eBusiness Weekly
Kudzanai Sharara
Unemployment and underemployment represent the biggest risk for doing business in Zimbabwe, according to the latest findings published this week by the World Economic Forum in its new publication, “Regional Risks for Doing Business 2018 report”.
Unemployment is the situation of actively looking for employment but not being currently employed while underemployment reflects the underutilisation of the productive capacity of the employed population. By analogy, underemployment will include persons who even though they have a job, they are willing and available to work “better” or “more adequately”.
The problem of unemployment and underemployment is, however, not peculiar to Zimbabwe as 22 out of 34 countries that ranked “unemployment or underemployment” first, were from sub-Saharan Africa. South Africa, Zambia, and Tanzania are some of the countries that joined Zimbabwe as having unemployment and underemployment as the biggest risk of doing business.
No other region recorded anything like this level of consensus among respondents (largely drawn from the private sector), highlighting the profound challenges that the region faces on this issue, particularly in light of the demographic changes that lie ahead.
“The UN projects that the working-age population of Africa will more than double to 1,6 billion by 2050, a trend that could open new economic opportunities for the continent, but only if jobs can be created in huge quantities.”
According to World Bank data, Africa’s official unemployment rate is just 7,3 percent. However, this figure masks deep-seated problems. More than 70 percent of the region’s workers are in vulnerable employment — compared to a global average of 46 percent — and 37 percent are in extreme working poverty, which is defined by the International Labour Organisation as income of less than $1,90 per day.
Five people in sub-Saharan Africa are still disproportionately likely to enter the labour market at a young age, and the region has the world’s lowest levels of access to higher education — this combination is likely to perpetuate a cycle of low skills and working poverty, reads the report.
Failure of financial mechanism or institutions
Another risk aspect that affects Zimbabwe is that of “failure of financial mechanism or institutions”. Admittedly, there have been particular fragilities in the Zimbabwean financial sector with lending for example, dropping below optimal levels. The loan to deposit ratio for Steward Bank for example is lower than 25 percent for the half-year to September 2018. Overall, the loan to deposit ratio for the banking sector stood at 43,53 percent for the half-year to June 2018 against a benchmark of 70 percent.
While the Reserve Bank of Zimbabwe is on record saying the country’s financial service sector is safe and sound, there is nervousness about the health of the sector, which has not been able to execute some of its functions, most importantly that of money creation and financial intermediary.
Another big risk for Zimbabwe cited by businesses is “failure of national governance”. This risk ranked in the top five for 18 countries, including Africa’s largest economies Nigeria and South Africa.
However, the report, without directly mentioning Zimbabwe, noted interesting political developments during the second half of 2017, with a number of African leaders stepping down, allowing more reform-minded successors to take their place. The report covers the period when Zimbabwe was under former president Robert Gabriel Mugabe.
President Mnangagwa has, however, been preaching reforms since his inauguration back in November 2017 and his efforts if supported and implemented by his lieutenants, will reduce the said risk of failure of national governance.
Fiscal crisis
Economic vulnerabilities are also reflected in a number of other risks cited by businesses. “Fiscal crisis” ranked number four in Zimbabwe and number five across the region.
The country’s debt-to-GDP ratio has increased significantly over the past decade and was measured at 77, 60 percent at the end of last year as the country continued to borrow to fund various projects and operations. The country is in debt distress with debts standing at over $16 billion part of which is owed to international financial institutions such as the World Bank and the African Development Bank.
The country is still grappling with twin deficit problem — fiscal deficit and external deficit. According to Finance and Economic Development Minister Mthuli Ncube the country’s budget deficit for January to September is $2,5 billion against target of $715,4 million.
He said the deficit was financed by Treasury Bill and also through the overdraft to the Central Bank, which currently is about $2,2 billion or so resulting in the highlighted fiscal risk.
