Zimbabwe’s new leadership faces a challenging task. The economy’s backbone is commercial agriculture, which is still recovering from a land reform program in the early 2000s that enabled the government to confiscate large white-owned farms, and resulted in a crash in output of foreign exchange-earning crops like tobacco and cotton. (Tobacco production, the country’s main foreign exchange earner, slumped dramatically between 2000 and 2008.) The land reforms triggered a series of events that spiraled into a major economic crisis and caused formal unemployment to soar to 90%.
Mnangagwa’s first actions in office underscore how important he views economic recovery. Even before announcing his new cabinet, Mnangagwa installed a key reformist, Patrick Chinamasa, as acting finance minister, tasked with tackling corruption and re-engaging with international institutions to unlock funds to ease liquidity shortages.
Revitalizing Zimbabwe’s economy will not be an easy task. The most significant challenge to resolve is the lack of cash in the economy which makes it difficult for consumers to transact and for business to import goods. Without its own currency, Zimbabwe relies on USD for over 90% of transactions, but the collapse in exports means money is in short supply.
Where are the opportunities?
As Mnangagwa’s reforms begin to gradually stabilize the economy, significant opportunities will emerge across an array of sectors and segments – both formal and informal – for companies hoping to expand in this relatively under-served, but high-potential market. Zimbabwe still holds an attractive class of relatively wealthy consumers, including civil servants who have benefited from the Mugabe regime.
On a recent research trip to Harare, we were struck by the business opportunities that still exist in the economy despite the difficulties the country faced in the past several years.
Consumer-facing businesses: Any company that enters the market offering lifestyle and consumer goods products could benefit from demand that has been unmet for years. For example, after opening its first store in 2014, fast-food chain KFC recently opened its fifth branch in the country. South African restaurant chain Ocean Basket also opened in Harare in 2015 to serve the wealthy urban elite. If the middle-class benefits from improving economic conditions and better access to cash, consumer demand is likely to increase.
Lower-income consumers also present a lucrative opportunity. For example, as the country’s formal retail shops were closing down after the political and economic crisis in 2013, and more transactions were taking place in small, informal street shops and stalls, Unilever set up a manufacturing facility in Zimbabwe. The firm told us that, at the time, Zimbabwe was one of the best performing countries for the firm in Southern Africa. Unilever thrives in informal environments by selling smaller package sizes at low unit costs (but higher margins).
Technology: Providers of mobile banking and cash transfer solutions are doing particularly well in the economy due to the country’s multi-currency exchange regime and low availability of U.S. dollars. Recently, Bitcoin has become popular in the country with the digital currency trading at $13,000 USD in October (at the time about 50% higher than Bitcoin’s global price). Consumers use bitcoins to pay for imported cars, among other purchases.
Zimbabwe’s largest telecommunication company Econet Wireless has found success with its online payment platform that helps Zimbabweans manage the challenges of its multi-currency system. Econet makes it easier to get cash change for items cheaper than 1 USD by allowing customers to make small transactions electronically via their mobile phone.
Technology solutions that help accelerate improvements of Zimbabwe’s decaying infrastructure will also be in high demand. By now, Zimbabweans are well versed in using technology innovations to solve their daily life challenges, and any company able to provide them with practical solutions to access financing, rebuild infrastructure, and ease distribution will likely benefit in this environment.
Talent: Zimbabwe has one of Africa’s strongest education systems, and consequently boasts an abundance of high-caliber talent, which means it is relatively easy for companies to find locals to run their operations. For example, Deloitte expanded its Harare office into a central Africa hub due to the strong talent pool. However, in recent years many high-skilled Zimbabweans have emigrated to neighboring South Africa. Given South Africa’s stagnating economy, skilled and experienced Zimbabweans could return home as the political environment stabilizes and employment opportunities for them expand with an improving economy.
Agriculture: A mainstay of the economy, the agriculture sector will be a major priority given its importance as an export sector that brings in foreign currency. Recently introduced reforms to give agricultural firms better access to finance aim to help farmers buy and import equipment to increase their output – and this could be a boon to global manufacturers. Machinery, seeds and irrigation systems will likely witness a surge in demand.
Looking to the longer-term, Mnangagwa’s administration will look to upgrade areas such as the country’s degraded infrastructure and poorly equipped public health system, which have both suffered due to lack of funds. When this occurs, it will drive considerable opportunities for healthcare and construction firms.
However, the government’s immediate priorities are paying down its debts and providing basic services.