‘Zimbabwe can leverage services trade to create more and better jobs’ – World Bank

Zimbabwe’s universities train qualified doctors, lawyers, engineers, and other professionals. To keep skilled graduates from emigrating in search of opportunity, as many others before them have done, the country of 16 million must meet the challenge of creating more and better jobs.

BY MIKE NYAWO, STELLA ILIEVA AND MARKO KWARAMBA

One way to do so is by expanding international trade in services. This is a realm that is relatively underdeveloped in Zimbabwe, which lags behind peers such as South Africa and Zambia in the volume and complexity of the services that it trades. Zimbabwe’s services exports are dominated by tourism and transport; largely missing are higher value services such as telecommunications, finance, and business process outsourcing. 

Regulatory obstacles are one important reason. The Services Trade Restrictiveness Index, which measures the degree to which domestic laws and regulations hamper trade in services, shows that Zimbabwe is highly restrictive in communications (including mobile and internet), finance, and professional services in areas such as accounting, law, architecture, and engineering (Figure 1).

Greater trade in services would help retain young and educated workers and increase productivity and competitiveness of Zimbabwean firms while offering new opportunities for expatriates willing to return home. Other sectors, particularly manufacturing, would benefit from increased participation in services, which are key inputs in the production of many goods, and from knowledge spillovers.

According to a recent World Bank Country Economic Memorandum, services trade also offers a path to diversify Zimbabwe’s economy, which remains highly concentrated among a few firms and industries, including agriculture, mining, and tourism. A handful export products – mostly minerals and tobacco – generates the bulk of foreign exchange reserves. Agriculture maintains a sizeable share of production and employment and receives the bulk of lending, with significant government support and intervention.

Moreover, Zimbabwe has been struggling to attract foreign investment due to high inflation and an unstable exchange rate. These difficulties significantly hamper trade in goods, which is more capital intensive than services.

Figure 1: Zimbabwe’s laws and regulations are more restrictive than those of peers.
(Services Trade Restrictiveness Index by sector)

Notes: The Services Trade Restrictiveness Index (STRI) takes a value from 0 (open without restrictions) to 100 (completely closed), at the sector and mode of service levels for each country. The latest available year for all countries in the sample is 2020, except South Africa (2021).

Globally, services trade has been expanding faster than goods trade. Between 2011 and 2021, services exports grew 3 percent annually on average, outpacing growth in goods trade by more than 45 percent.  The telecommunications and information technology sector grew more than four times faster than goods trade.

Structural changes over the past decade, including the COVID-19 pandemic, have been reshaping services trade. Multinational corporations are increasingly unbundling functions such as customer support, accounting, IT services, finance, and procurement and offshoring these activities to countries with friendly regulations, skilled labor, and stable currencies.

In medicine, accounting, and legal services, countries such as India have overcome the barriers to trade in services by partnering with lead multinational firms, who certify conformity with host countries’ standards. In 2022, the IT sector  accounted for 7.4 percent of India’s GDP, and it is expected to contribute 10 percent by 2025, according to the India Brand Equity Foundation.

Here are four immediate steps the government of Zimbabwe could take to exploit the growing economic importance of services trade and help achieve its goal of gaining upper middle-income status by 2030 :

1. Eliminate unnecessary regulations that hinder the country’s participation in trade in services.
2. Improve access to high-quality and affordable data. Poor quality and expensive broadband are a constraint to private-sector development.
3. Allow greater private-sector participation in sectors still dominated by inefficient state-owned enterprises, such as post and telecommunications, media, transport, and energy.
4. Provide access to information and opportunities in services trade. In addition, the government can help set up networks of skilled expatriates to mobilize knowledge and transfer expertise to domestic firms that trade in services

These priority actions will potentially have a bigger impact if the authorities address macroeconomic challenges such as high inflation and exchange rate instability and create a conducive business environment that ensures a level playing field for private sector-led growth. Those steps were key to the ability of countries that managed to significantly expand trade in services.