There are however well known dangers associated with resource-dependent growth, and these underlie much of the scepticism about Zimbabwe’s longer-term prospects, as well as much of the concern with diversifying economic activity in Zimbabwe away from natural resources namely mining and agriculture.
Nevertheless, given our current economic structure, Zimbabwe is destined to remain highly dependent on the performance of its mining sector and agriculture sector for many years to come. To sustain strong growth over the medium-to-long term, it will have to ensure that these sectors continue to develop, even as it tries to mitigate some of the risks involved and diversification of the economy.
As a result, sustaining growth in Zimbabwe, a resource-dependent economy will require a stable investment and a climate characterised by the rule of law and respect for property rights. It will also require adherence to sound macroeconomic policies and, in particular, exemplary fiscal discipline. Good fiscal policy cannot eliminate external vulnerability, but it can reduce it significantly. Fiscal irresponsibility, by contrast, will only magnify the effects of commodity price movements, probably leading to boom-and-bust cycles akin to those experienced by many commodity producers in the 1970s and 1980s. Remember Zambia and its copper!
The investment climate will be critical to any effort to foster economic diversification without resorting to the sort of old-style interventionist industrial policies that have failed in so many other countries. Even more than Zimbabwe’s large resource-extraction companies, entrepreneurs engaged in new activities need a stable environment in which to do business. There have been some minimal improvements in the past two years after the signing of the GPA, but businesses are still subject to far too much unnecessary regulation. Moreover, the weakness of the rule of law and the arbitrariness of enforcement mean that regulation all too often serves little purpose except to enrich corrupt bureaucrats.
A more appropriately designed tax system would also help foster investment in non-resource sectors, without necessitating market-distorting state intervention. More generally, diversification can be aided by using the revenues generated by natural resource sectors to maintain low levels of general taxation. Zimbabwe would probably be able to sustain relatively strong growth for some years to come, if it followed the right policies. Unfortunately, the case for optimism on this score has taken a beating over the last 18 months or so. The investment climate has suffered serious damage as a result of arbitrary actions on the part of the authorities, particularly the indigenisation policy, the prosecutors and the rule of law.
When mining of diamonds in Marange, platinum, chrome and gold along the great dyke eventually ceases, the negative effects of a lack of diversification will become evident. If other sectors have not achieved competitiveness on their own, the closure of the mining operation will lead to downturns in all activities which depend directly or indirectly on mining, causing unemployment and dramatic reductions in income. If other sectors, not linked to mining, have been disadvantaged by high local costs for labour and land, the basis for sustainable economic development could be compromised.