Thursday, 1 August 2013

Political uncertainty and firms in Zimbabwe

It feels quite odd to follow the news coverage of the elections in Zimbabwe and to be working on a paper about Zimbabwe. At the moment the title is:

Micro-economic competitiveness and post-conflict reconstruction: Firm-level evidence from Zimbabwe

I am writing it with colleague Marianne Matthee and her PhD student, Macleans Mzumara and we are putting it together for the SAIMS conference in September.

We have only started with the first round of analysis and write up, but I think that we already have a point to make following the elections. The aim of this paper is to examine the factors that influence firm competitiveness in post-conflict Zimbabwe and here is a bit:

Despite some stability in the macro-economic environment, firm-level output is far from its pre-crisis levels. For example, the World Bank (2011) has indicated that capacity utilisation in the manufacturing sector is only between 30% and 40%. The agricultural sector is also operating at levels far below those previously attained. At this rate, the World Bank (2011) estimated that it could take at least a decade for firms to achieve pre-crisis levels of output. So what are the micro-level factors that are constraining Zimbabwean firms? 

A recent enterprise survey by the World Bank (2011) showed that around 45% of firms in Zimbabwe experience access to finance as their biggest obstacle. Around 30% experience political instability as their biggest obstacle. In a breakdown of the data it is apparent that firm-size is also relevant: fewer small- and medium-sized firms experience political instability as an obstacle. The small firms that describe themselves as politically constrained report that they are uncertain about market prospects and view corruption as a significant obstacle to doing business.
We are wondering whether political uncertainty causes firms choose to remain small. In such a case this will limit the recovery of the economy. The table shows that firm size is definitely a consideration.

We'll keep you posted about the proper results of the analysis.

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