Economic Openness: Zimbabwe Case Study

This Zimbabwe case study is one of a number of in-depth reports which analyse an individual country’s performance on the key characteristics of openness to trade, investment, ideas, competition, and talent.

Zimbabwe has natural resources, wealth, and the resourcefulness of its people which means it is uniquely positioned to become one of the most prosperous countries in Africa.

In recent years, Zimbabwe has been experiencing an economic and humanitarian crisis. Income per capita has declined from roughly 20% of the global average in the early 1980s to less than 10% today. Moreover, the Zimbabwean population has missed out on the economic and social wellbeing gains achieved by its more successful neighbours, and the state has been mired in institutional, economic and political challenges for decades.

We believe that an open economy that harnesses ideas and talents to create sustainable pathways out of poverty is essential to improving Zimbabwe’s prosperity. Specifically, this will involve a state that acts as an effective enabler of economic growth and the ultimate guarantor of the rights of citizens and investors in order to produce a dynamic and investment-friendly country, open for international business and trade.

Our analysis reveals that the key for Zimbabwe to become one of the most prosperous countries in Africa is unlocking the potential of its highly educated population and the rich resources of its lands. There are also a wide range of opportunities for Zimbabwe to drive economic growth and prosperity in the coming years so that it can compete successfully in the world economy. The challenge now is to grasp these opportunities with determination, rigour, and a strong focus on implementation, so as to translate intentions into reality for the benefit of all in Zimbabwe.

Executive Summary

This report explores the extent to which Zimbabwe has the fundamental characteristics of open economies, and where the opportunities lie for further development.

It reveals that Zimbabwe ranks 144^th globally in the Global Index of Economic Opennessand 40^th of 54 countries in Africa. It also highlights how:

• Zimbabwe ranks 32^nd in Africa for its Market Access and Infrastructure, having risen 19 places in the rankings over the past decade. This rise can be attributed to improvements to the country’s Import Tariff Barriers, Communications, and Open Market Scale, which all rose in the rankings.
• The potential for a more prosperous Zimbabwe is to have enhanced infrastructure that serves urban and rural populations alike in terms of mobile communications, electricity, water, and transport. In addition, the county has the potential for a more open trade policy with smoother border facilitation leading to a more diversified group of trading partners and a wider range of value added agricultural, industrial, and mineral exports.
• Zimbabwe currently ranks 35th in Africa for Economic Quality, having deteriorated significantly since the middle of the decade and fallen 10 places since 2010. On virtually any measure Zimbabwe’s economy ranks poorly relative to other African countries – 38th for Fiscal Sustainability, 53rd for Macroeconomic Stability, 40th for Dynamism, and 28th for Productivity and Competitiveness.
• The potential for a more prosperous Zimbabwe is to have macroeconomic policy that delivers price stability, with easy access to foreign exchange. Fiscal deficits, monetary growth, and interest rates would also be low, allowing individuals and businesses to carry out their normal economic activities and transactions without the fear of dramatic instability.
• Zimbabwe is ranked 37th in Africa for its Investment Environment, following a rise of 14 places in the rankings since 2010. The country performs best on Investor Protections, for which it ranks 15^th – however there are still challenges to ensure effective and impartial implementation of these laws. As a result, the country is not perceived as providing a friendly environment for investors and is ranked amongst the lowest countries in the world for property rights.
• The potential for a more prosperous Zimbabwe is to have public consensus on property rights in different sectors of the economy, where a variety of secure land tenures are recognised, and the rights to them are administered efficiently in an open and transparent manner. There would also be a thriving financial sector, with domestic and international participants, providing access to competitive lending, savings, insurance, and capital markets services for all sectors of the economy.
• Zimbabwe ranks 45th in Africa for Enterprise Conditions, making it the country’s weakest performing pillar. However, despite this, Zimbabwe rose eight places in the rankings over the past decade, most notably a result of its improving its Domestic Market Contestability. Nonetheless, overall, the regulatory environment discourages business and fuels the growth of one of the world’s largest informal working sectors. These independent firms are often excluded from accessing finance, goods and services, limiting their productivity.
• The potential for a more prosperous Zimbabwe is for the Government to provide an enabling and competitive business environment, reducing barriers to entry, discouraging restrictive practices, breaking monopolies that are contrary to the public interest, and stimulating entrepreneurial activities. It would refrain largely from setting or subsidising commercial prices, relying on markets instead, with simplified administrative and labour regulations.