This report on Zimbabwe’s economic growth opportunities and trajectory was prepared at the government’s request following a political transition in November 2017.

After recent political changes, Zimbabwe is searching to break away from its disappointing development record of recent decades and identify a path toward faster growth in gross domestic product (GDP), employment, and incomes accompanied by more rapid progress in poverty reduction and other parts of the global sustainable development agenda.

But this search for a new path is undertaken in a difficult economic context, including the need to address budget and balance of payments deficits and major structural challenges such as large infrastructure gaps, an inefficient government, and inhospitable business climate.

The country has enormous potential given its natural resource endowment, public infrastructure stock, and skilled human resources. But the country has long-standing debt arrears with several development partners and lenders. While Zimbabwe cleared its arrears with the International Monetary Fund in October 2016, the country has yet to clear its arrears with the African Development Bank (AfDB) and the World Bank, a requirement for relief from sanctions and for access to development finance from multilateral development banks.

This report provides the government with alternative growth scenarios to the year 2030. It also identifies sectors for potential investment to achieve sustainable and inclusive growth. It is premised on the assumption that the arrears clearance will be expedited for economic restoration to commence.

The report is important for several reasons. First, it provides the government, the donor community, and the private sector with a detailed assessment of investment opportunities in Zimbabwe. Second, it proposes options to develop these opportunities and, in so doing, helps fill the gap created by the absence of sectoral investment priorities. Third, it can be used to inform and support the government’s dialogue with donors and the business community about further development of these sectors. Increased coordination and partnership will improve the alignment of investments with the national objectives, as set out in Zimbabwe’s pdf Transitional Stabilization Programme (2018-2020) (5.18 MB) and subsequent medium-term plans.

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Overview

Zimbabwe has been undergoing political and economic transformation following the November 2017 resignation of President Robert Mugabe and the February 2018 passing of long-time opposition leader Morgan Tsvangirai. The current government remains committed to economic and structural reforms, notably to rebuild confidence by restoring private property rights, ensuring macroeconomic stability and growth, achieving fiscal consolidation, clearing external debt arrears, and improving governance and the business environment to generate broad-based growth and jobs. The government has also committed to amicable settlement arrangements, including compensation of farmers whose land was expropriated during the land reform program.

Zimbabwe’s economy continues to grapple with fiscal and monetary misalignments, chronic cash shortages, high unemployment (especially among young people), low investment and savings, industrial stagnation, reduced agricultural output, and high domestic and foreign debt (which has reduced the country’s potential to borrow from foreign financial institutions).

Zimbabwe is characterized by abundant land and natural resources, a relatively educated and skilled human capital base, and existing but inadequate physical infrastructure. The agricultural sector focuses on tobacco (for export) and food crops (for domestic consumption). Dependence on natural capital for development is high. Mining is the main driver of the economy: the country has the world’s third largest platinum reserves and is the fifth largest producer of lithium, which is essential for rechargeable batteries. The manufacturing sector has seen a rapid decline, while natural resource extraction has been rising.

Identifying opportunities for sustainable and inclusive growth

Zimbabwe has investment opportunities requiring minimal additional investment to realize medium-term growth targets. Deep structural reforms can improve Zimbabwe’s business climate and attract private investment and the return of the skilled labor force. In particular, measures are needed to increase transparency in the mining sector, strengthen property rights, reduce fears of expropriation, and control widespread corruption. The most likely possibility for longer term change is the regeneration of civil society and a renewed engagement with political powers in a positive social contract, which plays a role both in tackling economic problems and bringing positive and peaceful political reform.

With the generous endowment of natural resources, existing stock of public infrastructure, and comparatively skilled labor force, Zimbabwe has an unprecedented opportunity to join existing supply chains in Africa through the African Continental Free Trade Area. To take advantage of such opportunities the government should adopt a three-pronged strategy in the near term with agriculture as the foundation, eco-tourism as the green job generator, and special economic zones as the growth pillar.

The agricultural sector can be a foundation for inclusive growth, export diversification, and structural upgrading. The focus should be on diversifying agricultural export earnings and developing supply chain trade (processing and market access to high-value products).

Eco-friendly tourism and associated light manufacturing such as handbags and handicrafts are an engine for job creation and export growth and diversification. With Zimbabwe’s enormous natural resources endowment for tourism, targeting tourism represents possibly the quickest way to deliver growth and job creation.

Developing special economic zones as an engine and pillar for growth and diversification could improve competitiveness in first and later-stage processing of natural resources (agriculture, precious metals, and minerals) as well as manufacturing capacity (electronic and medical equipment that use the country’s reserve of precious metals). Given the right investment climate and investor interest, several sectors could be developed, including assembly lines of farm machinery, nonmotor vehicles, home appliances, and technology-intensive services (such as supply value chains and logistics). Special economic zones also provide the potential for scaling up to achieve economies of scale and generate links with the domestic economy.

New financing for development

With some established donors constrained by heavy debt and slow growth since 2015, development finance will need to “go beyond aid” to combine trade aid and investment. Financing will come less from official development assistance and more from other official flows, other official flow – like loans, and other official flow – like investments from development banks and sovereign wealth funds and new strategic investment funds in emerging economies. Developing countries’ (including China) share of global investment overtook that of high-income countries in 2015, and most new finance comes in the form of patient capital, long-term investment with a maturity of 10 years or more.

Patient capital plays an important role in financing infrastructure. Evidence of rising patient capital is reflected in the growing number of sovereign wealth funds and government-sponsored strategic investment funds established by countries such as Kazakhstan, Malaysia, Mexico, Morocco, Nigeria, the Philippines, Senegal, South Africa, and Vietnam.

Global leaders and the international development community (multilateral and bilateral donors) are looking east for new ideas, new momentum, and new financing. In recent years, China has become the largest single trading partner for Africa and a key investor and provider of aid, and a 1 percentage point increase in China’s real domestic fixed asset investment growth has tended to increase Sub-Saharan Africa’s export growth rate on average by 0.6 percentage point.

China and Zimbabwe have long had an “all-weather” friendly relationship, with mutual support, cooperation, and benefit. In particular, China has emerged as Zimbabwe’s largest aid, investment, and South-South cooperation partner in the last decade. Zimbabwe is estimated to be one of the top recipients of China’s official development assistance, receiving $3.6 billion. Zimbabwe could grasp the opportunities provided by the large number of Chinese enterprises “going global” and join existing global supply chains in food, cotton, wool, leather, footwear, garments, and assembly lines of farm machinery, motorcycles, or buses and become a light manufacturing and construction logistic center for Southern and East Africa and eventually the entire continent.

This new Country Economic Report series is produced by the Country Economics Department, in close collaboration with teams in other departments of the African Development Bank’s Vice-Presidency for Economic Governance and Knowledge Management and Office of the Chief Economist. This report was prepared by Kararach Auma George, Walter Owuor Odero, and Damoni Kitabire.