Country Report Zimbabwe September 2010

Outlook for 2010-11: Economic growth

After a prolonged period of collapse the economy started to recover in late 2009, albeit from a low base, and this recovery is expected to accelerate in 2010. However, official projections of 12.5% growth in 2010 and an annual average of 15% in 2010-15 are clearly unrealistic; indeed, according to revised forecasts announced by the finance minister in his mid-year fiscal review, GDP will grow by 5.4% this year. Even this is likely to be overoptimistic: national savings are insufficient to fund the necessary investment; flows of foreign capital or investment are running below official forecasts and are unlikely to improve until the political environment improves substantially; and the signs are that agricultural production outside the tobacco sector will have a below-average year. Even assuming that the rains improve and the political situation remains somewhat stable, any recovery in farming will be constrained by the displacement of many farmers, the limited availability of inputs, the ongoing destruction of the commercial sector and the impact of HIV/AIDS; such issues cannot be rectified in the short term. Business confidence is being damaged by the sense of governmental drift, uncertainty over the position of the finance minister and continued confusion over legislation requiring 51% local ownership of all enterprises. The issue of indigenisation is particularly prominent in the mining sector, where it threatens to damage investor interest. All of this suggests that growth is likely to remain constrained to around 2.9% in 2010. Growth should improve slightly in 2011, but much will depend on the willingness and ability of the power-sharing government to pursue policy reforms. If, as seems likely, the administration muddles on, making some progress with reform but remaining deadlocked on the crucial issues, growth will remain well below potential in 2011, at 4.3%. Growth could be even lower if the administration seeks to hold elections, since this is likely to lead to increased instability, investor nervousness and policy drift.

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