Constrained private sector growth has limited the number of quality jobs. Only 33 percent of workers in Zimbabwe receive a salary, well below peers in the region and globally, suggesting a limited share of quality jobs despite workers possessing relatively higher skills. Labor productivity in informal firms is only a fraction of the labor productivity in similar formal firms, negatively affecting overall productivity. Moreover, competition from informal firms has tended to lower the productivity of formal firms by around 24 percent on average, compared with firms that do not face such competition.
Dealing with the challenges of informality requires sustained economic growth, and a comprehensive and consistent policy package that tackles the root causes and consequences of informality. The CEM offers two pathways to tackle informality while placing priorities on removing policy distortions and regulatory burdens in the short run:
- enhance productivity of the informal sector and its linkages with the formal sector;
- and support formalization by encouraging the transition of informal firms to the formal sector and the establishment of new formal firms.
Zimbabwe’s economy remains highly concentrated with few firms and industries, and a small number of export products—mostly minerals and tobacco—generating the bulk of foreign exchange revenues. The agriculture sector continues to retain a sizeable share of production and employment in the economy and the bulk of lending, with significant government support and intervention. At the same time, higher value-added sectors, such as manufacturing and high-productivity services, employ a smaller share of workers and have a lower share of lending.
Supporting export diversification and participation in global value chains (GVCs) can boost productivity and contribute to jobs. Zimbabwe’s export performance has been declining over the past two decades and is still lagging in terms of the quality of trade-related infrastructure, such as certification systems and border risk management. Fully implementing the WTO Trade Facilitation Agreement would have positive provisions that could be leveraged to improve trade-related infrastructure and new technologies will have a huge impact on how these trade-related services are delivered.
Additionally, Zimbabwe charges significantly higher broadband prices than comparator countries. If Zimbabwe is to move up the value chain and focus on advanced manufacturing and services, the country needs to address service challenges such as unaffordable internet access.
There are two pathways for boosting trade to scale-up productivity:
- support export diversification and participation in GVCs—such policies will involve developing linkages between downstream and upstream firms through supplier linkage programs and also incentives that allows R&D expenditures to be offset against taxes;
- enhance participation in regional integration—these policies will involve implementing the tariff reductions required within the African Continental Free Trade Area agreement.
Achieving Zimbabwe’s vision 2030 and the ambitious goal of becoming an upper middle-income country (UMIC) by 2030 will require significant acceleration of productivity growth and focus on ensuring the creation of quality jobs.
The success of the four pathways mentioned above depends on the implementation of measures following two pathways:
- ensure and sustain macroeconomic stability—to remove price and exchange rate distortions, and create conditions conducive for productivity-enhancing investments, and to address infrastructure gaps that increase the cost of production.
- ensure a level playing field for private sector-led growth—to enhance efficient allocation of labor and capital resources across sectors and firms, reduce distortive regulations and enforcement that benefit a few firms at the expense of more productive firms.
