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.

Analysis possible! New Zim firm-level data

Over the past 10 years the Zimbabwean economy has suffered political repression, expropriation of private property and mass emigration of the skilled workforce. Analysis of what has been an economy-wide disaster has been limited due to a dearth of data. Today the World Bank for first time released enterprise survey data from Zimbabwe. 599 firms were interviewed from May 2011 through March 2012. It paints an interesting picture of firms and the business environment.

• The firms in the survey are established survivors with an average of 33 years.
• On average the firms have 53 permanent full-time workers and 10 part-time workers.
• 46% of production workers are unskilled and 31% of firms offer formal training.
• Female participation in ownership is markedly high at 56%, but only 23% of the permanent full-time workers are female.
• Capacity utilization is only 45%.
• 97.7% of sales are domestic sales and 63% of inputs have a domestic origin.
• 11% of firms report exporting more than 1% of sales, but direct and indirect exports account for 2.3% of sales.
• On average the firms hold 48 days’ inventory, compared to 24 in the rest of Sub-Saharan Africa.
• The firms are clearly finance constrained – 84% of investments are financed internally and 63% view finance as a constraint to doing business.
• 71% of the firms reported that they are competing against informal firms – compared to 65% in Sub-Saharan African and 56% in the world. Of these firms, 47% view this competition as a major constraint.
• The firms report fewer power outages per month than those in other Sub-Saharan African countries, but a much greater share of firms report owning a generator.
• A notably small share of firms (10%) report identifies transportation as a constraint to doing business.
• 41% of firms identify tax rates as a constraint.
• Compared to other Sub-Saharan African countries, licensing seems to be less of a concern.
• 32.6% of firms identify corruption as a constraint, compared to the average of 37% in Africa and 36% in the rest of the world.

It is possible to further slice and dice the data by sector, firm-size and location. I hope to follow up with some proper analysis soon.