Significant economic headwinds challenge Zimbabwe
Guang Zhe Chen
OUTSIDE of the country, one can’t mention Zimbabwe in a crowded room without a kaleidoscope of reactions.
Everyone has an opinion and few are fainthearted about it.
Such is the legacy of the country’s iconic liberation struggle, its huge investment in human capital following independence, the dramatic economic and social disruptions alongside the struggle for more equity, and not least, a patriotic and vocal Diaspora.
In the World Bank, perhaps the most memorable representative of that Diaspora is the former vice president of the Africa region, Callisto Madavo, whose commitment to broad-based growth brought us a taste of that Zimbabwean spirit and helped shape the bank’s thinking on poverty.
Since independence (and even before), the World Bank has been a strong partner in Zimbabwe.
At first, the Bank may have sought a “return” mainly in robust economic growth rates, but today, as a hopeful, returning investor, we aim for dividends in poverty reduction and shared prosperity for the Zimbabwean people.
So how does our appraisal of this prospective investment look, currently?
I refer to the first edition of the Zimbabwe Economic Update (available on our websitewww.worldbank.org/en/zimbabwe.)
In this report, and in future editions, we provide a World Bank perspective on recent economic developments and an outlook that we hope will be useful in the national debate on Zimbabwe’s socio-economic future.
In the period 2009-14, Zimbabwe made significant progress in stabilising and revitalising its economy.
The economy grew at an average six percent annually, while inflation was kept low.
The authorities succeeded in stabilising the financial sector and resuscitating public services.
A steady, albeit gradual, sequence of economic and institutional reforms gained momentum. This has lately been reflected in the World Bank’s annual Country Policy and Institutional Assessment.
Most notably, with a strong government action, steadfast household investments even in difficult times, and committed support from its development partners, considerable progress has also been made towards regaining Zimbabwe’s past performance in social outcomes, particularly in health and education. (Combining public spending, school fees and donor support, Zimbabwe still spends more on education as a share of Gross Domestic Product (GDP) than most other African and developing countries.)
But most importantly for the World Bank, inequality continued its steady decline, and poverty, although still high, began to fall.
Today, significant challenges abound.
Zimbabwe faces the simultaneous challenges of confronting the external economic headwinds, transforming its economy, while maintaining its achievements in equity.
The economic boom that followed “dollarisation” appears to have run its course.
In 2015, Zimbabwe saw its first contraction in per capita income in half a decade — GDP growth of 1,5 percent versus an estimated population growth of two to three percent — and poverty may have well risen temporarily.
The economy is now fully exposed to the complexities of competing in the global marketplace and is facing significant headwinds this year.
Without exchange rate policy, tackling today’s high current account deficit and low investment ratios (public and private) will require real improvements in productivity and adjustments in public spending, both will take more time, but also have a more lasting impact on competitiveness.
Already affected by a severe drought in 2015, agriculture, water and power sectors are facing El Nino effects, with its devastating impact on food security in Zimbabwe’s more vulnerable households.
Meanwhile, industry remains subdued due to the still fluid policy environment, shifting terms of trade and infrastructure challenges.
The services sector, however, continues to grow robustly building on Zimbabwe’s true competitive advantage, its skilled labour force.
But for all sectors, a high public debt overhang still constrains, and raise the costs of capital both domestic and international, that are needed for investment.
Today, the World Bank’s twin goals of eliminating extreme poverty and increasing shared prosperity are probably more relevant for Zimbabwe than at any time in the past.
The World Bank can do much more to help Zimbabwe face the coming headwinds, and reap the full benefits of all its investments in its people and its struggles for an equitable society.
The authorities’ push for reengagement with the international financial institutions and with the World Bank, in particular, will allow us to revitalise this partnership and resume our support as a source of long term development financing, but also as a crucible of shared development experiences and knowledge.
So how does the prospective investment look?
Challenging, with significant risks, but definitely worth it.
Guang Zhe Chen is the World Bank country director for Botswana, Lesotho, Namibia, South Africa, Swaziland, Zambia and Zimbabwe.
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