Opinion: Recurring, imminent risks for Zim economy

Unending power cuts threaten economic growth.

AFTER registering a 3,5% growth in 2022, the Zimbabwean economy is largely expected to remain resilient and record minorgrowth in 2023 despite some local and global geopolitical headwinds. The World Bank expects the Zimbabwean economy to register a 3,6% growth in 2023, while the International Monetary Fund (IMF) projects that the country will register a 2,8% growth.

The major drivers for the growth emanate from the rally in mining commodity prices, which earned the country US$5,63 billion in 2022.

The mining sector now contributes 76% of total export earnings and the figure could be higher if illicit trade in minerals could be accounted. It is estimated that gold worth at least US$1,5 billion is smuggled out of Zimbabwe annually by Politically Exposed Persons (PEPs) and international dealers with links to the state.

The same illicit trade also characterises other commodities such as diamonds and black granite. Zimbabwe is also benefitting from an increase in loans fortobacco production and an increase in remittances,which remain key in driving domestic demand.

Despite the resilience, the economy faces imminent risks. Some of the risks have been recurring in the past 2 decades showing that absence of reform, political will and good governance have come at a cost to economy growth.

Recurring power cuts

Zimbabwe currently has five power stations which have a combined generating capacity of 2400MW. Years of mismanagement, underinvestment, and corruption in tenders for power projects have dragged supply backwards. The country has been struggling with power cuts from as far as back as 2003 with acute shortages in 2006, 2009, 2011, 2013, 2019, 2022. The power supply deficit is only getting worsein each year. The country is producing a maximum of 700MW against a nationaldemand of approximately 1600MW.

This leaves the country with a deficit of900MW which is being partly met through prepaying and importing a maximum of 400MW from regional peers such as Zambia, Mozambique, and South Africa. Heavy consumers of electricity such as mines and manufacturers are feeling the heat as cost of production increases due to usage of diesel powered generators in production. Applications by the mining sector in the short term (before end of 2023) now exceed 2100MW. Total energy demand in the country is expected to rise to at least 3800MW by 2025.

This means that power cuts will be a recurring feature for more than five years. The risk can only be persistent because the government is not setting aside any funding for power generation (as is the case in Agriculture subsidies) and addressing tariff or bureaucratic issues that impactprivate sector investment in power generation.

The true cost of the power cuts is immeasurable with loss of production time especially for small businesses who cannot cope with alternative energy. The increase in the cost of production, job retrenchments, loss of export markets and loss of foreign currency through importing more Diesel far outweigh the cost of investment in power generation.

As a long-term solution, the government must undertake to add at least 300MW to the grid by repowering Bulawayo, Munyati and Harare power stations than simply waiting for external financiers for less than US$300 million required for the three projects. The government cannot subsidise electricity tariffs while not investing in power generation at the same time as that is a recipe for failure.

Disputed elections, political unrest

Zimbabwe has been stainedbydisputed elections from as far back as the year 2000 when the opposition won 48% of the parliamentary seats on offer in that year. Since then, every election is characterised by arrestsof political leaders, involvement of uniformed forces, state sponsored violence, loss of civilian life, allegations of rigging and endemic political unrest which costs the economy its goodwill and stability. Ordinarily elections should not cripple the economy, create instability, or bring economic risk, but those are the realities confronting business.

 One of Zimbabwe’s Achilles heels is that politics has led the economy for far too longinstead of it being the other way round.

A peaceful election and political stability are key underwriters to policy stability, long term planning and strong institutions that support investment and sustainable economic growth.

Foreign exchange inefficiencies

Zimbabwe has not had a consistent currency and foreign exchange policy for decades.The prevailing foreign exchange regimedoes not encourage willing buyers to offload foreign currency freely or bank sales proceeds.

 The central bank foreign currency allocation platform (the auction system, launched in June 2020) has failed to instill confidence in the market. Since theintroduction of the allocation mechanism, US$3,7 billion had been allotted as of December 31 2022.

 At the heart of the failure is the fact that the auction allocation mechanism does not follow the basic principles of a Dutch auction market on which it was modeled.

Similarly, the interbank market which was reintroduced in May 2022 (After the August 2008 and February 2019 failed attempts) has not helped to bring willing sellers on the market due to evident manipulation by the central bank.

Businesses must bear with foreign exchange losses on converting foreign currency to the Zimbabwean Dollar, difficulties in remitting dividends, high production costs caused prices pegged through speculative tendencies, rejection of the local currency for certain product lines and a dollarized economy where virtually all inputs must be procured in foreign currency when revenue ispartially in local currency.

Since it is an election year, these constraints will remain for at least six months as significant reforms in government have been shelved. Beyond that, the country may formally redollarise.

Illicit financial outflows

It is estimated that Zimbabwe loses over US$1,5 billion every year through Illicit Financial Flows (IFFs) that could potentially benefit the country in terms of tax revenues, foreign exchange supplies and downstream payments in various value chains. Illicit flows take various forms from minerals smuggling, foreign currency externalization (in hard currency), overstating foreign supplies and tax evasion by businesses.

History has proved that millions are siphoned off from the local economy in the run up to the harmonised elections (mostly by foreign business owners and PEPs).

The outflows are largely motivated by heightened risk of electoral disputes, knee jerk policy changes and political instability that may follow elections.

After the 2013 elections, at least US$800 million was externalised from the local economy through various offshore transactions and clandestine methods. This heralded the loss of foreign currency from the local economy which became pronounced in 2015.

This year is special in that billions already circulate in the informal sector, illicit trade and smuggling of minerals has reached an all time high due to collusion between state actors, foreign nationals and private businesspeople.


The complex tax environment, low levels of confidence in the country’s banking sector and frequent changes in monetary policies are leading to high levels of informalization. Majority of the country’s Small to Medium Enterprises (SMEs) are not tax compliant while formal organisations are finding ways to evade taxes.

This means that the shadow economy in Zimbabwe transacts more in terms of monetary value than the formal economy. The shadow economy will inevitably weigh heavily on economic recovery efforts as tax revenues dwindle and the treasury is forced to institute more taxes. With a growing need for public services such as basic education, health care, social service, road infrastructure, clean water, and amenities; heightened information is the biggest threat to public service delivery.

To manage this, the government would need to simplify its taxation model and create robust enterprise systems that monitor business transactions in real time and enforce tax compliance through the justice system.Similarly, there needs to be deliberate efforts to protect formal businesses from informal players and incentivize the compliant few to see the benefits of paying taxes.

Other recurring risks include climate change induced droughts which impact millions of citizens due to Zimbabwe’s overreliance on rain fed agriculture.

It is a worrying trend that after every decade, the country experiences a severe drought with notable years being 1982,1992,2002, 2012 and2019. Despite sinking billions in agriculture subsidies, Harare is a net importer of food for the past two decades and the country’s import bill is dominated by grain imports with maize imports exceeding 400 000 tonnes in 2022.

Finally, the change to adopt a blended inflation rate will do little to dampen inflation in the local currency or the market led redollarisation process.

Zimbabwe’s economy remains very fragile and highly susceptible to policy induced risks. Revolvingrisks clearly show that the government has demonstrated no political will to resolve fundamental issues over the past decades.

  • Bhoroma is an economic analyst. He holds an MBA from the University of Zimbabwe — [email protected] or Twitter @VictorBhoroma1

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