Zimbabwe’s Dollarisation Era and the Rise of the Informal Economy

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Between 2009 and 2013, Zimbabwe’s experiment with dollarisation delivered a mix of relief and challenges to its economy. The adoption of the US dollar brought initial stability to a nation previously ravaged by hyperinflation, but it also led to deep-seated challenges. These challenges reshaped Zimbabwe’s economic landscape, moving it away from industrial production towards a more informal, small-scale trade-driven economy—the “Tuckshop-Pavement-Roadside Stall” economy that defines much of the present-day commercial activity.

By Brighton Musonza

Dollarisation: A Double-Edged Sword

The transition to the US dollar in 2009 provided a lifeline for Zimbabwe after years of hyperinflation that rendered the Zimbabwean dollar practically worthless. This dollarisation era brought an end to hyperinflation and made everyday transactions more stable. However, the stability came at a cost: severe liquidity constraints. With no central bank able to print money or adjust monetary policy, Zimbabwe faced chronic cash shortages. This limited the flow of credit to businesses, making it difficult for them to secure the funds needed for daily operations or capital investments.

These liquidity challenges had far-reaching consequences. With scarce access to finance, many companies found themselves struggling to stay afloat. The high cost of borrowing, combined with the difficulty of accessing foreign currency, led to an increase in financial distress. Business closures rose sharply: 11 companies filed for liquidation in 2009, but by 2012, the number had surged to 149. According to the Confederation of Zimbabwe Industries (CZI), between 2011 and 2014, over 4,000 companies shut down, resulting in the loss of over 55,000 jobs. The closures highlighted a deeper structural crisis—waning investor confidence and a shrinking industrial base.

Judicial Management: A Lifeline That Fell Short

In theory, judicial management was designed to provide struggling companies with a chance to recover. The process allowed businesses temporary protection from creditors, enabling them to restructure without the immediate threat of liquidation. However, this approach often fell short. Challenges such as mismanagement, high levels of debt, and insufficient capital continued to plague companies under judicial management. Dr. Cecil Madondo, managing director of Tudor House Consultants, argued that Zimbabwe’s judicial management framework needed reforms, including allowing managers to oversee recovery plans beyond their initial mandate. Without access to fresh capital, companies found it nearly impossible to execute meaningful turnaround strategies.

This difficulty was particularly evident in the manufacturing sector, a traditional pillar of Zimbabwe’s economy. The CZI reported that capacity utilisation dropped from 44% in 2012 to 39.6% in 2013. Many established firms, including Gulliver, Steelnet, and Cairns Foods, either closed or fell into judicial management. For businesses in this environment, short-term loans with exorbitant interest rates became the only option, but these loans often accelerated their decline rather than providing a lifeline.

From Industry to Informality: The Rise of the Tuckshop Economy

As formal businesses collapsed, Zimbabwe’s economy pivoted towards the informal sector. Street vendors, small traders, and roadside stalls became a common sight as many Zimbabweans turned to informal trade for survival. While this shift provided a vital source of income for those affected by formal sector job losses, it also marked a departure from the structured industrial economy that once characterised Zimbabwe.

The rise of the informal sector reflected a broader economic recalibration. With the formal banking system unable to meet the liquidity demands of larger enterprises, capital flowed into small-scale ventures that required minimal investment and adapted well to a cash-based, dollarised economy. These small businesses—often referred to as “tuckshops”—became a defining feature of the new economic landscape, providing goods and services in a way that was more flexible but less structured.

Lessons from the Dollarisation Era

The dollarisation period highlighted the complexity of economic reforms. It underscored the reality that macroeconomic stability does not automatically equate to sustainable business growth. The constraints of a dollarised economy—particularly the inability to control money supply—left Zimbabwe’s formal businesses struggling to access the credit needed for survival and growth. While the initial benefits of dollarisation, such as price stability, were welcome, the long-term consequences included a diminished industrial sector and the rise of an informal economy that now dominates much of the market.

The era also highlighted the limits of judicial management as a tool for economic recovery. Without comprehensive structural reforms and access to capital, the prospects for struggling companies remained dim. As business consultant David Fitzpatrick noted at a workshop hosted by the Zimbabwe Economic Policy Analysis and Research Unit (Zeparu), Zimbabwe had a solid foundation for managing insolvency issues. However, practical challenges such as capital shortages and broader economic instability meant that many businesses could not leverage this framework effectively.

Looking Ahead: Balancing Formal and Informal Growth

As Zimbabwe navigates the aftermath of the dollarisation era, the lessons of this period are crucial. Addressing liquidity constraints, rebuilding investor confidence, and fostering a supportive environment for both formal and informal businesses are essential for economic resilience. While the informal sector has absorbed some of the shocks from the formal economy’s decline, revitalising Zimbabwe’s industrial base remains a priority for achieving long-term growth and stability.

Ultimately, Zimbabwe’s dollarisation era stands as a pivotal chapter in its economic history—one that provided a temporary solution to hyperinflation but also revealed deeper structural issues. These challenges continue to shape Zimbabwe’s economic trajectory, underscoring the need for thoughtful policies and a balanced approach to economic development. The journey forward will require balancing the strengths of the informal sector with the need to rebuild a robust industrial base capable of driving sustainable growth.