Zim needs more reforms for growth: World Bank
ZIMBABWE’S ambitious plan to attain an upper middle-income country status by 2030 may turn out to be pie in the sky unless the country shifts the gear and adopts mercantilist China’s dramatic growth trajectory of the late 1970s, a new World Bank report has shown.
Buoyed by the short-lived international goodwill which came after the ouster of long-time former president Robert Mugabe, Zimbabwe’s new leader Emmerson Mnangagwa promised a break with the past and undertake several political and economic reforms with the hope of normalising relations with the international community while growing the economy.
The World Bank says Zimbabwe, currently battling a floundering economy and a toxic political environment, needs more reforms to anchor average economic growth rate of 9% over the next eight years to reach this milestone against current estimates of 3%.
But a series of policy missteps, high levels of corruption, effects of climate change and lower foreign direct investment compared to regional peers has seen Zimbabwe’s economy wobbling since Mnangagwa took over in 2017.
Mnangagwa’s administration, which came to power on the back of a military coup which forced Mugabe to step down after 37 years of iron-fisted rule, also promised to transform the debt-ridden low-income economy into an upper middle-class economy.
While this aspiration has the potential to lift millions of Zimbabweans from abject poverty, current and future growth rates show that this ambition may be pie in the sky, if things remain unchanged.
The International Monetary Fund this week cut Zimbabwe’s gross domestic product growth forecast for 2022 to 3% from an initial estimate of 3.4%.
The World Bank sees Zimbabwe’s economy registering modest 3.6% growth, in contrast to the government’s forecast of stronger growth driven by mining and agriculture.
Marjorie Mpundu, the World Bank country manager, said Zimbabwe, currently struggling to extricate itself from a debt overhang, requires more neo-liberal policies to achieve strong economic growth which can help the southern African nation to transition into a stronger economy.
“First, achieving the Vision 2030 goal will require dramatic increase in economic growth, particularly of productivity growth,” Mpundu told delegates attending a historic hybrid Country Economic Memorandum (CEM).
“Our simulations show that productivity in Zimbabwe will need to grow by 8-9% per year, much faster than the current growth rates. This is a significant challenge that requires some drastic changes in the policy environment. Lessons from other countries have shown that transition to an upper middle income economy took place in three tracks—macroeconomic stability, good institutions, and structural transformation. Of these three, macroeconomic stability was a necessary condition for the success of the institution building and restructuring of the economy.”
The last CEM for Zimbabwe was done in 1985. The World Bank produces CEM reports in all countries that the financial institution works in. These reports take a long-term view of economic developments in the country and recommend policy options to support inclusive economic growth and poverty reduction.
According to the World Bank, middle income countries (MICs) are a diverse group by size, population, and income level. They are defined as lower middle-income economies – those with a GNI per capita between US$1 036 and US$4 045; and upper middle-income economies – those with a GNI per capita between US$4 046 and US$12 535 (2021).
Middle income countries are home to 75% of the world’s population and 62% of the world’s poor. At the same time, middle income countries represent about one third of global GDP and are major engines of global growth.
Zimbabwe, Mpundu added, has several constraints to productivity growth which include: limited financing for private investment and public infrastructure; high informality; high cost of production; and weak learning from international trade.
“The root cause of these constraints is partly attributable to macroeconomic challenges and inefficient allocation of resources. Price and exchange rate volatility and distortions and unsustainable debt levels have limited investment opportunities and reduced the productivity of exporters. Inefficient allocation of resources across firms and sectors has hindered growth of formal firms, delayed structural transformation, and encouraged informality or survival of less competitive firms,” she said.
“Zimbabwe has significant unrealised potential with its skilled labour force and abundant natural and mineral resources. In fact, in terms of skill levels, Zimbabwe fares very well compared to its aspirational peers in the region – the countries that have already transitioned to upper-middle income status. We believe that the six pathways proposed in the CEM will help Zimbabwe in its quest to unleash this potential.”
The World Bank said while Zimbabwe was able to recently regain lower middle income country status, growth outcomes were far from remarkable.
China, now the second-largest economy by size, became an upper middle income nation in 2015 after nearly four decades of reform and opening up.
The country’s GDP growth hit 9.9% and 7.8% from 1978 to 2010 (high-speed growth) and from 2011 to 2016 (moderately high speed growth) respectively on average.