Zimbabwe Economy Out Loook 2015_gb_2015

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www.africaneconomicoutlook.org

ZIMBABWE2015

Mary Manneko MONYAU / [email protected]

Chief Regional Economist, Zimbabwe Field Ofce, AfDB

Amarakoon BANDARA/ [email protected]

Economic Advisor, UNDP


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ZIMBABWE

Economic growth slowed to around 3% in 2014, and only a marginal improvement

is expected for 2015 and 2016, with persistent de-industrialisation and a growinginformal economy.

There is a need to continue implementation of structural reforms to improve thebusiness environment, achieve a sustainable current account balance, reform publicenterprises and make growth more inclusive.

Various initiatives have been taken to improve spatial inclusion, but progress hasbeen limited by slow implementation of the related policies and strategies.

Overview

The period 2009-12 was marked by an economic rebound following the introduction of the

multiple currency system, with the economy growing at an average rate of 11.0% per annum.However, GDP growth decelerated sharply from 10.6% in 2012 to 4.5% in 2013 and an estimated3.1% in 2014. Real GDP is projected to marginally improve to 3.2% in 2015. This projected marginalimprovement will be on the back of planned investments in agriculture, mining, communicationsand other infrastructure projects, including in the water and energy sectors.

Against the background of weak domestic demand, tight liquidity conditions and theappreciation of the US dollar against the South African rand, inflation was slightly negativein 2014, and it is projected to remain low in 2015. Industrial capacity utilisation continues todecline, and is estimated at 36.3% owing to underproduction and lack of competitiveness. Thereal exchange rate overvaluation relative to the South African rand has caused a loss in externalcompetitiveness, as it has made imports cheaper than domestically produced goods and exportsmore expensive. As a result of increasing demand for imports and dwindling exports, the external

sector position is under severe pressure, with an estimated current account deficit of around23.1% in 2014. The country is at high risk of debt distress, with an unsustainable external debtestimated at USD 8.4 billion at the end of 2014. On 29 October 2014, the government approved adebt resolution strategy, with the main objective of expediting the reengagement process withcreditors. The government plans to hold a high-level international debt resolution forum in 2015with the assistance of the African Development Bank (AfDB).

The economic recovery in recent years has been underpinned by the mining and agriculturesectors, which accounted for 93.5% of export revenues between 2009 and 2013. Mining, whichmade up 65.2% of export earnings over the same period, is a typical enclave sector, with weaklinkages to the rest of the economy. It is also capital intensive, with limited employment creationopportunities. The manufacturing sector saw a drop in activity between 2011 and 2014: at least4 610 companies closed down, resulting in a loss of 55 443 jobs (2015 Budget Statement). On top of

this, more than 80.0% of workers are employed in the informal sector.


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Figure 1. Real GDP growth

-20

-15

-10

-5

0

5

10

15

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014(e) 2015(p) 2016(p)

Real GDP growth (%) Southern Africa Africa (%)%

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

Table 1. Macroeconomic development

2013 2014(e) 2015(p) 2016(p)

Real GDP growth 4.5 3.1 3.2 3.3

Real GDP per capita growth 1.4 0.0 0.2 0.5

CPI inflation 1.6 -0.1 0.6 1.5

Budget balance % GDP -2.4 -2.4 -1.3 -1.1

Current account % GDP -25.4 -23.1 -17.8 -17.2Source: Data from domestic authorities; estimates (e) and projections (p) based on authors' calculations.

Recent developments and prospects

Economic growth in 2014 was underpinned by strong performance in agriculture, whichgrew by an estimated 23.4%. This helped to counteract the adverse effects of a drop in mineralcommodity prices, notably platinum and gold, which has resulted in the growth of the miningsector declining by an estimated 2.1%. According to the Chamber of Mines, the mining sectorcontinues to operate below capacity amid a host of challenges, including depressed metal prices,lower capital and Foreign Direct Investment (FDI) flows, high cost structures, sub-optimalroyalties and power shortages.

However, notwithstanding the softening of commodity prices, the mining sector is expectedto rebound in the medium term. This is due to the planned completion of the merger andconsolidation exercise in the diamond sector, as well as finalisation of the amendments to theMines and Minerals Act and the new mining fiscal regime. The Zimbabwean cabinet approved theprinciples for amendments to the Mines and Minerals Act in July 2014. The corresponding bill hasbeen drafted and reviewed and is expected to be submitted to the cabinet committee on legislationby early 2015. Once enacted, the bill will modernise the legislation and make it consistent withinternational best practices, in line with the authorities commitment to reforming the miningsector.



Production in the manufacturing sector is expected to decline further due to importcompetition and the financial problems of firms. Manufacturing sector activity continues to beweighed down by outdated plants and machinery, cheap imports, the high cost of production andliquidity constraints. Capacity utilisation has shed 3.3 percentage points, from 39.6% in 2013 to

36.3% in 2014. Erratic power supplies, lack of capital, higher input costs, obsolete machinery anddilapidated infrastructure have all constrained capacity utilisation.

Tobacco production increased significantly in 2014 as the number of growers and the acreageincreased. The increase in producer prices also boosted sales prospects for the 2014/15 agricultureseason, and production of the main crops maize, tobacco and cotton is expected to remain onan upward trend. Overall, agricultural growth for 2015 is projected at 3.4%.

Table 2. GDP by sector (percentage of GDP at current prices)

2009 2013

Agriculture, forestry, fishing & hunting 15.1 12.0

of which fishing

Mining and quarrying 8.1 10.4

of which oil

Manufacturing 15.5 12.8

Electricity, gas and water 4.0 4.3

Construction 2.0 3.5

Wholesale & retail trade; repair of vehicles household goods;Restaurants and hotels

17.5 16.8

of which hotels and restaurants

Transport, storage and communication 15.7 12.7

Finance, real estate and business services 9.6 11.3

Public administration and defence 2.7 3.7

Other services 9.8 12.3

Gross domestic product at basic prices / factor cost 100.0 100.0

Source: Data from domestic authorities

The tourism sector is expected to benefit from the implementation of the tourism policy,launched in July 2014 to promote both international and domestic tourism in the country. Thepolicy articulates tourism development and marketing and promotion strategies. Successfulprojects already under implementation include the Kavango-Zambezi Transfrontier ConservationArea (KAZA TFCA) Univisa pilot project between Zimbabwe and Zambia, which was launched on28 November 2014 to promote the uninterrupted movement of tourists between the two countries.Under the pilot project, tourists from 40 eligible countries will now only have to obtain one visaat a cost of USD 50 to visit both countries for a period of 30 days. As a result, tourist arrivalsare expected to increase to about 2.1 million in 2015 from 2 million in 2014. This translates intotourist sector growth of 4.7% in 2015, compared to 3.9% in 2014.

The overall economic outlook in the short to medium term is sluggish owing mainly to the

continued liquidity crunch, policy inconsistency and the unsustainable external account anddebt situation. The government needs to implement policy reforms to ease the high cost of doingbusiness, achieve fiscal and external sustainability, reduce financial weaknesses and unlock thepotential for inclusive and pro-poor growth. Public enterprise reforms should also be prioritisedin order to improve their efficiency and profitability.


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Macroeconomic policy

Fiscal policy

The fiscal position remains tight, and the country is under debt distress. The government hasimplemented a cash budgeting framework, which helped to keep the deficit at a relatively lowlevel. This framework is expected to remain in place in the short to medium term. Within thecontext of the Staff Monitored Program II (SMP-II), the government is targeting a zero primarybalance in fiscal operations. The large amount of current expenditures is effectively crowdingout capital expenditure, which is essential for medium and long-term growth. The weakness ofpublic investment is exacerbated by the low borrowing capacity as a result of the high public debtoverhang.

The credibility of fiscal policy has been seriously compromised by underperformance on therevenue side. As a result, fiscal policy does not reflect the key development priorities and socialobjectives articulated in the Zimbabwe Agenda for Sustainable Socio-Economic Transformation(Zim Asset). However, in 2014 the government made a conscious decision to align the 2015

national budget with Zim Asset. Fiscal developments for the ten months to October 2014 showthat cumulative revenue collections remained 7% below target but were still a bit higher than thepreceding fiscal year. Value added tax (VAT) contributed 27% to total revenues, individual incometax (PAYE) contributed 24%, excise duty contributed 14% and corporate income tax contributed9%. Revenue shortfalls are mainly due to company closures and job losses.

Government expenditures, including loan repayments, for the ten months to October 2014were higher than targeted due to additional employment costs and higher loan repayments.Employment costs, excluding loan repayments, amounted to 80% of total expenditures. Theywere higher than budgeted as public wages and salaries were increased by the civil service salaryreview, implemented from April 2014. The expenditure mix remains highly unsustainable, withcurrent expenditures constituting about 90% of total expenditures.

The government approved the principles of the Public Debt Management Bill in June 2014. It isexpected that once enacted the bill will provide the Ministry of Finance and Economic Development(MoFED) with a stronger and more effective mandate to plan, negotiate and monitor externalborrowing operations. It will also strengthen the institutional role of the Debt Management Officeat MoFED. Combined with fund technical assistance, the new bill should improve the quality ofpublic debt management in Zimbabwe.

Table 3. Public nances (percentage of GDP at current prices)

2006 2011 2012 2013 2014(e) 2015(p) 2016(p)

Total revenue and grants 8.5 26.7 28.2 27.7 28.1 27.9 28.2

Tax revenue 8.2 24.3 26.5 25.3 25.6 25.3 25.7

Grants 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total expenditure and net lending (a) 11.4 29.0 29.5 30.2 30.5 29.1 29.3Current expenditure 9.4 24.0 26.7 26.6 26.9 25.7 25.9

Excluding interest 6.5 23.0 25.7 25.7 25.8 24.6 24.8

Wages and salaries 3.5 16.7 20.2 20.5 20.7 19.8 20.0

Interest 2.9 1.0 0.9 0.9 1.1 1.1 1.1

Capital expenditure 2.0 5.0 2.9 3.6 3.6 3.3 3.4

Primary balance 0.0 -1.3 -0.4 -1.5 -1.3 -0.1 0.1

Overall balance -2.9 -2.4 -1.3 -2.4 -2.4 -1.3 -1.1

Note : a. Only major items are reported.Source: Data from domestic authorities; estimates (e) and projections (p) based on authors' calculations



Monetary policy

The government has expressed the desire to continue using the multiple currency system. TheReserve Bank of Zimbabwe (RBZ) has effectively lost direct control over money supply, interest

rates and the exchange rate. The role of the RBZ is therefore largely limited to banking supervisionand the smooth operation of the national payment system to ensure financial stability. Thegovernments treasury accounts were successfully transferred from a commercial bank to theRBZ in July 2014, thus restoring the RBZs function as banker to the government. Cabinet approvedthe principles for amendments to the Banking Act in June 2014. The amendments are expected tobe submitted to parliament by the end of March 2015 and should improve corporate governancein the banking sector, strengthen the Troubled Bank Resolution Framework, enhance consumerprotection, improve regulatory co-ordination and facilitate the licensing and regulation of creditreference bureaus.

According to the 2015 national budget statement, total banking sector deposits increased8.3% from USD 4.8 billion as of 31 October 2013 to USD 5.2 billion by 31 October 2014. Totalbanking sector loans and advances grew by 6.2% to USD 3.9 billion on 31 October 2014, against

USD 3.6 billion in October 2013. In the face of the high cost of doing business, the debt repaymentcapacity of borrowers remains under stress. As a result, the level of non-performing loans (NPLs)has risen from 15.9% as of 31 December 2013 to 20.1% by 13 September 2014.

The banking sector remains generally sound, with a total of 12 banks recording profitson 30 June 2014. According to the RBZ, the return on assets, however, remains very low andwas slightly negative in June 2014, while the return on equity improved somewhat. The lossesrecorded by the few banking institutions are attributed to high levels of non-performing loans,high operating expenses and high loan loss provisions.

The microfinance sector continues to play a critical role in the provision of finance tohouseholds and small and medium enterprises. Total microfinance loans increased significantly,amounting to 4.7% of total banking sector loans (RBZ Quarterly Microfinance Industry Report).

Economic co-operation, regional integration and trade

South Africa remains Zimbabwes largest trading partner, accounting for about 40% of totalexports and 60% of total imports. Zimbabwe and South Africa are set to introduce the Zimbabwe-South Africa Simplified Trade Regime as a means of facilitating and formalising small-scale tradebetween the two countries. Under the agreement, qualifying goods worth USD 1 000 or below willbe allowed to pass border points duty-free, and traders will not be asked to provide certificates oforigin for their goods as long as they are on the list of products agreed on by the two countries.The EU is the countrys second biggest trading partner. The country ratified an interim EconomicPartnership Agreement (EPA) with the EU in March 2012. As a result of an appreciating US dollarrelative to the South African rand, there has been a loss in external competitiveness. The externalposition remains precarious, with large current account deficits and low international reserves.Both the trade and current account balances are projected to remain highly negative and improveslightly in 2015.

A Southern African Development Community (SADC) audit has noted that the key problemwith implementing SADCs deep integration agenda is overlapping membership, as countriescannot effectively implement two sets of rules. SADC has delayed the adoption of a revisedRegional Indicative Strategic Development Plan (RISDP) 2015-20 to allow for synchronisation of thefour regional integration pillars: industrial development and market integration, infrastructuredevelopment, peace and security co-operation and special programmes. The SADC secretariatis expected to consolidate the inputs from stakeholders and produce a final draft of the revisedRISDP. It should be ready for presentation to the Council of Ministers at its sitting in March 2015.


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Table 4. Current account (percentage of GDP at current prices)

2006 2011 2012 2013 2014(e) 2015(p) 2016(p)

Trade balance -7.7 -28.7 -23.5 -23.1 -23.7 -17.9 -19.3

Exports of goods (f.o.b.) 28.3 40.4 30.7 27.4 27.2 23.9 23.9Imports of goods (f.o.b.) 36.0 69.0 54.1 50.5 50.9 41.8 43.1

Services -2.0 -6.9 -7.0 -6.9 -5.6 -5.0 -3.2

Factor income -5.1 -8.3 -7.7 -7.5 -7.5 -7.2 -6.6

Current transfers 7.2 14.0 13.5 12.1 13.7 12.3 11.8

Current account balance -7.6 -29.8 -24.6 -25.4 -23.1 -17.8 -17.2

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

Debt policy

Zimbabwes debt situation remains critical and an impediment to economic development.Addressing this issue will require a comprehensive arrears clearance framework, underpinnedby strong macroeconomic policies. The government has drafted the Public Debt Management Bill,which is expected to be submitted to parliament during the first quarter of 2015. The passage ofthis bill into law will statutorily establish the debt management office and outline the legal andinstitutional framework to guide debt management operations. As a result of support from theAfDB, World Bank, the United Nations Development Programme (UNDP) and other developmentpartners, a lot of progress has been made in constructing a database for external and domesticdebt. The government has completed the validation and reconciliation exercise of the database onall public and publicly guaranteed external debt with all creditors. Total debt overhang amountsto USD 8.4 billion. Public and publicly guaranteed external debt accounts for USD 7.2 billion, whichrepresents 52% of GDP. Domestic debt totals nearly USD 1.2 billion. Of the USD 7.2 billion in publicexternal debt, 81% constitutes the stock of accumulated arrears.

The Staff Monitored Programme (SMP), which the country entered into with the IMF, hasprovided a useful anchor for Zimbabwes macroeconomic policies under difficult economic

circumstances. Following successful completion of the first SMP (SMP I), with all the targetsand benchmarks being met in the third and final review of the programme, the authorities havereaffirmed their commitment to sound policies under SMP II. The latter will be implementedthrough December 2015, with the main objective being to demonstrate the governments capacityand willingness to start arrears clearance with international financial institutions and othercreditors. The main objective of SMP II is to strengthen the countrys external position as aprerequisite for arrears clearance, resumption of debt service and restored access to externalfinancing. Successful implementation of the SMP would be an important stepping stone forZimbabwe towards normalised relations with the international community.

Given the governments objective of seeking comprehensive debt relief from creditors, theimportance of inter-institutional co-ordination (e.g. with the AfDB, the World Bank, the IMF andthe Paris Club) and the fact that Zimbabwe does not qualify for the Heavily Indebted Poor Countries

(HIPC) initiative, the government requested a study by the AfDB on alternative options for debtrelief in a non-HIPC framework. The AfDB, the World Bank and the IMF are at an advanced stageof providing a joint roadmap for the countrys arrears clearance programme. The governmenthas also requested that the AfDB organise a second-round high-level debt forum on Zimbabweto progress discussions on debt and arrears clearance process and development finance in thecontext of Zim Asset. The country has been making regular quarterly payments since mid-2013to the AfDB and the World Bank, as well as monthly payments to the IMF



Figure 2. Stock of total external debt (percentage of GDP) and debt service(percentage of exports of goods and services)

0

20

40

60

80

100

120

140

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Outstanding debt (public and private) /GDP Debt service/Exports%

Source : IMF (WEO & Article IV)

Economic and political governance

Private sector

Starting a business in Zimbabwe is a highly costly and time-consuming exercise. Accordingto the World Bank report, Doing Business 2015; Zimbabwe stands at 180 in the ranking of 189economies on the ease of starting a business. It takes 90 days and costs 114.6% of income percapita. Comparatively, in South Africa it only takes 19 days to start a business and costs only 0.3%of per capita income.

The government has set up an inter-ministerial committee on doing business to improve theinvestment climate and spearhead the harmonisation of investment laws. Six technical workinggroups comprising the key stakeholders have been set up. These cover starting a business,dealing with construction permits and registering property, getting electricity, obtaining creditand resolving insolvency, paying taxes and trading across borders and protecting investors andenforcing contracts. Furthermore, the government is set to rebrand the National Pricing andMonitoring Commission (NPMC) the National Competitiveness Commission (NCC). It will beresponsible for promoting a competitive business environment and reviewing regulations on

doing business.The Zimbabwe Investment Authority (ZIA) is working towards implementing a digital one-

stop shop, which will improve turnaround periods for investment clearances. Moreover, thegovernment is in the process of setting up Special Economic Zones (SEZs) and has created aninter-ministerial committee, which also includes development partners, to spearhead theirestablishment.

The government is in the process of reforming and harmonising labour legislation. In termsof land issues, there is currently no market for land as all the land is owned and controlled by thestate. The country needs to adopt a clear and robust legal framework to resolve all the outstandingland issues, including multiple land ownership and security of tenure.


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While a number of ministries and government departments are responsible for infrastructuredevelopment in the country, the high percentage of recurrent expenditure limits infrastructuredevelopment. Lack of a comprehensive institutional framework for infrastructure developmentis also a concern. There is no clear legislative framework to enhance the role of the private sector

in the financing and management of infrastructure projects through public-private partnerships(PPPs).

Financial sector

The financial sector, though generally sound, has been adversely affected by the high levelsof NPLs, which rose from 15.9% as of 31 December 2013 to 20.0% by 13 September 2014. Thishas exerted pressure on banks balance sheets, with adverse effects on their lending operations.The reduction in the total core capital is largely attributed to loan loss provisions and subduedearnings performance by some banking institutions.

In January 2015, the RBZ cancelled Allied Bank Limiteds licence under Section 14(4) of theBanking Act (Chapter 24:20), following a voluntary surrender of the licence by the banking

institution. The bank was undercapitalised and was experiencing chronic liquidity challenges.The RBZ has also applied to the High Court of Zimbabwe for the liquidation of Interfin BankLimited under Section 57 of the Banking Act (Chapter 24:20). This follows failed attempts to findpotential investors (Interfin Bank Limited was placed under curatorship in December 2012).

The cabinet approved the establishment of the Zimbabwe Asset Management Corporation(ZAMCO), whose mandate is to clean up and strengthen banks balance sheets by acquiring NPLsand providing them with liquidity to fund projects. According to the RBZ, as of 31 January 2015,NPLs amounting to USD 65 million have been acquired by ZAMCO. The 2015 national budgetoutlined additional financial reforms, including the establishment of a credit reference bureau,a bank for women, strengthening anti-money laundering actions and introducing an interbankfacility. The credit reference bureau will serve as a credit rating system to help financialinstitutions screen loan applicants.

According to the 2012 FinScope Survey Report, as much as 43% of business owners arefinancially excluded. Financial activity has, however, increased in rural areas owing to mobilebanking services offered by the countrys mobile telephone companies. The RBZ must come upwith regulations that ensure all mobile banking transactions are monitored and tracked to avoidfinancial dislocations.

Public sector management, institutions and reform

The right to private property is an important part of Zimbabwes Bill of Rights in the newconstitution; it is guaranteed and protected. There have, however, been media reports on farmevictions targeting white-owned farms during the course of the year 2014. This negatively affectsthe incentive for businesses to invest in the country.

The national budget process has remained largely inclusive, with broad participationof key stakeholders. The Public Finance Management Act gives parliament greater scope tomonitor budget performance, and there is need for regulations to enforce the act in the event ofirregularities.

Salaries and wages for civil servants constitute about 80% of total government expenditure,an unsustainable amount. Public sector restructuring needs to be undertaken to create the muchneeded fiscal space and ensure a lean and efficient government structure.

Regarding the executive branch of government, a number of external accountabilityinstitutions and mechanisms exist. Nevertheless, their operations are hampered by an inadequate


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allocation of resources. Overall, policy uncertainty has increased the risk premium attached toinvesting in Zimbabwe.

While decision making has improved with regard to broad-based participation by key

stakeholders, it remains largely ad hoc, as there is a lack of an institutionalised framework forstakeholder participation in decision making.

Natural resource management and environment

The constitution states that every person living in Zimbabwe has the right to safe, clean andpotable water. It further enshrines the right to a clean environment and puts forth that measuresmust be taken to prevent pollution. The Environmental Management Act of 2002 also recognisesenvironmental rights as human rights.

Some of the environmental challenges affecting the country include deforestation andovergrazing, water pollution, uncontrolled fires, human-wildlife conflict and sand poaching.Sand is being extracted in the countrys rivers and other sandy areas for construction purposes.The Forestry Commission estimates that each year 330 000 hectares are deforested nationally.

Limited financial capacity and expertise has constrained the capacity of the country to tacklethese problems.

The country has formulated the National Climate Change Response Strategy (NCCRS), whichwas validated and adopted by the Ministry of Environment at a multi-stakeholder meetingon 15 July 2014. The strategy aims to produce concrete mitigation and adaptation actionsintegrated into long-term economic planning processes to support a low carbon, climate resilientdevelopment pathway.

Laws and policies governing the mining sector must embrace the Extractive IndustryTransparency Initiative (EITI). The EITI will allow mining companies and government to disclosethe revenue generated and taxes and payments made by mining companies in the sector. Thishelps to improve transparency and accountability. The government should consider reviving the

Zimbabwe Mining Revenue Transparency Initiative (ZMRTI) as a vehicle to operationalising theEITI. Additionally, mining laws should be aligned with the provisions of the new constitution.

Political context

The year 2014 was characterised by relative political stability and peace, even though therewere reports of factional infighting within both the ruling party and the main opposition party.On a positive note, the government resuscitated the Tripartite Negotiating Forum (TNF). Underthe TNF negotiations that have been undertaken to date, government, business and labour haveagreed on the draft principles to review the countrys labour laws.

In November 2014, the EU lifted economic and trade restrictions against Zimbabwe. This isexpected to result in the resumption of development and finance co-operation with the countryand the normalisation of relations. This decision was made on account of improvements in the

political environment after the adoption of a new constitution and peaceful elections in July2013. Starting in 2015, the EU will start a EUR 234 million (USD 260 million) five-year fundingprogramme to support social services.

Though the new constitution was adopted in May 2013, by December 2014 many pieces oflegislation had not been amended accordingly. In the 2014 Freedom in the World ratings byFreedom House, the country is rated as not free, with an overall freedom rating of 5.5 (1.0=best,7.0=worst). The 2014 ratings are a slight improvement from the 2013 rating of 6.0.


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Social context and human development

Building human resources

The budget allocation to the health sector declined from 10% in 2013 to 8% in 2014. Budgetaryallocation to education has improved over the past few years, from about 27% in 2013 to about30% in 2014. The health sector has, however, been receiving a significant proportion of its fundingfrom the donor community under the Health Transition Fund (HTF), a USD 435 million multi-donor pooled fund established in 2011 and set to expire in 2015. As a result, the Multiple ClusterIndicator Survey (MICS) 2014, carried out in 2014 by the Zimbabwe National Statistics Agency aspart of the global MICS programme, shows that the number of women who die while giving birthdecreased from 960 per 100 000 to 614 per 100 000 between 2009 and 2014.

Food insecurity among households across the country remains high due to the combinedeffect of recurrent droughts, occasional floods and high unemployment. The 2014 rural livelihoodsassessment report published by the Zimbabwe Vulnerability Assessment Committee (ZimVAC)stated that a third of Zimbabwes children are stunted due to malnutrition. It also indicated that

6% of the rural population some 565 000 people will be in desperate need of food assistance inthe first quarter of 2015.

Zimbabwe has one the highest literacy rates on the continent. The MICS 2014 has revealedthat more children are attending secondary school, with the percentage increasing from 44.8%in 2009 to 57.5% in 2014. The literacy rate among young people aged 15-24 was estimated at 92.0%for women and 86.1% for men.

Zimbabwes HIV prevalence rate increased to 15.0% in 2013, from 14.3% in 2012. This increasecan be attributed to the rising poverty and unemployment levels. It is estimated by the NationalAIDS Council (NAC) that at least 1.2 million Zimbabweans are living with HIV, and an estimated657 000 are on Antiretroviral Therapy (ART). The Health Transition Fund pays for the purchaseof 98.0% of the drugs, while the remaining 2.0% are paid for by the AIDS levy managed by theNational AIDS Council (NAC).

Poverty reduction, social protection and labour

The country has made good progress in expanding social safety nets, even though challengesstill exist with respect to funding and coverage. This is exacerbated by the weak administrativesystem. Key state interventions in social protection for the period 2013-15 are underpinned by theNational Action Plan for Orphans and Vulnerable Children Phase II (NAP II).

Budgetary allocations to social safety nets programmes continue to be affected by the limitedfiscal space. In the 2014 national budget the Basic Education Assistance Module (BEAM) wasallocated only USD 15 million instead of the USD 73 million requested. Consequently, accordingto the Ministry of Public Service, Labour and Social Welfare, the number of children benefitingfrom BEAM declined from a peak of 969 962 in 2005 to 460 329 in 2012, 456 003 in 2013 and

405 060 in 2014. Nevertheless, the country is developing a national social protection policy, whichis expected to be completed by 31 March 2015.

Even though Zimbabwe has ratified the eight International Labour Organization coreconventions there is a need to ensure their full domestication. There is also a need to align thelabour legislation with provisions in the new constitution. For instance, Section 65(1) of the newconstitution states that every person has the right to fair and safe labour practices and standardsand to be paid a fair and reasonable wage. Section 65 (3) of the new constitution guarantees allworkers the right to participate in a job action and or strike, with the exception of members ofthe security forces and some civil servants who offer essential services. The new constitutionalso provides for a labour court with jurisdiction over matters of labour and employment asmay be conferred upon it by an act of parliament. Verdicts reached by the labour court can,



however, be appealed at the High Court, which makes the labour dispute resolution process quitecumbersome.

Labour market regulations remain highly fragmented. There are growing calls for the

harmonisation of existing labour market legislation. According to the Global Competitiveness Report2014-15, the restrictive labour regulations remain one of the most problematic factors for doingbusiness. The 2014 State of the Manufacturing Sector survey by the Confederation of ZimbabweIndustries (CZI) also identifies the rigid labour market regulations as one of the binding constraintsto full capacity utilisation in manufacturing.

Although Zimbabwe has a social security system offering social insurance and socialassistance, only a relatively small number of people in formal employment enjoy this protection,leaving the majority of the population not covered. As the economy has continued to weaken,many businesses have closed and employees have been laid off, increasing the number of claims.The underperformance of the economy has seen most companies struggle to meet tax andpension obligations. To ensure the sustainability of pension payments, the government has madea decision to move from the defined benefit scheme to a defined contribution scheme.

Gender equality

The constitution provides for the promotion of the full participation of women in all sphereson the basis of equality with men. Zimbabwe has surpassed the Millennium Development Goalof gender parity in basic education. The Net Intake Rate (NIR) in primary school is 75% for girlsand 72% for boys (Zimbabwe MICS 2014). Literacy rates stand at 97% for women and 98% for men[above the average is quoted as 90.7%].

In terms of the labour market, approximately 60.0% of women are employed, as compared to74.3% of men. Women are largely represented in the agriculture sector but less prevalent in othereconomic sectors.

Zimbabwe has ratified the SADC protocol on gender and development. The representation of

women in parliament increased from 14.2% in 2008 to 32.0% in 2013 in the National Assembly andfrom 33.3% in 2008 to 48.0% in 2013 in the Senate. This represents a total of 34.0% representation.However, the representation of women at the local level has decreased from 19.0% in 2008 to16.0% in 2013 due to the absence of a legislated quota at this level. Zimbabwe ranked 28 in the2014 Inter-Parliamentary Union (IPU) classification of women in parliaments in 188 countries. In2012, the nation was ranked 90 out of 190.

Thematic analysis: Regional development and spatial inclusion

At independence the government inherited an economy that had been developed to promoteminority white interests and supremacy at the expense of the black majority. This resulted inthe creation of a dual and enclave economic structure whereby a small and modern formalsector coexisted with a large and traditional non-formal economy. The formal sector was white-dominated and relatively capital intensive, while the non-formal economy was largely a peasantsector.

The government has adopted a number of development plans to address regional inequalitiesand promote spatial inclusion since independence in 1980. These policies have, however, notsucceeded in dealing with the dual and enclave nature of the economy whereby a shrinkingformal economy coexists alongside a booming non-formal economy. This has been exacerbatedby deindustrialisation. In fact, the dualism and enclavity has become entrenched, as most of thepolicy propositions are aimed at the formal economy. While progress has been made in reducinginter-racial inequalities, the inherited inequalities between and within the urban and the rural


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areas and between administrative distr icts continue to exist. Regional inequalities have persistedand the anticipated spatial integration of the economy has not fully materialised.

One interesting initiative is that of growth points, which was first introduced before

independence in 1978. Since independence, successive governments have continued to implementthe initiative. Growth points can generally be defined as rural or urban settlements which centraland local governments consider as having potential for development and hence requiring supportby further public and private sector investment. The initiative has seen 55 rural districts grantedgrowth point status. However, these growth points have not met stated objectives since seriousdevelopment challenges are still evident in most rural districts. One reason advanced for thisfailure has to do with the process of identifying growth points, which has somehow deviatedfrom the set economic criteria.

At a regional level, in 2001 a Memorandum of Understanding (MoU) was signed betweenLimpopo and the Matabeleland South and North provinces, creating the Trans-LimpopoSpatial Development Initiative (SDI). It seeks to create an economic development corridor fromLimpopo to Victoria Falls, with a radius of 50 kilometres. A number of projects in infrastructure,

agriculture, mining, energy development and tourism have been identified within the area ofthe Trans-Limpopo corridor. Once the corridor is fully operational the potential benefits includea one-stop border post in Beitbridge, the development of food processing industries and coalmethane gas mining in Lupane, the refurbishment of the Joshua Mqabuko Nkomo and VictoriaFalls international airports, as well as the Matabeleland Zambezi Water Project. However, manyof the projects have not yet been implemented. Challenges facing Bulawayo, once the industrialhub of the country, could be addressed if projects under the SDI were fully implemented.

The new constitution stipulates that not less than 5% of the national revenues raised inany financial year must be allocated to the provinces and local authorities as their share in thatyear. However, the necessary legislation and regulations to enforce this are not yet in place.Some of the reasons for the failure of spatial inclusion include the lack of effective participationby key stakeholders and the lack of independent institutions to correct market failures, promote

innovation, and reward risk taking.The government should prioritise strengthening institutions engaged in social dialogue and

promoting entrepreneurship. It should also encourage developing skills and vocational training,with specific measures to empower and support women, youths and SMEs and provide accessto affordable credit. Lastly, the government should promote rural development and help SMEsparticipate in Global Value Chains (GVCs).

Zimbabwe Economy Out Loook 2015_gb_2015

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