2009 Index of Economic Freedom

Quick Facts

Population:

• 13.2 million

GDP (PPP):

• -5.4% growth
• -5.6% 5-year compound annual growth

Unemployment:

• 80.0%

Inflation (CPI):

• 10453.0%

FDI Inflow:

• $40.0 million

Zimbabwe's economic freedom score is 22.7, making its economy the 178th freest in the 2009 Index. Its score decreased 6.7 points from last year, reflecting significant declines in eight of the 10 economic freedoms. Zimbabwe is ranked 46th out of 46 countries in the Sub-Saharan Africa region, and its overall score is much lower than the world average.

Zimbabwe scores either below or far below the world average in all 10 areas of economic freedom. The country's previously established economic infrastructure has crumbled under a tyrannical and oppressive regime. Zimbabwe's economic climate is hostile to foreign investment mainly because of the failing financial system, which suffers from repeated crises, including government intervention and resource redistribution by angry mobs. Also, the government's desire to expand its control of the economy puts many investments, including property, at risk. Hyperinflation and high national expenditures have crippled the national economy. The government has used the Reserve Bank of Zimbabwe to finance deficit spending and to provide direct loans to state-owned enterprises. The average tariff rate is high, and non-tariff barriers are embedded in convoluted customs requirements. Corruption and lack of transparency are likely to remain high as long as the government maintains its control of the economy.

Background Back to the top

When it became independent in 1965, Zimbabwe had a diversified economy, a well-developed infrastructure, and an advanced financial sector. Zimbabwe African National Union (ZANU) leader Robert Mugabe was elected president in 1980 and has been in power ever since. Mugabe's increasingly desperate attempts to maintain power have included harsh political repression and economic mismanagement that has crippled agriculture, the mainstay of the economy. Social chaos, severe economic decline, and hyperinflation have left Zimbabwe one of Africa's poorest countries, and many Zimbabweans have fled to neighboring countries.

Business Freedom 30.8 Back to the top

The overall freedom to conduct a business is seriously restricted by Zimbabwe's regulatory environment. Starting a business takes more than twice the world average of 38 days. Obtaining a business license takes much more than the world average of 225 days. Closing a business is relatively difficult and costly.

Trade Freedom 50.4 Back to the top

Zimbabwe's weighted average tariff rate was 17.3 percent in 2003. Import bans and restrictions, services market access restrictions, import taxes, government controls on exports and domestic trading of major agricultural commodities, and customs inefficiency and corruption add to the cost of trade. Fifteen points were deducted from Zimbabwe's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 44.1 Back to the top

Zimbabwe has burdensome tax rates. The top income tax rate is 47.5 percent, and the top corporate tax rate is 30 percent. Other taxes include a 3 percent AIDS surcharge on all taxes, a value-added tax (VAT), and a capital gains tax. In the most recent year, overall tax revenue as a percentage of GDP was 49.3 percent. Tax administration suffers from weak collection enforcement.

Government Size 4.6 Back to the top

Total government expenditures, including consumption and transfer payments, are very high. In the most recent year, government spending equaled 56.4 percent of GDP. Political instability has stalled nearly all economic reform activity. The government remains highly interventionist.

Monetary Freedom0.0 Back to the top

Inflation averaged 223.7 percent between 2005 and 2007. The government sets price ceilings for such essential commodities as agricultural seeds, bread, maize meal, sugar, beef, stock feeds, and fertilizer; controls the prices of basic goods and food staples; influences prices through subsidies and state-owned enterprises and utilities; and has begun to arrest traders for not complying with orders to cut prices on a range of products. If Zimbabwe had a positive monetary freedom score, 15 points would be deducted to account for policies that distort domestic prices.

Investment Freedom10.0 Back to the top

While hostile to most foreign investment, the government will consider investment up to 100 percent in high-priority projects with 51 percent indigenous ownership over time. Many sectors are reserved for local'investors, but foreign investors may join with a local partner for up to a 35 percent share. Bureaucracy is non-transparent and corrupt. Expropriation is used to promote 'indigenization.' Foreign exchange accounts are subject to government approval and restrictions. Payments and transfers are subject to government approval and numerous restrictions, and all outward capital transactions are controlled.

Financial Freedom10.0 Back to the top

Government intervention, inadequate supervision, and repeated crises have severely damaged Zimbabwe's financial system. Several banks that collapsed were placed under the Reserve Bank of Zimbabwe's control in 2004. The government has used the RBZ to finance deficit spending and direct loans to state-owned enterprises. Many banks suffer from a lack of liquidity, but the government has begun to tighten regulations and impose stricter capitalization requirements. The government also owns a savings bank and a development bank devoted to financing specific sectors. Political instability, the high cost of financing, and scarce access to credit have virtually destroyed the private sector.

Property Rights5.0 Back to the top

The government's growing control of the economy puts many investments, particularly in real property, at risk. The U.N. estimates that 2005's Operation Restore Order caused more than 700,000 persons to lose their homes, their means of livelihood, or both. Many of these properties had proper titles and licenses. The executive branch strongly influences the judiciary and openly challenges court outcomes. Corruption and expropriation are common. The ongoing redistribution of expropriated, white-owned commercial farms substantially favors the ruling elite and continues to lack transparency.

Freedom From Corruption21.0 Back to the top

Corruption is perceived as pervasive. Zimbabwe ranks 150th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. There is widespread corruption in government. The ongoing redistribution of expropriated commercial farms provides substantial opportunities for corruption. Top officials hand-pick multiple farms and register them in the names of family members to evade the official one-farm policy, and individuals aligned with top officials are allowed to seize land that is not designated for acquisition.

Labor Freedom51.2 Back to the top

Zimbabwe's restrictive labor regulations hinder overall employment and productivity growth. The non-salary cost of employing a worker is high, and the difficulty of firing workers is a disincentive for additional hiring. Regulations related to the number of work hours are rigid.