Zimbabwe suffered serious economic contractions in 2019 and 2020 due to the economic mismanagement, the extended effects of the COVID-19 pandemic, and climate shocks that crippled agriculture and electricity generation. According to the government of Zimbabwe, the economy recovered strongly, growing by 7.8 percent, in 2021 although the International Monetary Fund (IMF) estimates the economy grew by 6.1 percent, thanks to increased agricultural production, high commodity prices, and improved capacity utilization in the manufacturing sector. The government expects the economy to grow by 5.5 percent in 2022 as the negative impacts of COVID-19 subside. International financial institutions also project positive but more modest growth, with the IMF forecasting a real GDP growth of 3.1 percent in 2022. Inflation remained high in 2021, but steadily declined to end the year at 60.6 percent. Authorities attributed the decline to the introduction of a weekly foreign exchange auction system in June 2020 and fiscal consolidation that resulted in near balanced budgets in 2020 and 2021. However, the inflation rate has continued to rise to 72.7 percent by March 2022 due to the negative effects of the Russia-Ukraine war on commodity prices as well as the depreciation of the Zimbabwe dollar. Zimbabwe’s local currency has lost 79 percent of its value relative to the U.S. dollar since the government adopted an auction system on June 23, 2020. A gap between the auction and parallel-market exchange rates has persisted, with U.S. dollars more than twice as expensive on the parallel market.
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 also expropriated 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), finally ending 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 businesses selling in foreign exchange must surrender 20 percent of the receipts to the central bank in exchange for local currency at the overvalued auction rate. Exporters must surrender 40 percent of foreign currency earnings at the unfavorable auction rate.
Zimbabwe owes approximately US$10.7 billion (US$6.5 billion of which is in arrears) to international financial institutions accounting for 71 percent of the country’s GDP. The country’s high external debt (public and private) limits its 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.
Although the United States has a targeted sanctions program against Zimbabwe, it currently applies to only 83 individuals and 37 entities. The U.S. Government imposed sanctions against specifically identified individuals and entities in Zimbabwe, as a result of the actions and policies of certain members of the Government of Zimbabwe and other persons that undermine democratic institutions or processes in Zimbabwe, violate human rights, or facilitate corruption. U.S. companies can do business with Zimbabwean individuals and companies that are not on the specially designated nationals (SDN) list.
After reaching US$745 million in 2018, Zimbabwe witnessed significant declines in foreign direct investment (FDI). According to data from the United Nations Conference on Trade and Development (UNCTAD), FDI inflows into Zimbabwe fell from US$280 million in 2019 to US$194 million in 2020.
|TI Corruption Perceptions Index||2021||157 of 180||http://www.transparency.org/research/cpi/overview|
|Global Innovation Index||2021||113 of 132||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||2020||(D)||https://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita||2020||USD 1,140||https://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
(D) – Information suppressed to avoid disclosure of data of individual companies.