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Zimbabwe's economic outlook for 2021

08 Jan 2021 at 21:02hrs | Views
Zimbabwe's economy ended the year 2020 on a fairly stable note due to the return of the multi-currency regime and decline in general inflation levels in the market. Headwinds caused by incessant power cuts, ill-timed currency changes, unrestrained money printing, fuel and foreign currency shortages have partially subsided. The present above normal rainfalls are expected to alleviate national food shortages.

Last year, the World Food Program (WFP) estimated that over 8.6 million Zimbabweans (60% of the population) required food aid from the government and the donor community to avert starvation. Starvation levels were also exacerbated by COVID-19 lockdowns, income losses due to high inflation and increase in poverty levels in the country in the last 24 months.

Inflation still remains high at 402% as of November 2020. The government has just instituted a nationwide curfew (6am-6pm) and strict lockdown measures to curb the recent surge in COVID-19 infections and deaths. The country registered 18,675 infections and 446 deaths as of 8 January 2021. However, key economic sectors such as manufacturing, mining, agriculture and retailing will be exempted from the lockdown to ensure limited damage to the fragile economy.

After registering a decline in economic output estimated to be 4.1% in 2020, Treasury expects the local economy to grow by 7.4% in 2021 while creating 151 000 formal jobs in the process. The International Monetary Finance (IMF) expected the Zimbabwean economy to decline by 10.4% in 2020 before registering a 2.5% growth in 2021. The World Bank projected a 10% contraction in 2020, before a recovery to 2.9% growth rate in 2021. Key risks in 2021 include floods, with Cyclone Chalane expected to affect parts of the Eastern Highlands this January.

Furthermore unresolved economic constraints abound such as high levels of public debt (over 80% of GDP), liquidity challenges in the market, hostile investment climate characterized by difficulties in repatriating foreign dividends and heavy tax burden, bureaucracy and systemic corruption in government, command policies that suppress free market pricing and crowd out private sector investment, weak institutions (flawed rule of law, guarantees to property rights, land tenure and governance culture), underperforming state entities and smuggling of precious minerals that cost the country billions in tax revenue. These economic challenges have persisted largely because the government is skirting on the painful structural reforms and policy implementation needed to overhaul the country's economy. As a result of the above, the 2021 outlook for the economy is as below:


The mining sector is Zimbabwe's key export earner contributing 76% of the country's export receipts. Mining exports grew from US$2.1 billion to US$2.4 billion in the first 9 months of 2020 compared to the same period in 2019. Overall mining export receipts for 2019 were US$3.2 billion. The mining sector has been struggling to ramp up production due to challenges in raising capital and attract foreign investment. The country's negative perception, political and economic risks rank high on key constraints. Foreign exchange regulations and constraints to repatriate foreign dividends have also caused a dent to investor appetite in the sector. Despite this, confidence remains high with the rally in Gold price above US$1927 per ounce triggering a stampede in Gold production.
New investments in mining projects are expected to improve the overall output in 2021 and beyond. Projects such as Lithium mining at Arcadia Mine by Prospect Resources and at Kamativi Mine by Zimbabwe Lithium Company (ZLC); Shaft development at Blanket Gold Mine by Toronto Exchange listed Caledonia Mining; Darwendale Platinum mining project by Great Dyke Investments (GDI) and A joint venture for Diamond mining in Chiadzwa between Vast Resources and Zimbabwe Mining Development Corporation (ZMDC). New shareholders have also taken control of old mines with Padenga acquiring a major stake in Pickstone Peerless and Eureka Gold mines; Landela Mining taking control of Shamva and Mazowe Gold Mines; and Sotic Investments acquiring shareholding in Bindura Nickel Corporation (BNC) and Sabi Gold Mine. Key miners such as Zimplats and Mimosa are also developing new mines to improve PGM output in 2020.  


The Agriculture sector is key to Zimbabwe's economic stability in terms of food security, forward integration with the manufacturing sector for the provision of raw materials, sustaining employment for communal farmers and foreign currency earnings (mainly from tobacco and horticulture exports). The sector contributed less than 9% to the country's GDP in 2020. Due to persistent droughts and viability challenges, maize production was 908 000 metric tonnes (MT) in 2020, against national demand of 2.1 million MT for domestic and industrial consumption. Wheat production in 2020 was about 220 000 MT versus national demand of 450 000 MT. Zimbabwe has been importing foodstuffs worth over US$750 million per year in the past 2 seasons with maize, wheat and soya ranking high on strategic imports. The yield for the 2020/21 farming season promises to be better due to above normal rainfall and increase in planted hectrage. Tobacco will remain a key export earner with consistent hectrage and production, surpassing the US$763 million exported in 2020. The coming on board of the Agricultural commodities exchange is expected to improve viability for farmers, provided the exchange operates free from government interference.


Capacity utilization in the manufacturing sector closed the year just above 35% with key constraints emanating from high inflation levels which compressed consumer demand and business incomes, high production costs, lack of capital and investment to re-industrialize, obsolete machinery and loss of market to smuggled imports. Zimbabwe's manufacturing industry has strong backward linkages with agriculture and mining for value addition and beneficiation of raw commodities. The contribution of industry to GDP has fallen below 11% recently due to the decline in agricultural productivity and other policy related challenges stated earlier. The multi-currency regime has however helped manufacturers through stabilizing inflation for production and re-investment purposes. Critically manufacturers now access foreign currency directly from customers thereby reducing the need to source forex from the parallel market. Prolonged economic stability in 2020 and improvements in consumer confidence will result in over 10% growth in capacity utilization. However, COVID-19 lockdowns and trade restrictions are the likely spoilers to industrial growth.

Tourism and Hospitality

Zimbabwe lost over US$800 million in foreign currency earnings from international tourism due global travel restrictions and shutdown in light of COVID-19 restrictions from March to September 2020. International tourist arrivals were projected to plunge by 85% last year and significantly recover in 2021 with the resumption of international flights, opening of land borders and discovery of vaccines that can provide immunity to the pandemic thereby allowing free movement of people. Sadly, the world is experiencing a resurgent pandemic with new strains discovered in a number of Zimbabwe's source markets such as South Africa, Europe, and United Kingdom (UK). Recovery in the tourism sector will take longer than anticipated with international arrivals projected to be below 50% of the 2018 pick. Consequently, Revenue per available room (RevPAR), business activity in resort towns and employment will remain subdued for the better part of 2021.

Small Businesses and informal traders

The biggest beneficiaries of the prevailing multicurrency regime are the informal traders and Small to Medium Enterprise (SMEs) businesses that play a limited role in tax payments and trade in hard currency outside the formal banking channels. A 2018 study by the International Monetary Fund (IMF) discovered that 60% of the Zimbabwean economy is informal, second in the world only to Bolivia's 62.3%. This means that there is a shadow economy in Zimbabwe where millions in foreign currency is traded on a daily basis. The shadow economy will inevitably be impacted by strict lockdowns, but will recover faster than the formal sector due to the opaque nature of trade. Informalization will continue unabated due to high and complex tax systems in the country.

The multi-currency regime has provided a renewed sense of hope for businesses and exchange rate stability in the local economy, even though there is no clarity on government intentions with regards to legal tender in Zimbabwe. The government deliberately allowed Statutory Instrument 142 of 2019 (earlier ban on multi-currencies) to fall away and is collecting taxes in foreign currency through the Finance Act of 2012. Various economic sectors such as mining, agriculture, manufacturing, banking and insurance, real estate and construction will register marginal growth due to currency stability. Household incomes will remain subdued due to limited formal employment opportunities, high inflation levels and uncompetitive remuneration for the employed. Diaspora remittances in 2020 grew to over US$950 million (formal only) and will remain key to supporting the local economy through sustained household demand for various goods and services. South Africa will remain Zimbabwe's key trade partner accounting for over 55% of the over US$4.5 billion in import or export value, while the United Arab Emirates (UAE) will emerge as a key importer of Zimbabwe's Gold and Tobacco. Consequently, the economy will register real growth rate of between 2% and 3.5% in 2021.

Victor Bhoroma is an economic analyst. He holds an MBA from the University of Zimbabwe (UZ). Feedback: Email or Twitter @VictorBhoroma1.

Source - Victor Bhoroma
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