Africa Economy: Zimbabwe pushes reforms in attempt to revive faltering economy

The Zimbabwean government has been implementing a raft of reforms in recent months in a bid to improve the business climate and attract foreign investment to revive the ailing economy.

Prospects for the economy are gloomy this year in the wake of a devastating El Nino induced drought and weak commodity prices on the international market.

Zimbabwe's economy is predominantly agriculture based, with the sector contributing roughly 20 percent to Gross Domestic Product.

A knock on the sector has ripple effects to the economy, which is currently on a slow down and expected to grow by a mere 2.7 percent this year from 1.5 last year.

Analysts now doubt the growth target will be achieved in the wake of the drought.

Dismayed by the continued poor ranking of the country on the World Bank Ease of Doing Business Index, the government last year adopted an aggressive action plan strategy that will see several reforms being implemented in the next few months to improve the doing business environment.

Zimbabwe is ranked 155 out of 189 economies on the WB ease of doing business report for 2015, an increase of 16 places from 2014.

This was after the country recorded two positive reforms in 2014 regarding credit access and protection of minority investors.

"In Zimbabwe the credit bureau improved credit reporting by beginning to provide credit scores," the WB said in a report last October.

"Zimbabwe strengthened minority investor protections by introducing provisions allowing legal practitioners to enter into contingency fee agreements with clients," it added.

A month before the report was released, the Zimbabwe government had adopted a 100-day rapid results action plan to support the slowing economy and improve the investment climate.

The 100 days expired Dec. 21, 2014 and notable achievements were recorded under the plan.

These include a reduction in the number of days it takes to register a property from 36 days to 14 days and reducing time taken to pay taxes from 242 hours to 160 hours.

The government is targeting the first quarter of 2016 to achieve key reforms that will improve the ease of doing business environment.

Some of the targeted reforms are to reduce the time it takes to start a business from the current 90 days to 30 days and reduce time for obtaining construction permits from 448 days to 120 days.

Improving the time it takes to process investment applications will entail conversion of state agency - Zimbabwe Investment Authority - into a truly one-stop investment centre.

It was therefore critically important that Zimbabwe removed all impediments to investment attraction, said Gibson Chigumira, the executive director of economic think tank, the Zimbabwe Economic Policy Analysis and Research Unit.

"The growth of any economy is underpinned by investment both local and foreign so a key policy then is to make sure that the country removes all impediments to investment attraction and these reforms by government are meant to do that," he said.

The country has suffered a major dip in foreign direct investment (FDI) in recent years which critics blame on policy inconsistence and an indigenization and empowerment law which compels foreign firms to give 51 percent stake to locals.

However, government recently amended the law to make it "friendly" to both current and prospective investors.

Though not entirely removing the requirement for foreign firms to give majority shareholding to locals, the new changes now give affected companies more time of up to 20 years (for those in energy sector) to comply with the law and an option to comply through empowerment credits.

Zimbabwe attracted 600 million U.S. dollars in FDI in 2015, a figure that is insignificant considering the enormous challenges confronting the economy.

The figure, however, is a remarkable increase from a low of 40 million dollars FDI recorded at the peak of an economic crisis in 2008.

Apart from running a cash budget that has seen it struggling to pay its workers on time, government is confronted with the challenge of low productivity in the economy due to capital and power shortages as well as reliance on old technology.

On recommendations of the International Monetary Fund, the government last year completed a civil service audit aimed at flushing out ghost workers to cut government wage bill by half to 40 percent of total revenue.

As part of measures to improve the business environment, government last year also instituted labor reforms and amended the Labor Act to make it less costly for employers to lay off workers when necessary.

"Whereas this is intended to be a win-win outcome for business and labor in the true spirit of smart partnerships, the labor reforms are part of the raft of policy measures and legislation being pursued by government to improve the ease of doing business environment," President Robert Mugabe said in August last year.

As the government pushes with the reforms, there is also need for government officials to speak with one voice on policy issues to avoid sending wrong signals to investors, said a government economist who is not authorized to speak to the media.

"Those reforms should be supported by activity on the ground which is supportive of those initiatives.

"What we have seen of late is that while government pursues those reforms, there is a lot of policy discord on the ground especially on the issue of the indigenization law which then negates the good work being done to improve the business environment," said the economist.

The economist was referring to different policy pronouncements on the law by finance and indigenization ministers recently.

The two ministers have since agreed on the changes to the indigenization law, which they jointly announced to the press this week. Endit