International News

World Bank warns Zim

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The World Bank has warned Zimbabwe that there is a need for a miraculous shift in the business environment to achieve an ambitious goal of becoming an upper-middle-income country by 2030 amid indications of a difficult operating environment.

Speaking at the launch of the Country Economic Memorandum (CEM) in the capital yesterday, the World Bank Country Manager Zimbabwe, Marjorie Mpundu said: “Achieving such an unprecedented target, Zimbabwe will require dramatic improvement in the policy environment to address the binding constraints to productivity growth.”

The suggestion comes at a time when local industry has been battling painful headwinds, including an overregulated environment, liquidity crunch, volatile currency and exchange rate, and crippling power cuts, among many other problems.

Mpundu said these have hampered business productivity.

“Formal firms face several business environment constraints that limit productivity. These include macroeconomic instability and price and exchange rate distortions which have led to limited funding to finance new investments,” Mpundu said.

She added: “Inefficient allocation of resources has discouraged the entry of new, potentially productive firms, forced productive firms to exit, and allowed the survival of less competitive firms. Informality and low learning from international markets also are among the key drivers behind weak productivity performance.”

Yesterday’s launch of the CEM, was the first since 1985 and its release proposes pathways that Zimbabwe can undertake to increase the productivity of the sizable informal sector and boost trade to scale up the productivity of the formal sector.

“Increasing productivity is essential for reaching upper middle income economy status, raising incomes, and improving livelihoods.

Countries that have transitioned to upper middle income economy status have seen an improvement in the economy with extreme poverty falling, more jobs created, and easier access to health, education, and social protection,” Mpundu said.

The CEM seeks answers to two questions: what can be done to scale up productivity of the informal sector and how to boost trade to scale up productivity of the formal sector, she said.

Zimbabwe will need to reach productivity growth rates of 8% to 9% per year in the next seven years to transform into an upper middle-income economy, Mpundu said.

Zimbabwe’s economy has been highly informalised.

And the World Bank said creating more and better jobs in the formal sector will require policies that tackle obstacles to both formal and informal productivity growth.

Boosting trade can also scale up the productivity of the formal sector.

Although there are significant opportunities to reboot the country’s participation, Zimbabwe is yet to successfully integrate into global value chains.

Though export performance has been improving, exports have been dominated by a few primary products and concentrated in just a few destination markets.

Lowering tariffs on intermediate and capital goods and tackling trade facilitation issues would ensure that the country benefits significantly from the implementation of the African Continental Free Trade Area.

“We are currently at the midpoint of implementing the National Development Strategy 1 in our journey towards Vision 2030.

“We are continuously taking stock of our achievements and our misses with a view of taking remedial measures where necessary. In doing so, we rely on both primary and secondary data from all sources including from development partners like this CEM. It provides us with useful diverse information that will shape our next course of action,” Finance and Economic Development minister Mthuli Ncube said.

The six key pathways proposed by the CEM to boost productivity and quality jobs include ensuring and sustaining macroeconomic stability; removing distortions and misallocation of resources; enhancing the productivity of the informal sector and linkages with the formal sector; encouraging the formalisation of informal firms; supporting export diversification and participation in global value chains; and taking greater advantage of regional trade integration.

Stella Illieva, the bank’s senior economist, said Zimbabwe has a strong economic foundation which it can ride on. This entails excellent human capital, rich resources and recent policy reform efforts. She said Zimbabwe has to remove exchange rate distortions and create conditions for productivity-enhancing incentives- a necessary condition to transition into an upper middle-income economy.

Illieva said achieving and maintaining macroeconomic stability in transition countries was predicated on the quality of institutions and maximised the contribution of structural transformation on productivity.

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