The southern African country, currently gripped by political turmoil, also needs a period of policy certainty to get its finances back on track, the Overseas Development Institute’s Judith Tyson has said.

She believed the current political crisis, which has seen the army place president Robert Mugabe under house arrest, is dwarfed by the deepening economic problems for the resource-rich country.

Tyson, research fellow in the International Economic Development Group at ODI, told PF International: “The economic crisis has been going on for a number of years, particular since the hyper-inflation in 2008-09. But it has got a lot worse in the last 18 months due to mismanagement”. 

She added: “They need to be much more open to a market-led economy and allow business to conduct business much more freely and fairly.

“They also need policy certainty, because there has been continuous changes around the indigenisation policy as to what the requirements should be.”

Mugabe signed the Indigenisation and Economic Empowerment Bill into law in 2008, which requires black Zimbabweans to own at least 51% of all companies.

Indigenisation – which has mainly been directed at foreign companies – has notoriously involved the appropriation of land and more recently manufacturing and mining assets.

Tyson said these have included cash reserves, which has resulted in more economic disruption and undercut investment.

“We need to see the rule of law and more pro-business policy which is market-led,” she reiterated. 

However, potential reformers like the former finance minister, Patrick Chinamasa, have been marginalised. Chinamasa was sacked for alleged disloyalty to the ruling Zanu-PF party, adding to policy uncertainty.

Chinamasa was pushing for more contact with the IMF and external financing for the cash-strapped country and, according to Tyson, he was fired because this was deemed a challenge to Zanu-PF’s economic orthodoxy.

Tyson explained that Zimbabwe’s economy has been in crisis for many years but it has got worse in the last 18 months.

“The economy has essentially collapsed,” she said, listing issues such as a significant drop in employment, growth in a black market, power shortages and a liquidity crisis where the government has been unable to source enough dollars for the economy.

Tyson added: “The problems have become very acute and I think there was significant speculation in the last six months that it wouldn’t stabilise and people were expecting a complete economic collapse, including the banking system.

“The current crisis has fed into that because there is a significant level of discontent among the population and a lot of people have been pointing responsibility at Mugabe’s government.”

Following the hyper inflation peak of 2008-09 the economy became dollarised which Tyson said made it “very uncompetitive” because the dollar has appreciated driving inflation and making exports less competitive.

Another key area of concern is Zimbabwe’s financial sector, it is unclear if this sector is sound or bankrupt, according to Tyson.

A lack of confidence in the economy is also fueled by political interference in official statistics, the ODI said because of political “adjustments” the figures from the government were not credible.

The ODI said Zimbabwe had “great potential” as a nation with one of the world’s largest reserves of platinum and significant sources of gold and diamonds but just needed a “sound” government.