The World Bank has issued a call for Zimbabwe to expedite its long-promised cuts to the cost of doing business to ensure that the current economic recovery maintains its momentum. In its latest Zimbabwe Economic Update released on Tuesday, the Bank forecasts a 5% growth for the economy in 2025 following a remarkable rebound of 6.6% this year.
This growth has been primarily driven by a recovery in agriculture, heightened investments in mining—particularly in sectors like gold and lithium—alongside iron and steel manufacturing and service industries. However, despite these positive indicators, the benefits of this economic upswing are not being felt universally across the nation.
While extreme poverty in Zimbabwe peaked at 49% in 2020, it has since improved but still affects a staggering 42% of the population. The disparity highlights the urgent need for the government to expedite business reforms that could facilitate a more equitable distribution of economic gains.
Victor Steenbergen, the World Bank’s Senior Country Economist for Zimbabwe, emphasized the importance of the government shifting its focus to enhancing the ease of doing business. “Now that the macroeconomy is improving, the government’s position in re-prioritizing efforts to improve the ease of doing business is more than necessary to enhance the overall growth and eventually translate economic growth into lasting economic benefits,” he stated.
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Despite the government’s announcement of various regulatory fee cuts in recent months, the implementation of these changes has faced significant delays. The World Bank strongly recommends that these reforms be enacted within the next 12 months.
The Importance of Business Fee Cuts
The compliance costs associated with red tape have become prohibitively high in Zimbabwe. According to the World Bank, a staggering 70% of informal firms point to lengthy registration processes and steep fees as barriers to formalization—22 percentage points above the average for Sub-Saharan Africa.
Historically, as fiscal support dwindled during periods of hyperinflation, government agencies increasingly resorted to imposing fees and levies to sustain their operations. “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 report notes.
The proliferation of red tape is evident; the number of statutory instruments has more than doubled, climbing from 137 in 2016 to over 300 in 2020. In key sectors like agriculture, businesses are grappling with an average of 28 different legal and regulatory requirements, navigating through interactions with as many as nine ministries and 12 government agencies. Many of these processes remain manual and paper-based, necessitating physical visits to government offices. Alarmingly, some farmers report paying more in taxes than they earn in revenue.
The World Bank cautions that high compliance costs—especially those that exceed a firm’s annual revenue—may lead businesses into unsustainable positions, risking closures and bankruptcies.
The proposed cuts to agricultural levies are expected to provide rapid benefits, with projections indicating reductions in compliance costs ranging from 19% to 94%, depending on the size and sector of the firm.
As Zimbabwe stands at a crossroads of recovery, the emphasis on swift and effective business reforms could ultimately determine the sustainability and inclusiveness of its economic growth moving forward.
