Zimbabwe's economy is fairly developed and well integrated with extensive linkages among the various economic activities. The materials producing sectors are well established and contribute significantly to national output and employment. Manufacturing accounts for 25% of real GDP, while agriculture and mining contribute 12% and 7% respectively. Services make up over 50% of GDP, broken down as: Commerce 17%; Public Administration 10%; Education 9%; Transport and Communications 6%; and other services 5%. The Zimbabwean economy experienced a significant up-turn during 1993 following a good agricultural harvest whose benefits spilled over to other economic activities resulting in a 2% real growth rate. This trend was maintained during 1994 resulting in an estimated growth rate of 4.5%. If this momentum in economic recovery is maintained, then, the outlook for 1995 should be bright, with a real growth of 5% expected.
This economic recovery is attributed to the ending of the 1992 drought which has resulted in more resources being committed to productive activities and greater headway being made in the implementation of economic reforms. The good performance achieved during 1994 was spread through out all major economic activities. Commerce achieved 7% growth, while manufacturing (6%); mining (5%); agriculture and transport (4%) each; construction (2%); and other services (3,8%).
Improvements to the business environment achieved during 1994 also contributed to the economic recovery. The major successes were:
: the elimination of foreign currency restrictions;
: the rationalisation of the previously overvalued exchange rate which is now determined by the market. Current account transactions are now fully convertible;
: substantial drop in the growth of the budget deficit, as a proportion of the Gross Domestic Product through reductions in government's recurrent expenditure;
:reductions in personal, corporate and other forms of tax;
: substantial removal of subsidies and elimination of almost all price controls.
In 1990 Zimbabwe embarked upon export-led economic structural reforms that were designed to create a deregulated market-driven economy by 1995. The economic reforms are intended to improve economic growth and employment through the attainment of higher levels of investment and external trade.
Trade liberalisation is a major component of these economic reforms. Almost all foreign exchange restrictions on repatriation of foreign currency have been abolished. Import restrictions have been completely eliminated and all imports are now entering Zimbabwe without any licensing restrictions. The exchange rate is now determined by the banking system, while the tariff structure is continually being reviewed so as to facilitate trade, while at the same time providing protection where necessary. In addition, a number of incentives designed to encourage exports are in place.
Tax reforms are being undertaken as part of economic reforms with the specific goal of encouraging trade and investment. Corporate and personal tax rates and tariffs are gradually being reviewed downwards. With effect from 1 April 1995, the general nominal corporate tax rates will be reduced from the current 40% to 37,5%. Effective tax rates are usually much lower after taking into account the various tax deductible incentives and other allowances that companies are allowed to claim. Most companies benefit from such tax relief, especially those making new or additional investments. A special nominal corporate tax rate of 10% applies to manufacturing operations located at certain designated growth point areas outside major urban centres.
Following the liberalisation and elimination of various trade; investment; price; foreign currency; exchange rate; labour and other business controls and regulations, Zimbabwe now offers a very competitive business environment.
Zimbabwe's major trading partners are South Africa (19.4%); the UK (10.8%); Germany (6,3%); the USA (7,7%); and Botswana (2,6%). Significant trade also takes place under the auspice of the Southern African Development Community (SADC); the Preferential Trade Agreement of Southern and East African states (PTA) or the Common Market for Eastern and Southern Africa (COMESA); and the Lome (IV) Convention. About one third of Zimbabwe's exports are destined for the regional markets, comprising South Africa, SADC, and PTA/COMESA. The remaining two thirds is shared equally between the European Union and the rest of the world. The pattern is relatively similar for imports although the rest of the world tends to contribute a little more than a third.
Principal products exported by Zimbabwe include unmanufactured tobacco; ferro-alloys; nickel; cotton lint; horticultural produce and fresh cut flowers; and various manufactures and minerals. These are predominantly primary commodities or low value added manufactures. Deliberate efforts are being made through the export-led economic reforms to encourage exports of higher value added products. This has created greater investment opportunities in export oriented manufacturing activities and agro-industries.
Imports into Zimbabwe comprise mostly of machinery and transport equipment; petroleum products; basic and industrial chemicals; and chemical products. These are mostly sourced from South Africa, the European Union, the USA, and Japan. Zimbabwe imports all its petroleum products, chiefly from the Middle East. Imports entering Zimbabwe have grown rapidly since 1991 in response to trade liberalisation measures that have gradually removed all import restrictions within a period of 3 years.
Export processing zones (EPZ) are a recent phenomenon to Zimbabwe. They are expected to be operational sometime during 1995. Generous tax and other incentives are being offered to attract investment into export processing zones. It is anticipated that EPZs will boost investment in export-oriented projects.
The Zimbabwean economy offers all the basic infrastructure necessary to run and facilitate business activities. Finance and banking services of an international standard are available in all major business centres. Although landlocked, Zimbabwe boasts of a free flow of exports and imports. This is made possible by the proximity to South African andMozambican sea ports and the existence of good air, road and rail networks that link major towns as well as neighbouring states. Telecommunications are relatively well developed offering telephone, telex and facsimile facilities. The telephone system is being digitalized. Significant improvements in telecommunication services have already been realised and are expected to continue as the modernisation work progresses. Electronic data transfers to and from the rest of the world is possible through the packet switching system. Adequate water supplies, hydro- and thermal electric power are available.
Trade liberalisation and the deregulation of the controls that governed business activities have dramatically reduced bureaucratic delays. The business environment has thus improved substantially making Zimbabwe an investor friendly country.