ZIMBABWE holds latent potential across sectors such as agriculture, agribusiness, mining (notably energy-transition minerals) and tourism, all of which hinge on private-sector development.
The private sector, including a broad base of small- and medium-sized enterprises (SMEs) and the informal economy, remains the principal engine of employment and job creation in Zimbabwe.
Strengthening this sector is essential to the country’s economic recovery and transformation, with international institutions such as the African Development Bank stressing its role as an “irreplaceable partner”.
A dynamic private sector is required to channel investment into priority areas, enhance value-chain efficiency and advance the economy toward its development objectives.
By generating markets and opportunities, the private sector fosters economic inclusion, supporting social cohesion and broad-based prosperity.
Thus, it was unsurprising that the Zimbabwean private sector, represented by the Confederation of Zimbabwe Industry (CZI) and the Zimbabwe National Chamber of Commerce (ZNCC), recently urged an urgent roundtable with President Emmerson Mnangagwa to advocate for a policy reset after alleging that ministries and regulators had failed to deliver meaningful progress.
According to the pioneering and thought leadership Friday Drinks podcast of August 29, the crisis is depicted by the following:
l A high tax regime, pervasive corruption;
- Diamond mining in Zimbabwe: A story of the people fighting state and corporate human rights abuses and their stranglehold on natural resources
- UZ students arrested for demanding political reforms
- Harare woman suffers victimisation
- Banks agree to scrap charges
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l Chronic power outages;
l Acute water shortages;
l Onerous and costly regulations;
l Unpaid export surrender of around US$176 million;
l Government contractors unpaid to the tune of US$1,2 billion and rising;
l Proliferation of illegal goods and informalisation of industry;
l Now estimated at 76% of the economy; and
l Government crowding out private-sector access to domestic credit markets.
The Friday Drinks panel identified a deepening crisis across multiple dimensions that threaten growth, employment and macroeconomic stability.
The issues cited, from taxation and corruption to energy and water scarcity, regulatory burdens and financial constraints, portray a policy environment that consistently undermines the business climate, effectively starving the goose that lays the golden eggs, the greenback!
In this three-part series, we analyse each of the nine issues, translate them into measurable economic impacts and outline the broader implications for growth, fiscal sustainability, financial stability and social welfare.
In week one, we will study the high tax regime, unprecedented corruption and energy poverty.
In the second week, we will focus on acute water shortages, onerous and costly regulations and unpaid export surrender.
In the third and final week of the series, we will zero in on government contractors remaining unpaid to the tune of US$1,2 billion and this amount rising, the proliferation of illegal goods and further informalisation of industry and the government crowding out private-sector access to domestic credit markets.
The aim of this analysis is to illuminate policy-recalibration pathways that will restore private sector confidence, unlock investment and stabilise the economy.
High tax regime
The high tax regime presents a clear and persistent drag on growth, rooted in fundamental economic logic.
In a small, open economy such as Zimbabwe, where domestic capital markets are shallow and access to long-horizon funding is constrained, tax burdens that elevate marginal costs of production and compress after-tax returns systematically dampen investment incentives for local and foreign investors alike.
Companies face higher hurdle rates for capital expenditure, which short-circuits long-run capacity expansion, lowers potential output and curtails productivity gains that are essential for a dynamic, export-oriented economy.
High and unnecessary taxes also have a tendency of distorting decision-making processes in ways that undermine efficiency and growth.
Take for example, the 2% intermediated financial transaction tax that applies to bank-to-bank transfers, mobile money payments like OneMoney, TeleCash, Omari, InnBucks, Ecocash, etcetera, including internal transfers within financial institutions — it is redundant and has made many a Zimbabwean business and individual, choose to be unbanked and therefore excluded.
This is one of the reasons our Chinese guests, riding roughshod in most sectors of the economy, mostly deal in cash.
Tax complexity, manifested in a web of mindboggling rates, reliefs, exemptions and frequent changes, creates administrative frictions and uncertainty.
This environment incentivises evasion, pushes taxable activity into the informal sector and erodes the tax compliance base.
The result is a misallocation of resources, as the private sector expend scarce management attention on tax planning, rather than productive investment and a drift toward informal money movement arrangements that undermine formal, rule-based competitiveness.
A consequential risk of a high tax regime is competitiveness erosion. When taxes are higher relative to peer economies, export-oriented organisations choose to relocate activities, such as Seed Co did, or downshift value addition to maintain profitability.
Domestic companies facing punitive effective tax rates tend to scale back output, degrade product quality, or abandon niche opportunities that would otherwise drive diversification and resilience.
For sectors that rely on global value chains, even modest tax differentials do shift comparative advantage away from the country, reducing external demand and undermining job creation.
There is a revenue-growth paradox inherent in a high-tax environment. If the tax base contracts due to hollowed-out activity, the state often responds with higher statutory rates or broader surcharges to meet fiscal needs.
Yet this creates a self-defeating loop, where higher rates suppress activity further, shrink the tax base and ultimately generate stagnating or even declining revenues.
In the absence of credible policy anchors, the fiscal authority risks oscillating between revenue ambitions and growth constraints, undermining macro-economic stability and public confidence.
Below are the policy implications of a high tax regime:
Tax consolidation, simplification
The government ought to move toward a gradual consolidation of tax instruments to reduce marginal rates in a coordinated manner.
A simpler regime lowers compliance costs, reduces distortions and lowers the effective tax wedge across the economy.
In addition, it is vital to introduce a streamlined framework for micro- and small to medium enterprises that preserves essential revenue sources while lowering administrative difficulty.
A simplified regime should ideally maintain approximate neutrality between formal and informal participants and avoid punitive penalties that deter formalisation.
Relief for high-absorption sectors
The Zimbabwe Revenue Authority (Zimra) must design relief measures for sectors with strong employment multipliers and high domestic absorption capacity (for agriculture, light manufacturing, logistics and tourism-related services) in order to incentivise expansion without eroding baselines.
The relief measures ought to be tied to measurable outcomes such as job creation, investment in productive capacity, value addition, etcetera so as to ensure that fiscal cost is offset by real gains in growth and inclusivity.
Reform, leakage reduction
Zimra, regularly engaging with key stakeholders, must invest in tax administration to improve efficiency, broaden the tax base and close leakage channels.
This includes digitalisation of filings, real-time data analytics and robust audit processes that deter evasion without increasing compliance burdens on compliant taxpayers.
Deploying artificial intelligence would be beneficial were repetitive tasks are concerned.
In addition, priority ought to be given to the formalisation of incentives, such as expedited licensing, access to credit and participation in government procurement, over punitive enforcement that disproportionately burdens small-scale and informal operators.
Credible, rules-based fiscal policy
The government under the Ministry of Finance, Economic Development and Investment Promotion must establish and adhere to transparent expenditure controls and multi-year fiscal frameworks.
A credible consolidation path reduces uncertainty and anchors expectations around debt sustainability, inflation and exchange-rate stability. Fiscal plans ought to be communicated with clarity for example: Publish explicit revenue projections, expenditure envelopes and contingency mechanisms to reinforce trust in the policy regime.
Spill-overs, social equity
There has to be a recognition that tax policy intersects with financial stability, investment confidence and social welfare.
A well-ordered tax regime supports stable inflation, preserve sovereign creditworthiness and fund essential public goods, while avoiding the unintended distortions that erode private-sector potential.
Furthermore, it is vital to complement tax reform with parallel reforms in energy, water and regulatory environments to create a cohesive framework that fosters growth, employment and inclusive development.
Implications and economic logic:
l Cost of doing business: Corruption imposes non-productive costs like bribes, licence “speed fees” and opaque procurement, activities that elevate the baseline cost of capital and inflate project budgets. Empirically, estimates of governance-related frictions, correlate with higher hurdle rates for capital projects, with cross-country analyses showing a positive relationship between perceived corruption and project cost overruns of 20–40 percentage points on average, after controlling for project size and sector;
l Allocation inefficiency: Politicised or discretionary decisions distort investment allocations away from productive ventures toward rent-seeking activities. Company-level data indicate that higher governance risk is associated with a shift toward less productive, easier-to-navigate sectors and with longer project-financing durations, increasing the probability of funding mismatches and underinvestment in tradable, high-productivity activities;
l Risk premium: Elevated governance risk translates into higher risk premium on borrowing, raising debt-service burdens and curtailing investment. Several sovereign and corporate-borrowing regimes exhibit a premium for governance risk that materialises as wider credit spreads at higher maturities’ costs, reducing the present value of long-horizon investments.
Policy implications for pervasive corruption
- Strengthen governance: Organisations like Zimbabwe Anti-Corruption Commission (Zacc) ought to implement robust anti-corruption frameworks, independent oversight and transparent procurement processes to lower non-productive costs and improve investment efficiency.
- Public-private accountability: For the benefit of key stakeholders, there publication of explicit evaluation criteria for licences, permits and project awards and the deployment of e-governance platforms to reduce discretionary discretion are vital to improve trackability and explainability of decision processes.
- Security of contracts: The rule of law is key in ensuring predictable and enforceable property rights and contract law in order to deter informal extortionate practices. It is also necessary to ensure credible dispute-resolution mechanisms and timely enforcement to lower the effective cost of capital.
Chronic power outages
- Output losses: It goes without saying that regular outages reduce factory operating hours, elevate maintenance costs and depress productivity. Empirical literature consistently links reliability improvements with gains in output per worker and reduced downtime, with estimated annual output losses tied to outage days in the range of 0,5–2% of GDP in severely constrained systems like Zimbabwe.
- Investment deterrent: Unreliable energy is a classic barrier to new capital formation, lowering the present value of long-term projects and discouraging private-sector investment, particularly in energy-intensive manufacturing and export-oriented activities.
- Competitiveness degradation: Energy cost and reliability gaps distort price signals, making domestic production less attractive relative to regional peers. Organisations facing higher energy risk exhibit higher required returns and may relocate energy-intensive activities or adjust sourcing strategies.
Policy implications for energy poverty
- Stabilise generation: The capacity and constraints of Zesa are well documented. Leadership is a key factor. It is vital for Zesa to accelerate diversification of generation sources (hydro, thermal, renewable) and secure creditworthy power purchase agreements so as to prioritise critical transmission upgrades in order to alleviate bottlenecks and reduce outage duration.
- Improve grid resilience: Investing in grid modernisation, loss reduction and enable private generation where feasible, within a transparent regulatory framework is key in addition to implementing performance-based incentives to incentivise reliability improvements.
- Tariff clarity: The establishment of predictable energy tariffs and ensuring that timely settlement of arrears with suppliers to prevent cascading liquidity crises and to preserve investment planning horizons are necessary prerequisites.
Conclusion
In summary, a burdensome tax regime, when poorly designed or inadequately implemented, acts as a brake on investment, competitiveness and long-run growth.
A path to restoration of the goose’s vitality lies in simplifying and consolidating taxes, deploying targeted relief strategically, reforming administration to reduce leakage and anchoring fiscal policy in credibility and transparency.
By aligning tax policy with productivity-enhancing objectives and formalisation incentives, the government will be able to re-create the conditions under which private enterprise flourishes, invests and propels sustainable development.
On the other hand, pervasive corruption raises transaction costs and uncertainty, elevating the marginal cost of capital and shrinking net returns. Bribery, opaque procurement and discretionary licensing distort allocation towards the politically connected and their less productive ventures, reducing total factor productivity.
When governance risk widens, credit spreads and lowers investment efficiency, private sector growth slows, capital deepening stalls and local and foreign direct investment retreats.
Energy poverty compounds the effect by constraining productive hours, raising idle capacity and elevating operating costs. Power outages degrade reliability-adjusted productivity and deter long-horizon investments.
Together, corruption and energy poverty depress potential GDP, reduce competitiveness and entrench informal, low-productivity equilibria.
Ndoro-Mukombachoto is a former academic and banker. She has consulted widely in strategy, entrepreneurship, and private sector development for organisations in Zimbabwe, the sub-region and overseas. As a writer and entrepreneur with interests in property, hospitality and manufacturing, she continues in strategy consulting, also sharing through her podcast @HeartfeltwithGloria. — +263 772 236 341.
