Zimbabwe suffered serious economic contractions in 2019 and 2020 due to the extended effects of climate shocks that crippled agriculture and electricity generation as well as a fiscal adjustment, a volatile currency, and the negative impact of the COVID-19 pandemic which led to lockdowns, reduced investment inflows, and broken supply chains. Although the authorities acknowledge the COVID-19 pandemic still presents risks, they project that a favorable balance of payments position, fiscal consolidation, and a good 2020/21 agricultural season will result in a 7.4 percent economic recovery in 2021. International financial institutions also project positive, if more modest, growth. In 2020, inflation peaked at 837 percent in July then remained high but steadily declined to end the year at 384 percent. Authorities attributed the decline to the introduction of a weekly foreign exchange auction system in June 2020. Although the weekly weighted average exchange rate between the Zimbabwe dollar and the U.S. dollar depreciated by 70 percent between June 2020 and February 2021, it remains overvalued relative to the black market. The government aims to reduce inflation to 135 percent in 2021.
To improve the ease of doing business, the government formed the Zimbabwe Investment and Development Agency (ZIDA) in 2020, intended as a one-stop-shop to promote and facilitate both domestic and foreign investment in Zimbabwe. Zimbabwe’s incentives to attract FDI include tax breaks for new investment by foreign and domestic companies, and making capital expenditures on new factories, machinery, and improvements fully tax deductible. The government waives import taxes and surtaxes on capital equipment. It has made gradual progress in improving the business environment by reducing regulatory costs, but policy inconsistency and weak institutions have continued to frustrate businesses. Corruption remains rife and there is little protection of property rights, particularly with respect to agricultural land. Historically, the government has committed to protect property rights but has, at times, resorted to expropriating land without compensation.
The Finance Act (No 2) at the end of 2020 amended the Indigenization Act by removing language designating diamonds and platinum as the only minerals subject to indigenization (requiring majority ownership by indigenous Zimbabweans), thus finally ending all indigenization requirements in all sectors. However, the new legislation also granted broad discretion to the government to designate minerals as subject to indigenization in the future. The government subsequently issued statements to reassure investors that no minerals will be subject to indigenization, including diamonds and platinum.
The government ended its 2019 ban on using foreign currencies for domestic transactions in March 2020. However, the authorities decreed that businesses selling in foreign exchange must surrender 20 percent of the receipts to the central bank in exchange for local currency. Exporters must surrender 40 percent of foreign currency earnings.
Zimbabwe’s arrears in payments to international financial institutions and its high external debt (public and private) of over USD 10.7 billion limit the country’s ability to access official development assistance at concessional rates. Additionally, domestic banks do not offer financing for periods longer than two years, with most financing limited to 180 days or less. The sectors that attract the most investor interest include agriculture (tobacco, in particular), mining, energy, and tourism. Zimbabwe has a well-earned reputation for the high education levels of its workers.
|TI Corruption Perceptions Index||2020||157 of 175||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report||2020||140 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2020||120 of 131||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||2019||-USD 72||https://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita||2019||USD 1,390||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
10. Political and Security Environment
Political parties, labor organizations, and civil society groups sometimes encounter state-sponsored intimidation and repression from government security forces and Zimbabwe African National Union – Patriotic Front (ZANU-PF) – slinked activists. Disagreements between and within political parties occasionally results in violence targeting political party members. Political tensions and civil unrest persist since the end of Robert Mugabe’s rule in November 2017. On August 1, 2018, the army fired upon people demonstrating against the delay in announcing official presidential election results, killing six civilians. In response to January 2019 demonstrations against rising fuel prices, security forces killed 17, raped 16, injured hundreds, and arrested more than 800 people over the course of several weeks. The crackdown targeted members of the opposition political party, civil society groups, and labor leaders. In 2020 and 2021, the government arrested and detained journalists, several leaders of opposition parties, and trade union activists for organizing demonstrations against corruption and allegedly violating bail conditions. Police also arrested three women members of the opposition party, MDC Alliance, including a member of parliament for violating lockdown measures when they demonstrated against corruption and food shortages during the first of several lockdowns imposed on the country to fight COVID-19. They were subsequently abducted from police custody and tortured by alleged security agents. Since then, the government routinely arrests and detains the three leaders whenever they speak out against the government. Political uncertainty remains high. Violent crime, such as assault, smash and grabs, and home invasion, is common. Local police lack the resources to respond effectively to serious criminal incidents. Incidents of violence have typically not targeted investment projects.