The World Bank says Zimbabwe needs to speed up long-promised cuts to the cost of doing business if its current economic recovery is to last.
The Bank latest Zimbabwe Economic Update, released on Tuesday, expects the economy to grow by 5% in 2025, after an estimated 6.6% rebound this year. “Growth is broadbased, supported by recovery in agriculture, increased mining investments (gold, lithium), iron and steel manufacturing, and services,” the report says.
But the rebound is not lifting everyone. Extreme poverty, which peaked at 49% in 2020, has eased, but still affects a significant 42% of the population. That gap shows why Zimbabwe needs to speed up business reforms to spread the growth.
“Now that the macroeconomy is improving, the government’s position in re-prioritising efforts to improve the ease of doing business to improve Zimbabwe’s private sector growth and competitiveness is more than necessary to enhance the overall growth and eventually translate economic growth into lasting economic benefits,” says Victor Steenbergen, the World Bank’s Senior Country Economist for Zimbabwe.
Over recent months, government has announced a slate of regulatory free cuts, but has delayed making them law. The World Bank recommends that government completes the changes within the next 12 months.
Why business fee cuts matter
Data shows how costly red tape has become. According to the Bank, 70% of informal firms cite long registration times and high fees as barriers to formalising, 22 percentage points higher than the Sub-Saharan Africa average.
Government agencies increasingly turned to fees and levies to fund themselves when Treasury support collapsed during hyperinflation. “Given limited fiscal space compounded by high inflation and rapid exchange rate depreciation, government agencies have recently relied increasingly on fees, levies, and permits to finance their operations, effectively using regulation as a revenue tool.”
The red tape shows in how the number of statutory instruments more than doubled, from 137 in 2016 to over 300 in 2020. In key sectors such as agriculture, businesses face up to 28 different legal and regulatory requirements, involving as many as nine ministries and 12 government touchpoints. Much of this is still manual and paper-based, needing farmers to show up physically at government offices. In some cases, farmers are paying more in taxes than they make in revenue.
The Bank warns: “If compliance costs are high (especially higher than a firm’s annual revenue), the business may be operating at a loss even before considering other expenses like wages, rent, and materials. This situation is unsustainable and would lead to firm closure or bankruptcy.”
The proposed cuts to agriculture levies alone could deliver quick wins. “These measures are projected to reduce compliance costs by 19 to 94% , depending on firm size and sector,” the Bank says. – NewZwire
