The Zimbabwe Independent

Zim’s economic outlook for 2021

- Victor Bhoroma ANALYST

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. e present above-normal rainfalls are expected to alleviate national food shortages.

Last year, the World Food Programme (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 worsened 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.

e government has just instituted a nationwide curfew (6pm-6am) and strict lockdown measures to curb the recent surge in Covid-19 infections and deaths. e country registered 15 265 infections and 380 deaths as of January 4, 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. e Internatio­nal Monetary Finance (IMF) expected the Zimbabwean economy to decline by 10,4% in 2020 before registerin­g a 2,5% growth in 2021. e World Bank projected a 10% contractio­n in 2020, before a recovery to 2,8% 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 characteri­sed 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.

ese 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:


e 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 nine months of 2020 compared to the same period in 2019. Overall mining export receipts for 2019 were US$3,2 billion. In terms of employment, over 80 000 workers are employed directly and indirectly in the sector. e mining sector has been struggling to ramp up production due to challenges in raising capital and attracting foreign investment. e 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.


e 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). e 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$600 million in the past two seasons with maize, wheat and soya ranking high on strategic imports. e yield for the 2020/21 farming season promises to be better due to above normal rainfall and increase in planted hectrage. e coming on board of the agricultur­al commoditie­s exchange is expected to improve viability for farmers, provided the exchange operates free from government interferen­ce.


Capacity utilisatio­n 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-industrial­ise, 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. e contributi­on of industry to GDP has fallen below 11% recently due to the decline in agricultur­al productivi­ty and other policy related challenges stated earlier. e multi-currency regime has however helped manufactur­ers through stabilisin­g 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 2021 and improvemen­ts in consumer confidence will result in over 10% growth in capacity utilisatio­n. 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 e 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%. is means that there is a shadow economy in Zimbabwe where millions in foreign currency is traded on a daily basis. e shadow economy will inevitably be impacted by strict lockdowns, but will recover faster than the formal sector due to the opaque nature of trade. Informalis­ation will continue unabated due to high and complex tax systems in the country.

e 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. e 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 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.

Bhoroma is an economic analyst and holds an MBA from the University of Zimbabwe. — or Twitter: @VictorBhor­oma1.

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e mining sector is Zimbabwe’s key export earner.
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