Zimbabwe’s Economic Transformation

The Three Pillars of the Economy

The economy is composed of three main segments that, while interconnected, operate quite independently. The first is the formal economy, which is estimated to contribute around US$50 billion annually to the GDP. This sector supports regular employment for over a million adults, with half of them working in the public service. However, the public service is significantly larger than necessary and consumes a substantial portion of the national budget.

The second segment is the informal economy, which is widely believed to be larger than the formal sector. It employs the majority of the adult population and plays a crucial role in sustaining the country’s livelihoods. Despite its importance, the informal sector often goes unnoticed and underappreciated.

The third segment is what I refer to as the grey economy. This sector is dominated by white, brown, and black oligarchs who control significant resources and operate under the radar. While not always illegal, this sector often involves criminal enterprises.

Reforms for the Formal Economy

In an ideal scenario, the budget for salaries and pensions in the public service would be reduced to 35% of the national budget, which would equate to 20% of the formal GDP. Top civil servants and heads of the armed services would receive 80% of what their private sector counterparts earn, ensuring they can live decently on their salaries. Staff numbers would be drastically reduced.

The formal economy should operate on a market-driven basis with a domestic currency that is undervalued to stimulate exports and discourage imports. Exchange controls would be abolished, and three-quarters of state-run agencies that charge for their services and are accountable to no one would be closed down. Domestic monopolies would be forced to compete or face open imports to ensure effective competition.

Legal services must be honest, professional, and capable of serving the country effectively. The Constitution and all human, political, and property rights need to be recognized and enforced. The Reserve Bank should be placed under a completely independent board to ensure it operates properly as the bank of last resort and regulator of all financial institutions.

The Informal Sector: A Vital Component

The informal sector is dynamic, thriving, and competitive, providing for the majority of the population. During a recent visit to Mbare, I was amazed by the scale of operations there. On 500 hectares of tightly packed enterprise, the turnover runs into billions every month. The stock on site is enormous, and you can buy anything. In the middle is a branch of OK Bazaars, which was in poor condition with little stock and staff outnumbering customers.

Despite this, the informal sector is orderly, well-managed, and clean. Produce is fresh and delivered daily from across the country and even neighboring states. There is virtually no theft, and prices are fixed by consensus. Manufacturing, furniture, and light steel structures are also present in the area.

For example, I needed a water tower for my home and found it at Mbare for US$500, delivered within five hours. In contrast, a formal sector industrial plant quoted me US$1600 with a six-week delivery time.

In the same area, I found a motor workshop specializing in maintaining small taxis from Japan. You could drive in at 08:00 and collect your vehicle with a new engine at 16:00 for US$350. A valet service was available for US$5 per vehicle, and meals were affordable at US$2 in a makeshift restaurant.

Building Boom and Rural Contributions

There is a building boom underway with perhaps a million homes under construction. Many of these are decent homes built by informal sector builders. I built an extension to my home for US$75,000, which would have cost four times as much if I had hired a contractor. It was designed by an architect.

In rural areas, there are 700,000 small-scale farmers and nearly the same number of small-scale miners producing chrome and gold. Nearly all of this is informal, yet they produce substantial quantities of bananas, small grains, maize, beans, potatoes, vegetables, and oilseeds. There are approximately 20,000 taxis, and you can call at 3 in the morning and be picked up and taken to the airport 20 km away for US$13, compared to US$40 in a formal sector taxi.

The Grey Economy: A Hidden Powerhouse

The grey economy is a significant part of the economy, with estimates suggesting it may exceed the national budget in value. Grey operators are believed to siphon off over US$2 billion annually from the fuel industry. Dubai purchased 450 tonnes of raw gold from Africa in 2024, valued at nearly US$50 billion. A large proportion of this came from here, with proceeds externalized through money laundering.

Ghana’s experience shows that regularizing the gold industry can lead to significant economic improvements. Our situation is similar, with oligarchs distributing hundreds of motor vehicles and millions of dollars in cash. Some of these individuals have no visible means of support, yet they live lavishly.

Homes with helicopter pads, heated pools, and irrigated gardens are common, but our public education and health systems are in dire straits. We are now one of the most unequal societies in the world, and this cannot continue.