Private sector growth critical for Zimbabwe

Private sector growth critical for Zimbabwe

Zimbabwe has strong foundations for accelerating economic growth.

By Leon Louw, owner of WhyAfrica and editor of the WhyAfrica magazine.  

Despite its many challenges and gradual economic decline since 1995, there are several economic sectors in Zimbabwe that are still competitive regionally and globally.

According to the World Bank the country is still highly competitive in several value chains in agriculture and agribusiness industries, including sugar, cotton, horticulture, meat and dairy.

“Furthermore, tourism and mining of energy transition minerals, including ample lithium reserves, hold significant potential in the short term,” states the report.

To realise this potential though, the World Bank states that Zimbabwe needs to find new ways to capitalise on existing and emerging opportunities for the private sector to drive economic growth and harness the country’s comparative advantages, including its strong human capital and its abundant mineral and natural resources.

Economic context 

Zimbabwe’s economic development continues to be hampered by several challenges. Real GDP is estimated to have grown by 5.5% in 2023, after a 6.5% growth in 2022, due to an expansion in agriculture, mining, and remittances-induced services growth.

Nevertheless, macroeconomic volatility fuelled by monetary instability and substantial exchange rate distortions keeps Zimbabwe’s economic activity below its potential.

The World Bank projects real GDP growth to slow further to 3.3% in 2024, partly reflecting the impact of structural bottlenecks, macroeconomic instability (high inflation and severe exchange rate volatility), an El Niño-related drought, and lower commodity prices.

El-Nino-induced drought will affect most rain-fed crops and may intensify electricity supply shortages.

New currency rejected 

Zimbabwe recently started circulating the Zimbabwe Gold (ZiG), its new currency introduced to halt its continuous currency crisis and economic decline.

The ZiG was introduced electronically in April, but banknotes and coins can now be used. The ZiG is the Zimbabwean government’s latest idea to replace the Zimbabwe Dollar. They have previously even considered a digital currency and gold coins to put a lid on rising inflation.

The ZiG is the sixth currency Zimbabwe has used since the 2009 collapse of the Zimbabwe dollar amid hyperinflation of 5-billion percent, one of the world’s worst currency crashes to date. That set off a chaotic series of events: first the U.S. dollar was allowed as legal tender, then banned, then unbanned.

Finance package to bolster commerce 

Meanwhile, the African Development Bank Group (AfDB) has approved a USD15-million trade finance package for First Capital Bank (FCB) in Zimbabwe to help bolster intra-African commerce in line with the goals of the Africa Continental Free Trade Area.

The package, comprising a USD7.5-million trade finance line of credit and a USD7.5-million transaction guarantee, is expected to catalyse about USD146-million in trade over the next three years.

The line of credit will provide the much-needed hard currency financing to support FCB to close its trade finance gap and expand its trade finance support for Small and Medium Enterprises (SMEs) and local corporates in Zimbabwe.

The transaction guarantee will provide a 100% guarantee to international confirming banks (CBs) for the non-payment risk taken on FCB’s trade finance transactions conducted on behalf of SMEs, and women-led businesses.

According to Tapera Mushoriwa, FCB’s CEO, the USD15-million facility will unlock significant growth prospects for the business community and further drive economic growth.

“The package aims to bolster our trade finance services in Zimbabwe, across Africa, and globally,” says Mushoriwa.

Moono Mupotola, African Development Bank Zimbabwe Country Manager, underscored the strategic importance of the facility.

She says that the facility is expected to support the importation of strategic commodities and promote the integration of Zimbabwe’s economy into regional and global trade markets, which are essential for the country’s growth.

Private sector growth critical for Zimbabwe
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