- Reduced commodity prices will hamper Zimbabwe’s economic growth aspirations in 2024. Commodities produced by Zimbabwe include platinum, gold, and diamonds.
- Over the last two years, the country earned record foreign exchange export receipts due to booming commodity prices. However, exports have started to slow and are expected to continue into 2024.
- Zimbabwe will face a perfect storm of economic headwinds, combining factors such as persistent soft commodity prices, anticipated El Nino conditions leading to reduced agricultural output, and lower power generation, all contributing to a reduction in economic growth.
Zimbabwe’s economic growth in 2024 will face challenges due to headwinds within its economy, compounded by external factors undermining its growth aspirations. Global commodity prices have recently decreased, posing a significant concern for countries dependent on producing these commodities for economic sustenance.
Over the last two decades, mining has increased significantly in Zimbabwe’s economy. While agriculture was once central to the economic fortunes of the southern African nation, it has now yielded its prominence to the mining sector, construction, and related extractive industries. A recent report by Mining Zimbabwe highlighted the critical role of the mining sector in Zimbabwe’s economy.
Zimbabwe is rich in minerals, including huge platinum reserves
According to the report titled “How the public benefits from mining in Zimbabwe,” the advantages of mining are founded on four pillars: job creation, economic growth, infrastructure development, and technological advancements. These factors have been notably impactful, underpinning the country’s growth prospects for several years, particularly during the recently concluded commodities boom.
Zimbabwe boasts rich mineral resources, and over the past five years, foreign exchange earnings have been primarily driven by exports of platinum group metals (PGM). The country is home to the second-largest known platinum reserves globally, trailing only South Africa. The renowned Great Dyke houses several complexes with minable platinum reserves, closely resembling the Bushveld complex in Rustenburg, South Africa.
To provide perspective, the RBZ Monetary Policy Statement issued in February 2023 reports that mining generated foreign exchange earnings of $5.6 billion in 2022, marking a 12.3 percent increase over the previous year’s earnings.
Out of this total, $2.2 billion was derived from platinum and $2.4 billion from gold, while the remainder came from diamonds, ferrochrome, and other minerals. Following mining, the second-largest contributor to export earnings is tobacco, which brought in $968 million in export proceeds for the country in 2022.
Global commodity prices have not paid any optimism in Zimbabwe
Statistics like these form the basis for the government’s outlook and economic growth forecasts. However, the softening of global commodity prices has dashed any optimism for the country’s continued economic growth.
The RBZ Mid-Term Monetary Policy Statement, published in August 2023, makes for very interesting reading for a sober prognosis of the country’s economic growth. Export proceeds in 2023, when the statement was published, came in at $3.055 billion, which is 10.7 per cent behind the previous year’s metric of $3.4 billion.
A closer look at Zimbabwe’s export earnings reveals that mineral exports, which account for most foreign exchange earnings, are 12.5 per cent lower than what was achieved during the first half of 2022. The central bank describes this decline: “The decline in exports followed the continued softening of key commodity prices, largely on account of faltering global growth prospects.”
Softening mineral prices have dealt a blow to Zimbabwe’s ability to generate foreign exchange through exports, a challenge not unique to the African context. Most African countries depend on single commodities for their economic well-being.
Historically, Zambia and Ghana have demonstrated the vulnerability of an economy centred on a single commodity or economic activity. This underscores the need for African economies to diversify their economic activities or add value to the products of their extractive industries.
Despite the economic headwinds mentioned, the World Bank notes that “Zimbabwe has strong foundations for accelerating future economic growth and improving living standards. The economy has excellent human capital, comparable to upper-middle-income economies in Sub-Saharan Africa, although some skill shortages are emerging in some sectors.”
As of December 12, 2023, platinum, a key export for Zimbabwe, has a spot price of $926, 19 per cent lower than the high of $1146.10 for 2023. The spot price refers to the price for commodities that market participants agree upon for immediate settlement.
Gloomy outlook and the importance of precious metals
This means that for every ounce of platinum that Zimbabwe produces and sells today for immediate settlement, the country will receive 19 cents less than the highest price achieved for the precious metal this year. The outlook is gloomy, given the importance of the precious metal in mobilizing foreign exchange for the southern African nation.
It does not help matters that meteorological experts are predicting El Nino or drought conditions for the region. This is significant because Zimbabwe, a producer of mineral commodities, is also largely agrarian. In 2023, the country exported the highest amount of tobacco in its history, about 296 million kilograms of the golden leaf.
El Nino conditions will shock food and tobacco production, especially among farmers who have not climate-proofed their activities and will rely on rain-fed agricultural production.
The World Bank estimates that at least 67 per cent of Zimbabwe’s population is in rural areas. This population segment derives its livelihood from subsistence farming, which is not climate-proof and is vulnerable to droughts. Therefore, less production from this economy sector is expected in 2024.
Furthermore, the matter of energy sufficiency is closely related to the anticipated drought conditions in the region. Zimbabwe is a net importer of power. The country has the capacity to generate its electricity; however, to meet increasing demand, the country also imports power from South Africa and Zambia. The country generates electricity from hydro and thermal power stations in Hwange and Kariba.
Hydrothermal power generation relies heavily on rainfall and the water levels at the Kariba dam. This is significant because earlier in the year, the country was in the throes of a crippling power crisis characterized by blackouts lasting as long as 19 hours a day.
The knock-on effect on Zimbabwe’s economy
The projected El Nino conditions imply that Zimbabwe will find one of its crucial means of generating electricity unsustainable. This unfortunate development will not be isolated; it will destroy the broader economy. Insufficient power supplies mean that productivity will be lower than in 2023.
Under these conditions, the economy of southern Africa cannot be expected to grow. Its growth prospects need to be moderated with the foregoing in mind. A possible solution to these challenges is diversifying the Zimbabwean economy from the primary extractive sector.
Policymakers need to implement policies that result in the beneficiation of the raw minerals that the country produces. Additionally, analysis in previous publications showed that the robust export earnings during the mining boom years could not be sustained by the negligible or paltry amounts of FDI the country was attracting.
The Monetary Policy Statement of February 2023 showed that Zimbabwe, in 2023, had earned record export earnings of circa $11 billion on the back of record mineral prices; however, the same policy document disclosed FDI receipts of less than $100 million.
This disparity between export proceeds and FDI is one of the indicators of the vulnerability of the Zimbabwean economy to external shocks like the softening of mineral prices.
