ZIMBABWE’S ranking in the Global Competitiveness Index (GCI) compiled by the World Economic Forum, declined one place to 125th out of 140 countries. In the 2015/16 report published on Wednesday, Zimbabwe is ranked 15 from the bottom — the lowest since 2012/13 when it was 12 places from bottom.
Financial Matters:World Economic Forum
The country’s overall score of 3,45 (out of seven) is marginally lower than 3,54 in 2014. Because both the number and the selection of countries ranked varies yearly, a more meaningful comparison is one with the country’s overall score out of a possible seven on the index.
The GCI score for 2015 is the second highest Zimbabwe has recorded since the revised index was first published in 2005, an improvement of 28% on its record low of 2,77.
The most problematic factors for doing business in Zimbabwe over the past three years include access to finance, which remains far and away the main problem, followed by policy instability and restrictive labour regulations. This survey was undertaken before the July 17 Supreme Court ruling on labour retrenchments described by the International Monetary Fund (IMF) as labour market liberalisation.
A year ago, this commentary noted that business executives were becoming increasingly concerned about corruption and restrictive labour regulations and this is reflected in the current survey.
Surprisingly, inadequate infrastructure slips down the list somewhat but this will likely be reversed in 2016 given the sharp recent deterioration in electricity supplies and likelihood that conditions will get even worse before there is an improvement, especially if the region is hit by an adverse El Nino effect in 2015/16.
With a 45% overvalued exchange rate Zimbabwe is going to find it very difficult to accelerate economic growth especially given the make-up of its export portfolio at a time of depressed commodity prices.
The belief that growth will be re-ignited by foreign direct investment, diaspora inflows and offshore credit lines is naïve. It is clear from the report that the country needs far-reaching structural and institutional reforms, allied with much higher levels of investment, especially in infrastructure, than in the last 25 years. This is not quick-fix territory, but structural reform and transformation.
On a purchasing power parity basis, the preferred metric used in the report income per head in Zimbabwe today is one-third lower than in 1990 and some 37% below its peak in 1998. During the 1990s, per capita incomes increased a mere 0,44% a year and the best period of growth by far was that during the Government of National Unity (2008-2013) when incomes recovered and grew 6,7% annually. Since then, growth has slowed to a crawl (0,6% a year) and is likely to remain so.
As noted in last year’s review of Zimbabwe’s rankings, the country’s weak long-run economic performance that goes back to the 1960s will not be reversed by minor policy changes. The necessary reforms are much more deep-seated and structural than currently contemplated by the government or even the IMF, both of whom are focusing on narrowly technical, short-run changes that fall far short of what is needed, as is evident from the report.
The current policy focus on foreign capital to “rescue” the economy is misplaced. At a time of global economic turmoil of the kind experienced since the global financial crisis in 2008, reliance on foreign capital is a high risk strategy, the more so if it is not accompanied by deep-seated domestic reforms to reduce such foreign dependence and create a platform for self-sustained economic development.
The 2014 conclusion, written a year ago, bears repeating. The overriding conclusion from the report is that sweeping, fundamental reforms that extend beyond the norms of economic policy are needed.
In particular, Zimbabwe needs to pay far greater attention than in the past to institutional renewal and reform. Improved policies are unlikely to be designed by weak institutions and even less likely to be efficiently implemented without institutional reforms.