Zimbabwe’s economic competitiveness tumbles

07 Sep, 2014 - 06:09 0 Views

The Sunday Mail

THE country needs to move mountains to ensure that the local economy is globally competitive if the report released last week by World Economic Forum (WEF), which saw Zimbabwe’s ranking dropping to 124 out of the 144 economies considered, is anything to go by.

Last year, Zimbabwe was ranked at 123.

The toxic environment that has been precipitated by sanctions from the United States of America (USA) and the European Union (EU) bloc has been a put-off for investors.

Independent estimates suggest that the country has lost more than US$42 billion through sanctions that have been in force since 2001.

Unsurprisingly, foreign direct investment (FDI) into the country slumped to US$410 million in 2013 compared to US$2,1 billion realised in neighbouring Mozambique.

The country’s infrastructure and ability to attract investment has suffered as a result.

According to the World Economic Forum’s Global Competitiveness Report 2014-2015 published on September 2, the overall assessment of the 144 economies that were evaluated were collated from 12 key variables (pillars): institutions; infrastructure; macro-economic environment; health and primary education; higher education and training; good market efficiency; labour market efficiency; financial market development; technological readiness; market size; business sophistication and innovation.

Zimbabwe ranked poorly in terms of labour market efficiency (137 out of 144), which measures the efficient allocation of labour within the economy; goods market efficiency (133), an evaluation of domestic and foreign market competition; and market size (132).

But there are other indices that fared relatively well.

The country ranked 106, 109, 113 and 118 in key pillars such as health and primary education; technological readiness; institutions; and higher education and training respectively.

Working on the age-old economic assumption that there are generally four phases of economic development, the WEF claims that Zimbabwe is still in the first phase, where it is grouped together with countries such as Nigeria, Tanzania, Mozambique, Kenya, Ghana and Malawi.

African countries that are in the second phase are Egypt, Morocco, Namibia, South Africa and Tunisia.

The majority of the developed economies are in phase three, while there is no country is phase four, which is reserved for highly efficient developed economies.

The WEF contends that Zimbabwe’s rankings were dragged by weak public institutions that continue to be plagued by corruption and high Government debt.

Government’s external debt is believed to be more than US$10 billion.

“Public institutions continue to receive a weak assessment, particularly related to corruption, government favoritism, and the protection of property rights (138th), reducing the incentive for businesses to invest.

“Despite efforts to improve its macro-economic environment—including the dollarization of its economy in early 2009, which brought down inflation and interest rates—Zimbabwe still receives a low rank in this pillar (87th), which is characterized by high government debt, a negative savings rate, and low inflation.

“Weaknesses in other areas include health (129th in the health subpillar); low education enrollment rates, with only every second child participating in secondary education; and formal markets that continue to function with difficulty, particularly goods and labor markets, which rank 133rd and 137th, respectively,” read the WEF commentary accompanying the report.

But the sub-pillars or sub-indices of the 12 variables provide an in-depth look at the key performance indicators that need to be improved on.

For example, under the institutions pillar, Zimbabwe is viewed as a less hospitable home for business costs associated with terrorism at 8 out of the 144 economies, while it also has a fair ranking at 31 in terms of fighting organised crime.

Similarly, in terms of accounting standards, the country is gauged at number 38.

The best performance however, is in the country’s annual change in inflation where the country is ranked number one under the macro-economic pillar.

The economy, which has been in deflation since the beginning of the year, only rose in July when the inflation rate gained 0,39 percentage points to 0,31 percent.

But conversely, Zimbabwe is not doing well in mobilizing savings, which are considered to be integral in economic growth as they stimulate demand in the economy.

While savings of more than 30 percent of a country’s Gross Domestic Product (GDP) are considered to be ideal for a healthy economy, the latest statistics indicate that the country’s gross national savings are at -5,7 percent of GDP, a situation that discourages investment.

Also, the quality of the education system is considered highly (43 out of 144).

There are however reservations about the declining rate of secondary and tertiary education enrollment.

Fair marks were scored in other key economic sub-pillars such as the participation of women in the labour force (16 out of 144 and the reliance on professional management (41).

Over the years, the Global Competitiveness Index has been used as an important tool by policymakers of many countries over the years.

Since its first publication in 2005, the Index has become widely recognised as one of the key assessments of global competitiveness as defined by the World Economic Forum.

When viewed together with the recently published Doing Business 2014 SADC (Southern Africa Development Community) report, a co-publication of the World Bank and the International Finance Corporation (IFC), which also indicated that red tape and bureaucracy was negatively affecting domestic investment, the sheer amount of work needed to make the local economic environment attractive becomes apparent.

The report, which considered more than 189 economies – 47 in sub-Saharan Africa, 33 in Latin America and the Caribbean, 25 in East Asia and the Pacific, 25 in Eastern Europe and Central Asia, 20 in the Middle East and North Africa, eight in South Asia and 31 from the Organisation for Economic Corporation and Development (OECD) – put the country’s ranking at 170.

Of the 16 regional economies, the country was perceived to be only better than three countries.

The country has, however, been actively trying to reform the local business environment, including restructuring the local infrastructure in order to make it prime for both local and international investment.

In December, Government launched the One Stop Shop Investment Centre as a deliberate effort to simplify processes and procedures involved in applying for local business opportunities.

Last month, the Zimbabwe Investment Authority, the country’s premier investment promotion body set up by Government in 2007, said tweaking investment laws by adopting an “Omnibus Act” would help foster an investor-friendly environment.

It is hoped that full implementation of ZimAsset, the economic blueprint expected to guide economic growth through 2018, will help rehabilitate the country’s key infrastructure.

See also Zimbabwe Global Economic Competitiveness Index in detail on page

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