CHAPTER 4 THE ECONOMY: IS ZIMBABWE OPEN FOR BUSINESS? “The lesson from history for governments is that you cannot manage the economy with propaganda. In fact, you can engage in all the propaganda you want but if the macroeconomic fundamentals are weak, the exchange rate will expose you.” Dr. Mahamudu Bawumia, May 2012. In both his November 2017 and August 2018 inauguration speeches, President Emmerson Mnangagwa outlined that opening business space and fostering economic development would be mainstay of his administration. Along with this was a spirited call for foreign direct investment (FDI). Government launched a Transitional Stabilisation Programme 2018-2020 which contains the government's plans to ensure financial stabilisation, stem out liquidity challenges, and attract FDI and improve the balance of trade to boost economic growth. The state-run Sunday News of 27 May 2018 reported: “Since taking office last November, President Mnangagwa’s business-oriented administration has signed deals worth US$16 billion, most of which are greenfield investments, while others are projects that were stymied by the old administration.” 8 Zimbabweans are yet to see the material benefits of the so-called mega deals. factor markets. The fiscal deficit was an estimated 10.7% of GDP in 2018, compared with 12.5% of GDP in 2017, financed mainly through domestic borrowing. In 2018, the government proposed addressing the unsustainable budget deficit with strong fiscal consolidation measures. The fiscal deficit was driven mainly by election- related spending, civil servant salary increases, and transfers to the agricultural sector. Total external debt was an estimated 45.3% of GDP in 2018, down from 53.8% in 2017. The current account deficit was an estimated 3.7% of GDP in 2018, with merchandise imports continuing to exceed exports, putting pressure on the supply of urgently needed foreign exchange and making it critical to diversify exports.9 Macroeconomic Performance On the global scale, Zimbabwe's economic collapse showed up in every international rating of the economy. In the World Bank’s Doing Business 2018 index, Zimbabwe ranked 159 out of 190; in the Cato Institute’s Economic Freedom of the World listing for 2018, Zimbabwe ranked 127 out of 162; in the World Economic Forum’s Global Competitiveness Report of 2018, Zimbabwe ranked 128 out of 140; in the Heritage Foundation’s Index of Economic Freedom 2018, Zimbabwe ranked 174 out of 180; and in the Bertelsmann Stiftung's Transformation Index (BTI) 2018, Zimbabwe ranked 113 out of 129 countries. However, according, to the African Development Bank African Economic Outlook (AEO) 2019 macroeconomic assessment of Zimbabwe, the economy performed better than expected in 2018, expanding by an estimated 3.5%, driven by agriculture, supported by relatively peaceful elections. Cash shortages and the three-tier pricing system coupled with foreign exchange shortages continued to constrain the goods and The fiscal deficit was an estimated 10.7% of GDP in 2018, compared with 12.5% of GDP in 2017 8. “$16 billion deals bear fruit”, The Sunday News, 27 May 2018, https://www.sundaynews.co.zw/16-billion-deals-bear-fruit/ 9. African Development Bank Group “Zimbabwe Economic Outlook” https://www.afdb.org/en/countries/southernafrica/zimbabwe-economic-outlook/ 17 STATE OF HUMAN RIGHTS REPORT ZIMBABWE 2018