Economic studies
Zimbabwe

Zimbabwe

Population 13.3 million
GDP 1043 US$
E
Country risk assessment
D
Business Climate
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Synthesis

MAJOR MACRO ECONOMIC INDICATORS

  2013 2014 2015 (f) 2016 (f)
GDP growth (%) 4.5 3.8 1.5 2.7
Inflation (yearly average) (%) 1.6 -0.2 -1.6 0.0
Budget balance* (% GDP) -1.9 -1.4 -1.3 -0.5
Current account balance (% GDP) -25.4 -22.0 -22.9 -21.8
Public debt (% GDP) 54.2 53.4 54.4 57.5

 

(e) Estimate (f) Forecast * excl. aid

STRENGTHS

  • Abundant mineral resources (platinum, gold, diamonds, nickel)
  • Agricultural wealth (maize, tobacco, cotton)
  • Tourist development potential
  • Normalisation of relations with the international community
  • Member of the SADC (Southern African Development Community)

WEAKNESSES

  • Economic and financial situations damaged by the long period of hyperinflation
  • Precarious food and health situation: the majority of the population depends on international aid
  • Underinvestment in infrastructures (especially energy)
  • Prevalence of AIDs among the highest in Africa and the world

RISK ASSESSMENt

 
Vulnerable growth and weak inflation

Economic growth declined in 2015 due to a serious drought. Better harvests are expected to help activity to recover in 2016, moderated by low world commodity prices and production subject to good weather conditions. The mining sector will also continue to drive growth, especially gold production, which represents 12% of export income. Industrial activity is likely to continue to decline, resulting in the closure of several businesses, due to the country's structural weaknesses: lack of investment, infrastructure shortcomings and vulnerability to commercial competition from its South African neighbour. The Agenda for Sustainable Socio-Economic Transformation (ZimAsset) remains a priority for increasing private sector productivity and competitiveness, although implementation requires substantial funding, which the country does not have, especially as its access to external funding is likely to remain limited in 2016. Domestic demand will still be penalised by rising unemployment and low remittances from expatriate workers in South Africa.
Zimbabwe has definitely exited its hyperinflationary spiral (2008), thanks to increased use of the US dollar and the multi-currency regime. However, the country is likely to continue to face deflationary pressures in 2016, both because of weak domestic demand, moderate commodity and energy prices and because of the appreciation of the dollar reducing the value of imports mostly from South Africa. These pressures are however set to ease in 2016 thanks to a public-sector wage rise.

 

The country is finding it increasingly difficult to finance its current account deficit

In 2016, the budget deficit is expected to remain in deficit, with the weakness of the economy limiting tax receipts and expenditure on personnel likely to remain significant (about 80% of public spending). The country is likely, therefore, to undertake fiscal consolidation measures and debt restructuring in order to target public spending and so as to again benefit from international aid to support the country's economic and social development. In this regard, the IMF renewed its programme of technical assistance for the country and, if it reaches its objectives, this could favour the return of international donors. An agreement has also been reached with the IMF, the World Bank and the AfDB to reduce Zimbabwe's arrears by April 2016, but the political conflict this generates reduces its chances of success. The country's debt could, therefore, be reduced, provided that the political factions do not impede the implementation of the agreed measures.
The severe drought in 2015 led to a fall in exports, exacerbated by the drop in commodity prices and loss of competitiveness linked to the sharp depreciation of the currency of its main competitor, South Africa, against the dollar. Imports of food rose in response to shortages. In 2016, the current account deficit is set to remain at a critical level and donations and FDI flows are broadly insufficient to cover it. Foreign exchange reserves are very low, amounting to less than one month of imports at the end of 2015. Financing the current account deficit would therefore be a crucial issue in the short term and is dependent on international aid.

 

Political and social tensions and gradual normalisation of international relations

Robert Mugabe, aged 91, may well not finish his current term, which runs until 2018. The succession "fight" looks as if it will be vicious with deep factionalism within his party (ZANU-PF) and the increasing number of opponents like the former Vice President Joyce Mujuru who has launched her People first Party. Popular discontent is growing due to the food crisis, rising unemployment and poverty (72% of the population lives below the poverty threshold), and because of the lack of political change. Robert Mugabe can however rely on the support of countries in the region, especially the fifteen members of the SADC. The EU has decided to resume direct aid to Zimbabwe, in particular through an extra-budgetary fund of USD 270 million over the next five years. However, support from the international community remains very light. Only a restructuring of the country's debt and a change of economic policy could result in a resumption of loans and donations from the international donors on which the country greatly depends to fight poverty or invest in infrastructures. Political instability and the worst business climate in the region (182nd out of 189 countries on the World Bank’s Doing Business ranking 2016) are not the way to attract investors and no improvement is to be expected in the short term.
The country is led to turn towards countries like China to finance its investments. The Asian giant has a growing influence in the country particularly through the adoption in 2016 of the yuan as an exchange currency, which has already existed in the basket of currencies since 2014.

 

Last update: January 2016

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