By Motoki Aoki
Long the pariah in Sub Saharan Africa’s economic integration, Zimbabwe has recently made an effort to re-engage with the global community. In February 2015, the EU lifted its 12-year sanction and resumed aid to Zimbabwe. In June, after a decade-long freeze, an IFC delegation visited Harare to seek ways to reinvigorate Zimbabwe’s private sector and help the country’s economy continue trending upwards after it shrank by nearly 40 percent from 2000 to 2008. After what was essentially a lost decade, leaders in Zimbabwe are now seeking long-term, inexpensive funding for the country’s economy and undercapitalized firms. They have found willing partners in multilateral institutions.
The Political Landscape: The Root of Economic Underperformance
Zimbabwe has rich human capital, characterized by a high adult literacy rate of 86.5 percent. It is the political landscape, however, that Zimbabwean chief financial officers specify is the largest risk to business performance. Recognized as the world’s oldest leader, President Robert Mugabe will run for another term in 2018, when he will be 94 years old. Mugabe’s economic policies have been notoriously inconsistent and unfriendly to FDI.
Recently there has been positive news on this front: The IMF reported in April that Zimbabwean authorities have made progress in implementing macroeconomic and structural reform programs, despite economic and financial difficulties. If Mugabe’s administration were to mobilize its political capital into the full implementation of Zim-Asset, Zimbabwe’s development strategy centering on the private sector, it could regain its credibility with international creditors and investors and substantially accelerate growth.
How beneficial was the IFC’s June visit to Zimbabwe?
Because Zimbabwe owes at least $10 billion in external debts, the government is unlikely to receive further funding from the World Bank and the IMF. Partnering with the IFC may be Zimbabwe’s only option to restore its private sector. The IFC’s strategy is not clear at this moment, yet IFC’s director for East and Southern Africa Cheikh Oumar Seydi, a leader of this trip, said it would look into the possibility of providing support in the finance, infrastructure, and agribusiness sectors.
Targeting the financial sector is an effective way to increase access to funding for many undercapitalized firms in Zimbabwe. Addressing the credit needs of priority sectors like agriculture will be key to leveraging the country’s potential. If an agreement with the IFC is reached, an IFC line of credit to the financial sector can be further used to collateralize trade and finance facilities at various international banks. Investing in infrastructure using public-private partnerships will also enable key industries to adopt technologies that will enhance efficiency and help to export their products.
In agriculture, tobacco is Zimbabwe’s most valuable agricultural commodity, accounting for 26 percent of agricultural GDP and providing a livelihood for some three-quarters of the county’s population, including farmers, traders, and agro-processors. However, tobacco cannot feed Zimbabwe’s population. Once known as Africa’s breadbasket, Zimbabwe is now suffering from a chronic food shortage and putting pressure on its economy by relying on food imports. As the IFC cannot invest in the tobacco industry, investing in cereals– a staple food for the majority of the population– would have beneficial impacts on the country’s economy, health, and inclusive development.
According to the World Bank, agricultural productivity in Zimbabwe declined mainly due to poor seed and fertilizer availability as well as the negative effects of hyperinflation, price controls, and reduced private agro-dealer activities in rural areas. The IFC’s focus on the private sector and improving productivity will create more value-added products, provide greater job opportunities, and secure income for small and medium-sized farmers.
The way forward
A thriving private sector is a critical driver of economic growth and IFC financing can be an impetus for Zimbabwe’s revival. By investing in the private sector, the IFC can help businesses innovate, build internationally competitive industrial sectors, and create jobs.
To seize the opportunity of the IFC’s visit to Zimbabwe, the country’s leadership should affirm a strong commitment to improve the business climate, provide accountability for its financial system, and build fiscal capacity to manage its arrears from multilateral lenders. If done properly, Zimbabwe’s successful reengagement with the IFC can chart a new way forward to unleash the country’s potential.
Motoki Aoki is a researcher with the Project on US Leadership in Development.