Zimbabwe

2014

Mary Manneko Monyau / m.monyau@afdb.org

Amarakoon Bandara / amarakoon.bandara@undp.org

www.africaneconomicoutlook.org

Zimbabwe

Zimbabwe
Zimbabwes economy remains in a fragile state, with an unsustainably high external
debt and massive deindustrialisation and informalisation. The average GDP growth
rate of 7.5% during the economic rebound of 2009-12 is moderating. This economic
slowdown is due to liquidity challenges (e.g.the lack of and high cost of capital and
revenue underperformance), outdated technologies, structural bottlenecks that
include power shortages and infrastructure deficits, corruption and a volatile and
fragile global financial environment.
The constrained fiscal space has forced the government to adopt a contractionary
fiscal policy stance, while the use of the multi-currency regime limits the use of
monetary policy instruments.
Much remains to be done in Zimbabwe to improve the business environment. Key
challenges to doing business in Zimbabwe include policy inconsistency, funding
constraints, corruption, inefficient government bureaucracy and inadequate
infrastructure.

Overview
Real GDP growth is estimated to have decelerated to 3.7% in 2013 from an estimated 4.4%
in 2012. This reflects a continued slowdown in the economy as a result of limited sources of
capital, policy uncertainty and the high cost of doing business. Real GDP growth is projected to
marginally improve to 4.0% in 2014, as shown in Table 1 below. In 2013, inflation averaged about
4.1% and is projected to slightly slow down to 4.0% in 2014. Inflation developments will continue
to be influenced by the USD/ZAR exchange rate, international oil prices and local utility charges.
Persistent liquidity shortages combined with low effective demand and a weak South African
rand will dampen inflationary pressures in the economy. The country experienced a decline in
money supply in 2013. At the same time, the South African rand depreciated by about 20% in 2013.
Zimbabwe is experiencing a structural regression, with the acceleration of deindustrialisation
and informalisation of the economy. On an annual basis, the share of the manufacturing sector
in GDP peaked at 26.9% in 1992 before collapsing to 7.2% by 2002 The various Confederation
of Zimbabwe Industries (CZI) Manufacturing Sector Surveys suggest that industrial capacity
utilisation declined sharply from 35.8% in 2005 to 18.9% by 2007 and to less than 10.0% by 2008. It
increased to 33.0% in 2009, 43.7% in 2010 and 57.2% in 2011, before declining again to 44.2% in 2012
and 39.6% in 2013. In 2004, 80% of jobs in Zimbabwe were in the informal sector, with the 2011
Labour Force Survey suggesting the rate had further increased to 84%.
The poor performance of domestic revenue inflows and the rise in recurrent expenditures
will continue to constrain fiscal space, while the continued use of the multi-currency regime
will result in monetary policy largely remaining unchanged. In 2013, the government unveiled
the Zimbabwe Agenda for Sustainable Socio-Economic Transformation (ZimASSET, 2013-18).
ZimASSET has a number of positive elements, such as the adoption of results-based management
and a clear implementation matrix. The policy blueprint also correctly identifies a number of key
binding constraints to development, but it does not clearly articulate the countrys institutional
and financial capacities to deal with those constraints simultaneously within the five-year period.

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Figure 1. Real GDP growth

Real GDP growth (%)

Southern Africa (%)

Africa (%)

%
15
10
5
0
-5
-10
-15
-20
2004

2005

2006

2007

2008

2009

2010

2011

2012

2013(e)

2014(p)

2015(p)

Source: AfDB, Statistics Department AEO. Estimates (e); projections (p).

Table 1. Macroeconomic indicators

2012

2013(e)

2014(p)

2015(p)

Real GDP growth

4.4

3.7

4.0

3.7

Real GDP per capita growth

1.7

0.6

0.9

0.7

CPI inflation

3.7

4.1

4.0

3.6

Budget balance % GDP

Current account balance % GDP

-1.3

-1.9

-1.9

-2.2

-20.1

-18.5

-16.9

-14.4

Source: Data from domestic authorities; estimates (e) and projections (p) based on authors' calculations.

Recent developments and prospects

While economic growth in Zimbabwe has been on an upward trend since 2009, it has
significantly slowed down and remains fragile. Growth declined from 10.6% in 2011 to 4.4% in
2012. It is estimated to have decelerated to 3.7% in 2013 and is projected to increase slightly to
4.0% in 2014. Real GDP growth is underpinned by developments in key sectors, such as mining
and agriculture. Prevailing tight liquidity combined with low disposable incomes and favourable
external developments have dampened inflationary pressures in the economy. The inflation
outlook will continue to be influenced by liquidity and external factors, such as international oil
and food prices and the ZAR/USD exchange rate, among others.
The country remains hamstrung by a high external debt overhang, which has affected its
ability to unlock fresh investments and capital. However, as part of its measures to finance the
implementation of ZimASSET by leveraging mineral resources, the Zimbabwe cabinet approved
the Zimbabwe Sovereign Wealth Fund Bill in November 2013. It was gazetted in January 2014 and
now awaits parliamentary debate. The government plans to allocate a quarter of the royalties
levied on companies mining gold, diamonds, coal, coal-bed methane gas, nickel, chrome,
platinum and such other mineral that may be specified to the fund.
Growth in the agriculture sector has been revised down to 5.4%. This is largely on the back
of a poor 2012/13 agricultural season, with declines in the production of maize, groundnuts and
cotton being registered. The mining sector has become the leading exporter. Strong external

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demand for primary commodities, particularly platinum and gold, underpinned higher production
levels. The mining sector was initially projected to grow by 17.1% in 2013. This has, however,
been revised down to 6.5%, mainly on account of low exploration, lack of capital and weakening
commodity prices on the international markets. As a result, reduced output was notable for gold
and diamonds, with positive performance in platinum, nickel and coal.
Real growth in the manufacturing sector has been slowing down since 2011, with the sector
registering 14.4% growth in 2011, 2.3% in 2012 and an estimated 1.5% in 2013. Meanwhile, a
number of companies have been placed under judicial management, while many others are
closing down. Between January and April 2013, 863workers were laid off, compared to 746 during
the same period in 2012. Capacity utilisation remains constrained by erratic power supply, lack
of capital, higher input costs, obsolete machinery and infrastructure deficiencies. Consequently,
Zimbabwes manufactured products have failed to compete both locally and internationally.

Table 2. GDP by sector (percentage)

2008

2013

24.2

13.1

6.9

10.1

Manufacturing

7.1

13.6

Electricity, gas and water

7.9

4.3

Construction

0.9

3.6

26.5

15.3

10.7

12.8

0.1

11.3

Agriculture, hunting, forestry, fishing

of which fishing
Mining
of which oil

Wholesale and retail trade, hotels and restaurants

of which hotels and restaurants
Transport, storage and communication
Finance, real estate and business services
Public administration, education, health and social work,
community, social and personal services
Other services
Gross domestic product at basic prices / factor cost

1.5

3.7

14.3

12.3

100.0

100

Source: Data from domestic authorities.

Macroeconomic policy
Fiscal policy
Fiscal space remains severely constrained because of the poor performance of domestic
revenue inflows against the backdrop of rising recurrent expenditures. In addition, the country
has not fully engaged with international development partners, leading to low capital inflows. In
light of the constrained fiscal space resulting from the multi-currency regime and the public debt
overhang, the government has been forced to adopt a contractionary fiscal policy regime.
As shown in Table 3, both the primary balance and the overall balance were estimated to have
deteriorated between 2012 and 2013. This deterioration is attributed to the underperformance
of diamond revenues and increases in spending related to the March 2013 constitutional
referendum, the July 2013 harmonised elections and the hosting of the United Nations World
Tourism Organization (UNWTO) in August 2013. The bulk of expenditures are current, effectively
crowding out capital expenditures essential for medium- and long-term recovery and growth.
The 2013 national budget provided for total revenues of USD3.9billion, of which tax revenue was
projected at USD3.6billion, with non-tax revenue of USD213.6million. Total revenue collections
between January and November 2013 amounted to USD3.4billion, while total expenditure
amounted to USD3.5billion. This resulted in an expenditure overrun of USD130million. There

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Zimbabwe

was also a one-off unbudgeted non-tax collection from the renewal of licencing fees from mobile
telecommunications companies, generating USD145.5million. This helped to lessen the fiscal
deficit. However, budgeted diamond revenues of USD61million did not materialise.
In terms of individual revenue contributions, Value Added Tax (VAT) had the highest share
at 29%, followed by the Pay As You Earn (PAYE) income tax, which contributed 20%. Excise duties
brought in 13% and corporate tax 10%. Non-tax revenues amounted to 10%. In spite of this, VAT
collections performed below expectations for most of the period except for January, February and
August.
Fiscal expenditures for the period January to November 2013 amounted to USD3.5billion,
against USD3.4billion of total revenue collections, resulting in an expenditure overrun of
USD130million. Employment costs were 68.9% of fiscal expenditures at USD2.4billion, against a
target of USD2.3billion, resulting in an overrun of USD145million. Operations and maintenance
amounted to 21.1% of total expenditures at USD744million, against a target of USD601million,
leading to an over-expenditure of USD143million. More specifically, these overruns were a result
of: the constitutional referendum and the harmonised general elections, which together totalled
USD178.4million; the 2012 national census (USD12.4million) and the UNWTO conference
(USD7.6million); and grain imports and debt service payments, which came to USD151million
between January and August 2013.
Total disbursements for capital expenditures for the period January to November 2013 were
USD326million, against a target of USD492million, representing an underperformance of
USD166million.

Table 3. Public finances (percentage of GDP)

2005

2010

2011

2012

2013(e)

2014(p)

2015(p)

Total revenue and grants

15.3

23.3

26.7

28.0

27.4

26.8

26.1

Tax revenue

14.8

22.0

24.3

26.3

25.6

25.0

24.3

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Total expenditure and net lending (a)

23.4

24.5

29.1

29.3

29.3

28.7

28.3

Current expenditure

21.2

18.2

24.1

26.5

26.5

26.1

25.8

Excluding interest

17.5

17.0

23.0

25.6

25.7

25.5

25.5
20.8

Grants

Wages and salaries

9.2

11.3

16.7

20.1

20.3

20.5

Interest

3.7

1.2

1.1

0.9

0.8

0.5

0.3

Capital expenditure

1.9

6.3

5.0

2.8

2.8

2.6

2.5

Primary balance

-4.4

0.0

-1.3

-0.4

-1.1

-1.3

-1.8

Overall balance

-8.1

-1.2

-2.4

-1.3

-1.9

-1.9

-2.2

Note: a. Only major items are reported.

Source: Data from domestic authorities; estimates (e) and projections (p) based on authors' calculations.

Monetary policy
There was no significant change in monetary policy in view of the continued existence of the
multi-currency regime. Under this regime, the central banks role is limited to banking supervision
to ensure financial stability. In its first monetary policy statement for 2014, the Reserve Bank of
Zimbabwe (RBZ) announced that the Chinese Yuan renminbi, Japanese yen, Indian rupee and
Australian dollar would be accepted as legal tender alongside the US dollar, South African rand,
Botswana pula and British pound. An increase in trade and investment between Zimbabwe and
Asia spurred this move, which is expected to reduce costs and boost trade between the partners.
This implies that Zimbabweans and exporters will be able to open accounts and trade in the
aforementioned currencies. The majority of Zimbabweans, however, primarily use the US dollar
and South African rand, with import prices mostly set at the US dollar value.

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As of 31December 2013, total banking sector deposits amounted to USD4.7billion. Five banks
with deposits amounting to USD2.9billion commanded a market share of 61.2%. Loans and
advances as of 31December 2013 amounted to USD3.7billion. In terms of the sectoral distribution
of credit in the economy, individuals accounted for the highest proportion, with 23.8% of total
credit. This was followed by services (18.4%), agriculture (15.1%) and manufacturing (15.0%).
The bulk of deposits are demand, affecting the ability of banks to provide long-term funding.
Moreover, lending has been skewed in favour of consumption as opposed to production. Effective
lending rates in the banking sector ranged from 13% to 38% per annum during the week ending
3January 2014.
In October 2013, a Memorandum of Understanding (MoU) signed between the RBZ and
banks regarding a framework for determining bank charges and interest rate margins. The RBZ
announced in January 2014 in its monetary policy statement that banks now have to justify
and obtain approval from the RBZ before effecting increases on charges and lending rates. This
is meant to prevent collusion on pricing and help in evaluating bank charges and related cost
structures. It also aims to improve confidence within the banking system. The 2014 national
budget statement proposed the introduction of a USD100million facility to revive the interbank
market, with effect from 1April 2014. This amount is, however, inadequate to restore confidence
in the market and encourage interbank activity.

Economic co-operation, regional integration and trade

The countrys external sector position remains precarious, with both the trade and current
account balances being projected to remain largely negative in the short to medium term. This
is due to rising imports against a backdrop of low export receipts. Import growth continues to be
mainly dominated by fuel, chemicals, machinery and manufactured goods. As the manufacturing
sector continues to struggle, domestic demand for consumption goods is being met by increased
imports. Zimbabwes current account will remain under pressure unless there is a full recovery of
the local manufacturing sector, helping the economy wean off its dependence on imports.
Total exports for the period January to November 2013 stood at USD3.3billion, which
compares unfavourably against imports of USD7.2billion during the same period. The declining
growth in exports is a reflection of the overall slowdown in real economic activity in the wake of
endemic company closures. Exports were projected to reach USD4.4billion by the end of 2013,
against expected total imports of USD7.7billion.
Current transfers total USD918.5million largely in the form of humanitarian assistance and
diaspora remittances partially offsetting the effect of a huge trade deficit. The capital account
posted a surplus of USD1.7billion in 2012 and was estimated to improve to USD1.9billion in 2013,
while 2014 projections stand at USD1.6billion. Foreign Direct Investment (FDI) increased from
USD387million in 2011 to USD400million in 2012. The Zimbabwe Investment Authority (ZIA)
approved investments worth USD685.8million in 2013, down from USD909million the previous
year, according to latest statistics from ZIA. China constituted more than 50% of the proposed
projects. In 2013, receipts from the diaspora amounted to USD454.2million, an increase of 26%
on the USD360.6million received in 2012. The overall balance of payments position is estimated
to have worsened from a deficit of USD380.1million in 2012 to a deficit of USD560.6million in
2013. The projected deficit for 2014 is USD811million.
The harmonised elections held on 31July 2013 were associated with increased uncertainty in
the economy. Consequently, there was a huge capital outflow in the last half of 2013. Moreover,
total bank deposits fell from USD4.5billion as of 19July 2013 to USD4.3billion as of 9August 2013.
Zimbabwe has six bilateral Preferential Trade Agreements (PTAs) and over 40 bilateral trade
agreements under the Most Favoured Nation (MFN) status. It is currently involved in negotiations
for the establishment of a tripartite free-trade area encompassing the Common Market for

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Eastern and Southern Africa (COMESA), the South African Development Community (SADC) and
the East African Community (EAC). These negotiations are expected to be completed by 2014,
with the launch of the tripartite Free Trade Agreement (FTA) set for 2016. A single FTA is expected
to boost regional integration through improved investment flows and enhanced competition,
transforming eastern and southern Africa into one of the most lucrative regions on the continent.
The country has also ratified an interim Economic Partnership Agreement (EPA) with the EU.
Under this agreement Zimbabwe will liberalise 80% of its imports from the EU by 2022: 45% by
2012, with the remaining 35% liberalised progressively by 2022. There are, however, concerns that
this will pose challenges to local industry. The countrys economy is far from being ready to deal
with reciprocity and the liberalisation of imports. The liberalisation of imports will pose a severe
threat to the countrys already weak industrial sector. EPAs will need to be supported by strong
regional integration initiatives. The region has called for safeguard measures and identification
of sensitive products to protect domestic production from an anticipated increase of EU imports.
South Africa is Zimbabwes single largest trading partner, accounting for at least 40% of total
exports and 60% of total imports. The EU is the countrys second biggest trading partner, followed
by China, which accounts for about 7% of Zimbabwes total exports.

Table 4. Current account (percentage of GDP)

2013(e)

2014(p)

2015(p)

Trade balance

2005
-6.6

-19.5

-28.0

-21.3

-19.1

-17.1

-14.2

Exports of goods (f.o.b.)

25.8

35.1

41.0

32.5

33.4

34.3

35.2

Imports of goods (f.o.b.)

32.5

54.6

69.0

53.8

52.4

51.4

49.5

Services

-1.8

-4.7

-6.0

-3.8

-4.4

-4.8

-4.8

Factor income

-4.5

-2.9

-2.7

-2.5

-2.5

-2.5

-2.4

2.7

6.1

7.3

7.5

7.5

7.5

6.9

-10.2

-21.2

-29.3

-20.1

-18.5

-16.9

-14.4

Current transfers
Current account balance

2010

2011

2012

Source: Data from the Central Bank and domestic authorities; estimates (e) and projections (p) based on authors'
calculations.

Debt policy
Following the completion of the validation and reconciliation exercise, total external public
and publicly guaranteed debt (excluding reserve bank and private sector external debt) stood at
USD6.1billion (49% of GDP) as of 31December 2012. The stock of accumulated arrears accounted
for USD4.7billion, which represents 78% of total debt stock. Total multilateral debt stock was
USD2.5billion (41% of total debt) as of 31December 2012, of which arrears came to USD2.0billion.
This amount is broken down as follows: World Bank, USD1.4billion; African Development Bank
(AfDB), USD632million; European Investment Bank, USD302million; International Monetary Fund,
USD125million; and other multilateral creditors, USD117million (2014 national budget statement).
In order to strengthen debt management, the government established the Zimbabwe Aid and
Debt Management Office (ZADMO) within the Ministry of Finance in December 2010. With the
financial support of development partners such as the AfDB and the United Nations Development
Programme (UNDP), plus technical support from the Macroeconomic and Financial Management
Institute of Eastern and Southern Africa (MEFMI) and partners such as the United Nations
Conference on Trade and Development (UNCTAD), ZADMO has been able to carry out activities
such as debt data validation and reconciliation and set up structures necessary for effective debt
management.
The government has adopted the Zimbabwe Accelerated Arrears Clearance, Debt and
Development Strategy (ZAADDS). ZAADDS is aimed at accelerating reengagement with creditors,
including International Financial Institutions (IFIs). ZAADDS is defined as a hybrid debt resolution
strategy, which includes the adoption of traditional debt resolution initiatives combined with

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a leveraging of the countrys natural resources to achieve sustainable economic development.

As part of ZAADDS, the government through the Ministry of Finance has begun a process of
reengagement with creditors, including multilateral financial institutions.
In June 2013, the government adopted the IMF Staff Monitored Programme (SMP). The SMP
is a crucial component of the ZAADDS and the Zimbabwe Accelerated Re-engagement Economic
Programme. The government is seeking to clear its outstanding arrears by mobilising capital from
internal resources and by reengaging the international community for the normalisation of relations.
In January 2014, the IMF approved a six-month extension of the SMP at the request of government.
Under the extension the IMF staff team will visit Zimbabwe in March 2014 to assess performance.

Figure 2. Stock of total external debt (percentage of GDP)

and debt service (percentage of exports of goods and services)
Outstanding debt (public and private) /GDP

Debt service/Exports

70
60
50
40
30
20
10
0

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Source: IMF (WEO & Article IV).

Economic and political governance

Private sector
Starting a business in Zimbabwe remains a cumbersome, costly and time-consuming exercise.
In the World Bank report, Doing Business 2014, Zimbabwe was ranked 170 out of 189economies in
terms of overall ease of doing business. In 2013, the country was ranked 172 out of 185countries.
Starting a business requires nine procedures (as in 2013) and takes 90days (as in 2013), costing
141.2% of income per capita (up from 107.0% in 2013). Zimbabwe is ranked 131 out of 148countries
in the World Economic Forums Global Competitiveness Report 2013/14 rankings, slightly up from 132
out of 144countries in 2012/13.
In the 2013 Ibrahim Index of African Governance, Zimbabwe is ranked 47 out of 52countries (as
in 2012), putting it in the same category as politically unstable countries like Somalia, Equatorial
Guinea and Chad.
Following the elections, the government has toned down on its hard-line stance on
indigenisation. This follows the appointment of a new minister. According to the law, there
are 13economic sectors earmarked for indigenisation, including mining, manufacturing,

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construction, tourism, finance, transport, communications and energy, while the retail sector is
preserved 100% for locals. To date most companies within the mining sector have fully complied
with the provisions of the indigenisation and economic empowerment regulations, with the
exception of diamond mining companies.
It has been observed that the indigenisation process is not focused on creating new wealth,
but rather on distributing the little remaining foreign-owned wealth into a few hands. The
conflict between the objectives of attracting FDI and indigenising the economy played out during
the Government of National Unity in 2009. The Ministry of Economic Planning and Investment
Planning emphasised attracting FDI, while the Ministry of Youth Development, Indigenisation
and Economic Empowerment focused on indigenisation and economic empowerment. This led to
uncertainty and policy inconsistencies. The high cost of doing business remains a major deterrent
to foreign investment.

Financial sector
The financial sector continues to experience structural vulnerabilities arising from the lack
of confidence by depositors, liquidity constraints, rising non-performing and insider loans, high
lending rates and low deposit rates, the absence of an active inter-bank market and the lack of an
effective lender of last resort. The directive by the government to cancel local authorities and the
Zimbabwe Electricity Supply Authoritys debts left the banking sector heavily exposed.
As of 31December 2013, there were 21operating banking institutions and 146microfinance
institutions. Out of the 21 operating banking institutions, 14 had complied with the prescribed
minimum capital threshold of USD25million by 31December 2013. The financial sector continues
to experience a deterioration in asset quality with the sectors average ratio of non-performing
loans to total loans increasing from 15.6% at the end of September 2013 to 15.9% as of 31 December
2013. As a result, a total of six financial institutions posted losses in 2013. A number of locally
owned banks also experienced liquidity challenges in December 2013. Trust Banks banking
license was cancelled on 6December 2013 owing to undercapitalisation, liquidity challenges and
high non-performing loans.
Competition in the banking system is limited due to the higher risks associated with
indigenous banks. The Microfinance Act, which provides for the registration, supervision and
regulation of microfinance businesses in Zimbabwe, as well as amendments to the Moneylending
and Rates of Interest Act and the Banking Act, was gazetted on 30August 2013. Under the new
Act, licensed microfinance institutions would be able to take and intermediate deposits from the
public. With effect from 9January 2014, asset management companies are now being supervised
by the Securities and Exchange Commission of Zimbabwe (SECZ).
Activity on the Zimbabwe Stock Exchange (ZSE) remained subdued, as most investors
adopted a cautious approach while concerns over the implementation of the indigenisation policy
persisted. There were also uncertainties surrounding the elections.

Public sector management, institutions and reform

Although the right to property is guaranteed and protected in the new constitution, it can
be revoked when the public interest is at stake. The new constitution lists defence, public safety,
public order, public morality, public health or town planning as factors that may override the
right to property. It further indicates that instances that can see someone lose his or her right to
property include settlement, land reorganisation and redressing the unjust and unfair pattern of
land ownership that was brought about by colonialism.
The budget preparation process has been broadened to ensure the participation of a number
of key stakeholders, resulting in the process being credible and inclusive.

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Although the Public Finance Management Act (PFMA) gives parliament more scope to
monitor budget performance, the country still has no regulations to enforce it. This results in a
failure to bring ministries and parastatals who cannot account for public finances to book. For
instance, although the audit reports by the comptroller and auditor general have disclosed a lot
of weaknesses and lack of accountability on how funds are utilised, not much has been done to
punish perpetrators.
Pay and benefit levels are generally inadequate, which affects morale. The wage bill is
unsustainable and crowds out spending required for public services. In view of the bloated public
sector, average wages have remained low relative to the poverty line.
Accountability mechanisms such as the comptroller and auditor general, and the human
rights commission exist, but they are underfunded. The new constitution gives parliament
improved powers to carry out its law-making functions and effectively oversee the operations of
government ministries and departments.
Following the formation of the Zimbabwe Media Commission (ZMC) in 2009, access to
information has generally been improving, with the licensing of a number of privately owned
media houses.
While civil society organisations have access to information relating to the national budget,
they find it difficult to access information in the extractive industries.
The parliamentary portfolio committee on mines and energy conducted an enquiry into the
diamond mining sector for the period 2010 to 2013. The committee observed with concern that
from the time the country was allowed to trade its diamonds on the world market, the sector
has not made any meaningful contributions to the government. This is despite the fact that
production levels and the revenue generated from exports have been on the increase.

Natural resource management and the environment

There are a number of policies and regulations dealing with the environment. These are,
however, fragmentary and not comprehensive, and there is limited institutional capacity to
implement these policies and monitor natural resource degradation. There are also funding
limitations. Moreover, the Natural Resources Act does not apply to the rural communal areas
that cover half of the total land area of Zimbabwe.
The unregulated establishment of mines has created large waste dumps, and runoff from
these has contaminated the soil and bodies of water. Further, migration from rural areas to urban
centres has led to overcrowding, putting pressure on urban sanitation infrastructure.
A study undertaken by scientists from the University of Zimbabwe (UZ), commissioned by
the Zimbabwe Environment Law Association (ZELA), has shown that there has been massive
pollution of the Save and Odzi rivers, endangering both human and animal lives. The study found
water in both rivers has high concentrations of iron, chromium and nickel from mining activities
in Chiadzwa (the latter two metals are scientifically proven to be potentially carcinogenic). The
water was also said to have been contaminated with high levels of fluoride, which puts residents
at the risk of dental and skeletal fluorosis.

Political context
Following the referendum of 16-17March 2013, the country adopted a new constitution. The
constitution limits the powers of the president and imposes a two-term presidential limit. The
constitution explicitly guarantees freedom of expression and freedom of the media. In addition,
it has an expanded bill of rights that includes socio-economic rights. The country is now in the
process of harmonising some acts of parliament with the new constitution.

10

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Zimbabwe

The country held general harmonised elections on 31July 2013. They were overwhelmingly
won by Zimbabwe African National Union Patriotic Front (ZANU PF), with a parliamentary
majority of more than two-thirds. Even though the elections were deemed free, peaceful and
generally credible by SADC, the African Union (AU) and COMESA, the opposition as well as the
EU and the US expressed reservations with the overall integrity of the electoral process. The
government refused to accredit election observers from the EU and the US. As a result of this, the
relationship between Zimbabwe and the EU and US has remained tense, with both the EU and
US maintaining sanctions against the country. The reengagement process of the country with
the international community mainly the West has proceeded slowly, with very little results to
date to show for the efforts.
The political future remains uncertain, which will negatively affect the economy. The risk of
policy reversals, though minimal, remains. For instance, although the government has stated that
the multi-currency regime will remain in place until 2018, there are fears that the deteriorating
liquidity situation may force the government to revert back to the Zimbabwe dollar. It will be
imperative for the government to come up with inclusive institutions and policies that will bring
together and unite the nation. In this regard, it will be important for the government to revive
the Tripartite Negotiating Forum (TNF) as a way of promoting dialogue and smart partnerships
between key stakeholders in decision making and also as a basis for reaching consensus and
promoting buy-in on key policies.

Social context and human development

Building human resources
The country is on course to achieving the Millennium Development Goal (MDG) target of
reducing the prevalence of HIV and AIDS to 9.0% by 2015, having reduced the prevalence rate to
14.3% by 2009. The country has come up with a Zimbabwe National HIV and AIDS Strategic Plan
(ZNASP), a five-year (2011-15) strategy to guide the national response towards achieving zero new
infections by 2015. Only about 600000people out of a total estimated figure of 1.3millioninfected
people as of 2009 are on anti retroviral drugs. The incidence of malaria has meanwhile also been
on thedecline since 2005, as the government has scaled up its malaria prevention programmes.
Zimbabwes malaria programme receives support from the following donors: Global Fund, WHO,
UNICEF, the United Kingdom Department for International Development (DfID), the European
Commission, USAID and private sector entities.
Investments in education have resulted in a marked improvement in examination pass rates.
A 2013 report by the African Economist magazine shows that Zimbabwe has the best literacy rate in
Africa. It stood at 90.9% in 2013, down from 91.2% in 2012. It is the only country on the continent
with a literacy rate of over 90%.
Budget support to the education sector amounted to USD5.7million between January
and June 2013, constituting 12.6% of budget utilisation. Budget support towards core service
delivery programmes across sectors was compromised by resources mobilised in support of the
referendum and the harmonised elections.
Since 2009 the bulk of the budgetary allocations to health and education have gone to meeting
recurrent expenditures mainly in the form of wages. In the 2014 national budget, health was
allocated USD337million, accounting for 8.2% of the total budget. This is less than the 9.9%
allocated in 2013. Zimbabwe is a signatory to the Abuja Declaration, in which African countries
agreed to commit 15.0% of their national budget to health.
The Zimbabwe Multi-Donor Trust Fund (ZimFund) is funding the implementation of the
USD29.65million Urgent Water Supply and Sanitation Rehabilitation Project (UWSSRP). This will
provide for the equitable provision of adequate water supply and sanitation services in select

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cities. In April 2013, ZimFund handed over the site of the Mutare water and sanitation works to a
contractor. The project will benefit the municipalities of Chegutu, Chitungwiza, Harare, Kwekwe
and Masvingo.

Poverty reduction, social protection and labour

The key government interventions in social protection for the period 2013-15 are underpinned
by the National Action Plan for Orphans and Vulnerable Children Phase II (NAP II). Key objectives
of NAP II are to increase the incomes of an estimated 250000 extremely poor households and
improve access to basic education, health, food and shelter for Orphans and Vulnerable Children
(OVC) and their families.
Even though the country has made some remarkable progress in expanding social safety nets,
there are still limitations in terms of funding and coverage. There is also a weak administration
system.
Zimbabwe has ratified the eight ILO core conventions. Even though some of these standards
have been domesticated in the Labour Relations Act, there is need to ensure full domestication of
the ILO core conventions. The new constitution also provides for a labour court with jurisdiction
over matters of labour and employment, as may be conferred on it by an act of parliament. The
latter may provide for the exercise of jurisdiction by the labour court, and for that purpose it may
grant it the power to make rules of court. Furthermore, section 65 (3) of the new constitution
guarantees all workers the right to participate in a job action and/or strike, except members of
the security forces and certain civil servants who offer essential services.
Government is currently in the process of harmonising labour market legislation. It also sees
a need to streamline the dispute settlement system by establishing an independent alternative
dispute resolution mechanism. The implementation of other active labour market policies have
been hampered by the limited fiscal space currently prevailing in the economy.
The pension and old savings programmes that are in existence only cover the formal sector.
Hence, the majority of the population is not covered. A number of employers are not providing
workers with the coverage they are entitled to under the Pensions and Other Benefits Scheme.

Gender equality
Significant progress has been made at the legislative level in terms of gender equality. There
is near parity in enrolment in lower secondary school by gender. The new constitution provides
for the creation of the Zimbabwe Gender Commission (ZGC), whose main functions include
promoting gender equality. However, this commission has yet to be set up.
Wide gender disparities continue to characterise many aspects of development. This is
reflected in the generally low status of women with respect to access, control and ownership of
economic resources and involvement in decision making. In terms of the labour market, 60% of
women work, compared to 74% of men. Nevertheless, women tend to work in agriculture and
other low-productivity activities.
The SADC Protocol on Gender and Development has entered into force following ratification
of the instrument by the requisite two-thirds of member states in early 2013. Zimbabwe is among
the countries that has ratified this protocol. Zimbabwe has also ratified the UNs Convention on
the Elimination of All Forms of Discrimination against Women.

Global value chains and industrialisation in Africa

Global value chains (GVC) that operate in a transparent and accountable way can be an
engine for sustainable development. Zimbabwe is currently integrated in global value chains
in agriculture (tobacco, sugar, cotton and horticulture), mining (diamonds, gold, and platinum)

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and manufacturing (food and beverages, clothing and textiles, wood and timber, fertilisers and
chemicals and pharmaceuticals).
Zimbabwe has some of the largest deposits of diamonds, gold and platinum in the world. The
GVC of the diamond industry includes exploration, mining, sorting, polishing, dealing, jewellery
manufacturing and ultimately retail. Zimbabwe is able to conduct the first three stages but must
now focus on achieving the other four.
With respect to gold refining, the RBZ first opened Fidelity Printers (Private) Limited in 1966.
After it established a gold refinery section in 1987, the company changed its name to Fidelity
Printers and Refiners (Private) Limited. The refinery produced internationally accepted delivery
bars, however, it ceased operations in 2008 after gold output slumped to a record low of three
metric tonnes. Since then, Zimbabwe has been sending its gold for refining and marketing to
Rand Refinery of South Africa. With respect to platinum, the country currently has no refineries.
Zimbabwe has one of Africas largest copper processing plants in the town of Alaska. It has,
however, been lying idle since the 1990s when nickel prices began to fall. This has led to the
closure of Mhangura and other copper mines. Also, the collapse of nickel mining has resulted in
the Empress Nickel refinery being decommissioned.
The development potential of the mining sector can be maximised through building resource
linkages with the rest of the economy. This includes revenue linkages, backward linkages (supply
chains), forward linkages (value addition/beneficiation) and knowledge and spatial linkages to
create new industries associated with mining. This is particularly important in that economic
recovery in Zimbabwe hinges on the mining sector.
Zimbabwe can borrow from the Africa Mining Vision (AMV) of 2008 and the International
Study Group (ISG) report of 2009. These argued for the creation of strong and diverse linkages
between mines and the immediate economy to maximise the growth, development and
employment potential offered by mineral resources.
Zimbabwe is currently the largest cotton producing country in southern and eastern Africa.
The cotton produced in Zimbabwe is renowned for its high-quality, uniform lint. The countrys
competitiveness in cotton production arises mainly from favourable climatic conditions, as well
as the availability of manpower to process the cotton through its various stages of the cotton
value chain. The country has an installed ginning capacity of approximately 600000tonnes,
more than double the cotton seed production. There is limited value addition in the industry,
with spinning capacity currently at less than 30% of the total lint available. The country has an
installed spinning capacity of 39000tonnes of lint per annum and an average annual lint output
of 160000tonnes. Such installed capacity can no longer be used at 100% productivity, as most
of the equipment is now old and even obsolete. The weaving and knitting industry processes
fewer than 39000tonnes of lint output, with dyeing, printing and finishing processing less than
weaving and knitting.
Sugar-cane is one of the most important agricultural export crops in Zimbabwe, along with
cotton and tobacco. The sugar sub-sector is concentrated and dominated by two companies.
Production of sugarcane in Zimbabwe is based on the plantation system of production. Under
this system of production, each sugar company owns a sugar estate and mills, permitting the
companies to efficiently manage the cycle of cane production and processing. The sugar industry
provides direct employment to 25000workers and indirect employment to more than 125000.
Tongaat Hulett owns the Triangle Sugar estate and has a 50.4% stake in the Hippo Valley estate.
Triangle estate is the biggest sugar estate in Zimbabwe, with an annual crushing capacity of
2.5milliontonnes of cane. It can produce up to 300000 tonnes of raw sugar. Hippo Valley is the
second largest sugar operation and has a mill of almost the same capacity as Triangle. In addition,
there are small-scale out-growers at Mkwasine estate, cultivating about 10 hectares each, plus
a group of 17 cultivating 35hectares each. The two estates, including out-growers at Mkwasine,
have a potential production capacity of 600000tonnes.

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After processing, sugar has different products (e.g.raw sugar, molasses and ethanol) that
are traded in the domestic and export markets. In October 2013, Zimbabwe passed legislation
requiring that imported petrol be blended with 10% of locally produced ethanol (mandatory
blending). There are two independent sugar refineries located in Bulawayo and Harare that
produce white sugar, with a capacity of 260000 tonnes per annum. In addition, brown sugar
comes from the two mills at Triangle and Hippo Valley. Around 65% of the sugar is produced
for the domestic market, and the remainder is exported to the southern Africa, the EU and the
United States. About 148000tonnes of raw sugar were exported to the EU in 2009, and the market
is secure from 2010-15, as it can be exported duty and quota free.
Several initiatives currently in place to strengthen agricultural value chains include: the
Zimbabwe Agricultural Competitiveness Program (ZimACP), the Zimbabwe Agricultural Income
and Employment Development Program (ZimAIED) and Credit Fund.
ZimACP is a USAID-supported programme that started in September 2010 and will run for
4.5years. The programme aims to provide support to the agriculture and agribusiness sectors
through dialogue with their representative bodies to reach a consensus on policy issues that
affect the competitive environment of agribusiness in Zimbabwe. More specifically, ZimACP
seeks to support market dynamics and players to achieve improved access to capital and services.
ZimAIED, which is also supported by USAID, seeks to increase the incomes of rural households
across the country through the commercialisation of small-scale farming. The programme works
with a wide range of domestic, regional and international buyers to create reliable and profitable
marketing systems for small-scale commercial farmers. ZimAIED also works with rural agritraders to ensure that all farmers have access to competitively priced inputs, allowing them to
sell their products at fair prices.
The major constraints to effective participation within the GVCs are poor infrastructure,
liquidity constraints, deindustrialisation, technology gaps, lack of competitiveness, the high
cost of doing business and uncertainties related to indigenisation and economic empowerment
regulations.
The government needs to build capacity and support private sector participation, especially
in SMEs. It also needs to develop an institutional framework for public-private partnerships, in
particular to develop world-class infrastructure.

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