By John Rapley

SINCE the fall of Zimbabwe’s longtime leader Robert Mugabe in November 2017, the new president, Emmerson Mnangagwa, has been making it known to the world that his country is finally “open for business.” At the moment, per capita income is contracting, the fiscal deficit has surpassed a tenth of GDP, and the official currency trades on the informal market at a premium of about 30 percent. There are certainly signs of genuine intent coming out of Harare that the new government wants to reintegrate Zimbabwe into the global economy and make life easier for business, but the question remains: Will what it calls the country’s “new dispensation” be more than cosmetic? 

The Mugabe regime essentially destroyed the country’s economy. During the first two decades after its independence in 1980, Zimbabwe was considered an African success story, with a stable regime overseeing steady if unspectacular economic growth—real incomes growing an average just over one percent a year, although some years recorded double-digit gains. Then, at the turn of the millennium, Mugabe adopted an anticolonial platform and a nationalist economic policy reminiscent of earlier experiments by other countries that had achieved autarky, and began to seize land occupied by white farmers. In the two decades since, Zimbabweans have watched their average incomes decline by a third. Even that figure is not the lowest Zimbabweans have seen, as the Government of National Unity (GNU) brought about a period of recovery between 2009 and 2013. When the opposition party, the Movement for Democratic Change (MDC), entered government for the first time in 2009, in a coalition with Mugabe’s ZANU-PF, per capita income had more than halved over the previous decade. After four years of recovery under the GNU, Mugabe swept back to office in 2013, and the rot resumed. 

Yet on the streets of Harare, it’s hard to spot the signs of an imploding economy. The roads are congested, the store shelves are brimming with fresh produce, and the restaurants are respectably busy. Tales of woe abound, with vendors in the markets complaining that nobody has money and businesspeople bemoaning the lack of foreign exchange. But press them a bit and you’ll often get a sheepish smile, followed by an admission that they have some kind of economic activity or cash reserve off the books somewhere. In fact, when you peer beneath the hood of the Zimbabwean economy, what you discover is less an economy that has collapsed and more one that has withdrawn from formal circulation. In a recent study, the International Monetary Fund reckons that among the world’s countries, only Bolivia has a larger informal economy than Zimbabwe, where it estimates more than half of economic activity now occurs beyond the government’s purview.

That’s a huge problem. The informal economy may be alive and well, but production units remain small-scale (precisely because they aim to stay off the radar). That limits investment in new technology and prevents scaling up for greater efficiency. Moreover, any firm that needs to source inputs, especially imported inputs, struggles to find foreign exchange at a reasonable price. The result is a manufacturing sector that was once an African powerhouse but is now mostly idle: accounting for a fifth of GDP at the time of independence, manufacturing now barely accounts for a tenth, an underperformer in an underperforming economy. 

There is more money in Zimbabwe than meets the official eye. Estimates in the financial sector vary, but as much as three-fourths of the country’s remittances came in last year through formal channels. The rest was sent in ways that escaped official detection. Equally, it’s not uncommon for a middle-class family to have a stash of dollars somewhere, although there are no official figures to illuminate how widespread this practice is. Unfortunately, stuffed mattresses have no multiplier. This lack of liquidity creates a vicious cycle: people with foreign exchange hesitate to place it in their bank accounts because they can’t then withdraw more than a bit at a time (assuming there’s even cash available). And because they don’t deposit it the money cannot flow and the restrictions on withdrawals remain. Zimbabweans queue for hours outside banks, and typically by mid-morning the banks have run dry.

Bringing all the concealed money, and the economic activity underlying it, back into formal circulation could thus yield a rapid rebound. Many of the conditions that would support a Zimbabwean renaissance remain present. Despite years of political maladministration, for example, the country retains good bureaucratic capacity, a wealth of natural resources and potential energy supplies, and a human capital stock that is among the best on the continent: on the education component of the UNDP’s Human Development Index, Zimbabwe outperforms its rank, and even during the crisis years when it fell on all other indicators, its performance in mean-schooling continued improving. 

Were the government to successfully persuade both its citizens and foreign investors that it really had put behind the economic policies of the Mugabe era, a rapid rebound would be possible. When the GNU dollarized the economy in 2009, the rapid restoration of confidence caused money to rush in, and the country’s foreign reserves surged. Subsequently, the imposition of controls on withdrawals depressed confidence. But were these controls lifted again, it seems reasonable to expect another rapid influx of money into the banking system. With the manufacturing sector operating at about 40 percent capacity, renewed access to inputs could very well yield a 50 percent increase in output: such rapid increases occurred in previous episodes of Zimbabwean recovery, such as under the GNU. That would drive employment, sending more consumers into the markets. Exports could resume, local production could substitute for imports (further improving the foreign currency flow), and new players—mining firms and farmers who fled the land occupations—could expand operations to help meet the rising demand. All things told, Chinese-level growth rates aren’t out of the question—if only because they’re not unusual in Africa, where economic reform can lead to a sharp reentry of activity into formal circulation: last year, three of the world’s fastest-growing economies were in Africa, and the conditions are ripe for Zimbabwe to join that list in future years.