestic industry.
- Participants at the roundtable discussed the role that the government should play in the economy, including the extent of that role. Some argued that market forces should be allowed to operate to a greater degree, and that import barriers should be withdrawn – as was expected to happen with the implementation of the African Continental Free Trade Agreement (AfCFTA). However, others argued in favour of protecting local business for the provision of certain products and services. It was also noted that products manufactured for the domestic or regional market may be different from those for international export markets, taking account of specific market profiles. Agrarian reform and subsidy schemes were cited as examples of where the objectives or intentions of government intervention schemes had not been fully realized because of a lack of capacity within implementing agencies.
- Tourism is a key sector for economic growth and expansion in Zimbabwe, for both international and domestic markets. Domestic tourism is an untapped market in which local private investment should be encouraged. Tourism policy and marketing needs to highlight the diversity of offerings in Zimbabwe, including wildlife tourism and hunting expeditions, natural wonders, and cultural centres, museums and galleries. There is far more on offer in Zimbabwe than Victoria Falls, but visits to the attraction account for a considerable share of the country’s national tourism. Zimbabwe’s poor political image internationally has a big impact on its appeal as a tourism destination.
- Investing in Zimbabwe’s infrastructure will help bring in international tourists, and there are opportunities to expand the financing channels for tourism projects. It was argued that the government should split up the development of transport, accommodation and shopping facilities, and delineate land use for tourism activities. The government must protect wildlife and ecosystems to sustain the wildlife tourism industry. Moreover, the government could also make more use of technology, such as implementing an e-visa system, while regulation could be simplified, such as by streamlining the number of licences needed by hotels. Zimbabwe’s tourism operations should be integrated with other African tourism centres to encourage the creation of multinational tourism routes.
- MICE (meetings, incentives, conferences and events) tourism was identified as a growth sector for Zimbabwe. Rwanda was cited as a positive example of the development of business tourism in Africa, and South Africa was cited as a country that has been dominant in the sector. It was noted that, in general, business tourism brings six times more income than other tourism activities where fees are paid overseas. Academia could and should play a more important role in research and development, and other initiatives in partnering business and government. Midlands, Lupane and other universities across Zimbabwe are already engaging with the business sector. Such engagement should be scaled up, as academia is a key resource for business and the economy in driving innovation, and is a critical part of the human capital base.