Zimbabwe's economic competitiveness plunges: study

Zimbabwe's dollarized economy has developed a competitiveness gap that requires "internal devaluation" by way of systematic cost cutting measures to redress, a recent study on the economy's cost driver analysis says.

The study done by the Zimbabwe Economic Policy Analysis and Research Unit (ZEPARU) says in the absence of the option of currency devaluation, the only available option for Zimbabwe to close the competitiveness gap is to adopt internal devaluation strategy.

"This will involve a systematized cost cutting measure across all the sectors of economy, incorporating a reduction in employment costs in both government, the private sector, parastatals, local authorities and other public institutions," said the study released Tuesday.

A review of all costs of goods and services, taxes and direct and indirect and regulatory costs should also be considered to make Zimbabwe a low cost producer of goods and services, the study added.

Zimbabwe adopted the multi- currency system in 2009 after its currency was rendered worthless by hyperinflation.

Among the factors that have been identified as cost drivers affecting competitiveness of the country's economy are high costs of labor, power, water, finance, transportation, tariffs and trade taxes, taxation and information technology.

The study said that the country's poor trade performance, worsened by the depreciation of the South African rand against the U.S. dollar, had adversely affected Zimbabwe's competitiveness.

South Africa is Zimbabwe's main trading partner, accounting for nearly 75 percent of exports and 48 percent of imports.

And since adoption of the multi-currency system, Zimbabwe is facing increased competition from South African imports since a weaker Rand has made South African imports cheaper.

The study said Zimbabwe's economy needs to adjust to the realities of dollarization and undertake "internal devaluation" that will ensure a downward adjustment in production costs faced by businesses.

The study noted that amid the restrictions imposed by dollarization (specifically, the inability to regain competitiveness through a currency devaluation), the Zimbabwean economy cannot afford the restrictions that are in place in its labor, foreign investment and international trade policies that are increasing the cost of doing business and should therefore work towards reducing their cost burden. Endi