Macroeconomic instability, limited investment in infrastructure, inefficient public services, and the misallocation of productive resources have been the key drivers of low productivity, informality, and poor trade performance.
High inflation, multiple exchange rates, unsustainable debt levels, and ineffective control over government spending have increased the cost of production, reduced incentives
for productivity-enhancing investment, and encouraged informality.
Underinvestment in sectors where Zimbabwe has a comparative advantage and inefficient investment in high-skilled sectors have contributed to low TFP.
In an increasingly competitive environment, Zimbabwe’s ability to compete
successfully, both in domestic and foreign markets, requires upgrading and modernizing equipment and technologies.
The misallocation of resources creates distortions that lead to a sub-optimal allocation of resources across firms thereby reducing aggregate productivity.
Productivity is reduced by discouraging the entry of new potentially productive firms, force productive firms to exit, and allow the survival of less competitive firms. This is usually done through subsidized loans and exchange rates, price controls, and the uneven implementation of regulations.
As a result, the cost of production remains high, with the manufacturing sector operating at below 50 percent capacity.
High informality is a further drag on productivity levels, as informal firms have lower productivity levels than formal firms.
In addition, the productivity of exporting firms in Zimbabwe is lower than in peer countries and limited expansion of external trade has meant low learning from international markets.
The CEM proposes six key pathways to boost productivity and quality jobs. These six pathways contain several key reforms that will need to be implemented if Zimbabwe is to achieve its objective of achieving UMIC status. The pathways are as follows:
- Ensure and sustain macroeconomic stability;
- Remove distortions and misallocation of resources;
- Enhance the productivity of the informal sector and linkages with the formal sector;
- Encourage the formalization of informal firms;
- Support export diversification and participation in GVCs; and
- Take greater advantage of regional trade integration.
The implementation of the first two pathways is a necessary condition to ensure the success of the remaining four pathways. Therefore, the modality and sequencing of the required reforms will need to be agreed upon and discussed with broad stakeholder involvement.
The remaining chapters of the CEM focus on structural policies identified in pathways 3 to 6.
Lastly, there is certainly scope for additional research and analytical work in other reform areas that are important for Zimbabwe’s development and successful transition to UMIC status.
These include upgrading infrastructure and strengthening institutions, for example, which should be part of a continuing effort to design, review and adjust structural reform efforts.
The informal sector has been the largest employer in Zimbabwe over the past four decades, suppressing productivity growth and long-term development. The size of the informal sector in Zimbabwe is significantly higher than its peers.
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