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.
Creating a Market Economy: Changing the Relationship Between State and Private Sector
The government of Zimbabwe has committed to establishing a market economy. An open market system requires a governing authority to perform the functions that are essential to allow markets to operate, and deliver public goods.23 In the assessment of the World Bank, currently there is ‘limited oversight of many public institutions and parastatals’.24
At present, the public sector accounts for roughly half of Zimbabwe’s GDP,25 and the formal economy predominantly comprises state actors. Government entities, agencies and individuals all have direct interests in commercial agriculture and mining, and indirect links to the private sector through controlling licences and tenders. The government will continue to play an important role in the Zimbabwean economy, but it must work for the economy, not against it. It cannot be both player and referee.
Government over-representation in the economy has led to corruption and abuse. The TSP states: ‘Prior to the New Dispensation, corruption had spread unchecked, negatively affecting the social and moral fabric of the Nation, as rent seeking behaviours raised the cost of doing business, and posed hardships for the unconnected majority who constitute the generality of the public’.26 There has, over many years, been a growing divide between a small number of very rich and the large number of very poor in Zimbabwe. Privileged and politically connected actors have beneficial access to external economic resources, such as foreign exchange markets, and thus have had no incentive to push for change. This has contributed to a collapse in trust and confidence in the state.
Weak corporate governance was also a major factor in the non-performing loans that undermined the economic gains of the period from 2009–13.27 The corporate lending that took place after dollarization was often not well managed, or was subject to insufficient scrutiny. The Zimbabwe Asset Management Company was established in 2014 to buy bad debt and resolve a non-performing loan (NPL) crisis that was suffocating the private sector. Within four years it had absorbed some $1 billion in NPLs.28
The new government has taken positive steps to improve the business environment and increase confidence, including in politically sensitive areas. The Zimbabwe Anti-Corruption Commission has been empowered; audits of SOEs have been undertaken and are publicly available; there have been ministry performance appraisals; and parliamentary portfolio committees now serve as bipartisan forums for scrutiny of government and the economy. Consolidating government agencies on trade and investment through a new Zimbabwe Investment and Development Agency (ZIDA) is intended to streamline investment procedures.29
Reform or privatization of SOEs is critical to establishing a new role for the state in the economy, and has been a key element of successive reform processes. The contribution to GDP of all SOEs and parastatals fell from 17 per cent in 2012 to 13.4 per cent in 2014, and the number of people employed by them has fallen sharply.30 They nonetheless receive more in transfers from the state than they pay back in dividends.31 The publication of findings from SOE audits has been positively received, and a report into SOEs by the country’s auditor-general, Mildred Chiri, has led to the arrest of high-ranking officials, including former tourism minister Priscah Mupfumira.32
In many cases, there has been significant capital depreciation of, or value extraction from, Zimbabwe’s SOEs. Good accounting practices and accurate valuation will be a critical first step towards successful privatization. Several examples have been raised as possible case studies of best practice in privatization, including Kenya’s Safaricom, as well as the experiences of countries in Central and Eastern Europe. Firm commitments must now be made to attract international investment to Zimbabwe, and efforts made to build trust between government and potential investors. But the government must also make sure that a broad range of ordinary citizens understand the privatization process and are able to purchase shares; it must also include local ownership targets in regulatory oversight.
23 Such as maintaining peace and stability; upholding the rule of law; protecting public health; providing for public education; and facilitating transport and communication services.
24 World Bank (2017), Zimbabwe Economic Update: The State in the Economy, Issue 2, http://documents.worldbank.org/curated/en/333081497536246610/pdf/116309-WP-PUBLIC-on-6-21-6-am-dc-time-15-6-2017-15-24-30-ZimbabweEconomicUpdate.pdf (accessed 6 Sept. 2019).
25 Ibid.
26 Government of the Republic of Zimbabwe (2019), Transitional Stabilisation Programme: Reforms Agenda.
27 Chitiyo, K., Vines, A. and Vandome, C. (2016), The Domestic and External Implications of Zimbabwe’s Economic Reform and Re-engagement Agenda.
28 Kazunga, O. (2018), ‘Zamco mops up $1 billion Non-Performing Loans’, Zimbabwe Chronicle, 22 June 2018, https://www.chronicle.co.zw/zamco-mops-up-1-billion-non-performing-loans/(accessed 6 Sept. 2019).
29 The Zimbabwe Investment Development Agency Bill was officially gazetted on 5 April 2019. See Parliament of Zimbabwe (2019), ‘Bill Digest: Zimbabwe Investment Development Agency Bill, H.B.2, 2019’, https://www.parlzim.gov.zw/component/k2/bill-digest-zimbabwe-investment-development-agency-bill-h-b-2-2019 (accessed 7 Oct. 2019).
30 Government of Zimbabwe and the World Bank (2017), Zimbabwe Public Expenditure Review 2017: Volume 3: State Enterprises and Parastatals, http://documents.worldbank.org/curated/en/344681497630463948/pdf/116350-WP-v3-PUBLIC-JUNE21-6am-ZIMPER-Volume-3.pdf (accessed 6 Sept. 2019).
31 Ibid.
32 Ndebele, L. (2019), ‘Tourism minister is first victim of Mnangagwa’s corruption clampdown’, TimesLive, 25 July 2019, https://www.timeslive.co.za/news/africa/2019-07-25-tourism-minister-is-first-victim-of-mnangagwas-corruption-clampdown/ (accessed 26 Sept. 2019).