Slump in Local Demand Threatens Zimbabwe’s Economic Recovery Prospects

A customer compares prices while shopping at a Pick and Pay shop in East London, in the Eastern Cape province, South Africa, March 17, 2023. REUTERS/Siphiwe Sibeko/File Photo
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Zimbabwe’s economic recovery is facing significant headwinds as a sharp decline in local demand across key sectors casts a shadow over growth prospects.

According to the latest Business Tendency Survey (BTS) released by the Zimbabwe National Statistics Agency (Zimstat), businesses in critical sectors such as financial services, transportation, and hospitality reported stagnant or declining demand during the third quarter of 2024.

The survey, which polled 415 establishments, revealed that 31.4% of firms in financial and insurance activities, 26.7% in transportation and storage, and 21% in accommodation and food services experienced no change or a drop in demand compared to the previous quarter. Zimstat noted that “demand has largely remained unchanged or declined in key sectors,” underscoring the persistent challenges facing the economy.

Eroding Business Confidence

The stagnation in demand has also taken a toll on business confidence. Zimstat reported a decline in confidence indices across all sectors during the third quarter. The financial and insurance sector saw its confidence index drop from -3.3 to -8.6, while the wholesale and retail trade sector recorded a similar downturn.

Economist Tinashe Munemo attributed the decline in confidence to broader structural issues plaguing Zimbabwe’s economy. “The business environment is characterized by high costs of finance, limited access to credit, and inconsistent policy measures,” he said. “These factors undermine the ability of businesses to expand and innovate, which is crucial for driving demand.”

Sector-Specific Challenges

The accommodation and food services sector, a cornerstone of Zimbabwe’s tourism and hospitality industry, reported particularly weak demand. Only 15.8% of businesses in this sector observed an increase in demand, with competition cited as the primary limiting factor.

Similarly, the transportation and storage sector, vital for trade and logistics, faced stagnation, while the construction sector—often seen as a barometer of economic activity—struggled with low technical capacity and subdued order books. According to the survey, 57.4% of construction firms reported below-normal technical capacity, and 52.1% described their order books as merely “normal.”

“Construction is particularly vulnerable to input cost pressures,” said economist and policy analyst Mitchell Dube. “The high cost of materials and limited technical capacity are stifling growth in a sector that could otherwise play a pivotal role in job creation and infrastructure development.”

Cautious Optimism for Q4 2024

Despite the challenges, businesses expressed cautious optimism about the fourth quarter of 2024. Zimstat reported that 51.3% of respondents anticipated an improvement in the general business situation. However, this optimism varied significantly across sectors.

The wholesale and retail trade sector displayed the highest confidence, with 62.7% expecting better conditions, while transportation and storage lagged, with only 42.1% foreseeing improvements. Nevertheless, concerns about competition, high input costs, and limited access to credit continue to weigh heavily on businesses.

Calls for Targeted Policy Interventions

Economists emphasized the need for targeted policy interventions to address the structural bottlenecks hindering economic recovery. Munemo highlighted the importance of improving access to affordable credit. “The Government and financial institutions must work together to lower the cost of borrowing. Without this, businesses will struggle to invest in capacity and innovation,” he said.

Dube pointed to the role of fiscal and monetary policies in stabilizing input costs. “Policymakers must focus on reducing inflationary pressures, particularly in critical sectors like construction. Subsidies or tax incentives for material imports could provide immediate relief,” she suggested.

A Roadmap for Recovery

Zimstat’s findings paint a sobering picture of Zimbabwe’s economic landscape but also provide a roadmap for recovery. The agency emphasized the need to address structural bottlenecks, particularly access to affordable credit and high input costs, to stimulate growth and restore confidence.

As Zimbabwe navigates its post-pandemic recovery, the government faces mounting pressure to create a conducive environment for businesses to thrive. The BTS findings serve as a stark reminder of the work that remains to foster sustainable and inclusive economic growth.

While businesses remain cautiously optimistic about the coming quarter, economists warn that decisive action is needed to translate this optimism into tangible growth. “Without decisive action, the risk is that optimism will remain just that—without the tangible growth needed to transform the economy,” Munemo cautioned.


Reporting by Tapiwanashe Mangwiro (Business Weekly).