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2003 Index of Economic Freedom - Extracts
The Heritage Foundation and the Wall Street Journal
November 12, 2002

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On November 12, The Heritage Foundation and the Wall Street Journal released the 2003 Index of Economic Freedom. The Index is an annual survey of the world's economies, including country-by-country analyses and the most up-to-date data available on foreign investment codes, taxes, tariffs, banking regulations, monetary policy, black markets, and more.

For the ninth consecutive year, Hong Kong was named the world's freest economy. In honor of their commitment to growth through a free economy, the release of the Index was held at the Conrad International Hotel in Hong Kong.

Zimbabwe’s score
Year: 2003
Rank: 153
Score: 4.40
Category: Repressed

Detail
Trade Policy 5.0
Government Intervention 3.0
Foreign Investment 5.0
Wages and Prices 4.0
Regulation 4.0
Fiscal Burden 4.0
Monetary Policy 5.0
Banking and Finance 5.0
Property Rights 5.0
Black Market 4.0

Scores for Prior Years
2003 4.40
2002 4.30
2001 4.25
2000 3.90
1999 3.90
1998 4.00
1997 3.75
1996 3.75
1995 3.80

Click here to view the comparison table of Zimbabwe with the Sub-Saharan Africa region for 2003:

The Executive Summary said of the Sub-Saharan Region:
Overall, economic freedom in sub-Saharan Africa has improved in the past year. The scores of 19 countries are better, while the scores of 13 are worse. The region has a net gain of six countries. The factor that is most improved in this region is banking and finance, in which 12 countries have improved their scores. The monetary policy factor proved to be the biggest challenge for this region, with 10 countries earning worse scores. The property rights factor is for the most part unchanged, with 35 countries receiving the same score as last year. While none of the countries are ranked "free," five earn the ranking of "mostly free."

This year, Botswana is the region's freest country. In addition, for the second year in a row, it has improved its score. Botswana's trade policy, capital flows and foreign investment, banking and finance, and regulation scores have improved. Madagascar is the second freest country in the region and is tied with Libya for having made the most improvements in the past year.3

Among countries numerically graded, Zimbabwe remains the region's least economically free and continues to deteriorate. Yet the country that suffered the greatest decline in economic freedom is Rwanda. Its trade policy, capital flows and foreign investment, and fiscal burden of government scores all are worse.

The property rights score remains the same for the majority of the countries, with only one improving and one worsening. As noted last year, however, many of these countries remain crippled by corruption and a lack of strong protection of property rights. Without strong property rights, these countries will remain poverty-stricken. Investors will not consider investing in countries that are rife with corruption and where property rights are poorly protected.

The Zimbabwe section of the report has this to say:
Since gaining its independence from the United Kingdom in 1980, Zimbabwe has been ruled by Robert Mugabe's Zimbabwe African National Union. Mugabe's policies such as threatening to nationalize businesses, imposing price controls, increasing government salaries with little regard for budget constraints, and fuelling inflation by printing money to finance government expenditures have severely damaged the economy. The Economist Intelligence Unit estimates that the government ran a deficit of 11.5 percent of gross domestic product in 2001, with the economy shrinking by over 7 percent. Inflation was well over 100 percent in 2001, and unemployment is over 60 percent. In an effort to increase support for his presidency, Mugabe set in motion a plan to confiscate farmland without compensation, later urging his supporters to occupy land owned by political rivals. This policy was pursued openly even though the Zimbabwean Supreme Court ruled the invasions unconstitutional. With a monopoly on broadcast media, the government has outlawed criticism of Mugabe and harassed independent print media. The Economist Intelligence Unit reports that Mugabe has employed "state-sponsored political violence against supporters of the opposition, Movement for Democratic Change (MDC), measures to suppress the judiciary and the media, and attempts to manipulate the electoral register." Government-sanctioned violence against Mugabe's political rivals led directly to over 30 deaths in 2002 alone, as well as numerous beatings and other assaults and the wilful destruction and damage of private property. From 1991 to 2000, according to World Bank data, compound growth in GDP averaged 1.1 percent annually and per capita GDP fell from $673 to $621 (in constant 1995 U.S. dollars) as a result of instability and population growth that exceeded economic growth. Zimbabwe's trade policy score is 1 point worse this year. As a result, its overall score is 0.10 point worse this year.

Trade Policy
Score: 5-Worse (very high level of protectionism)
According to the World Bank, Zimbabwe's weighted average tariff rate in 1998 (the most recent year for which World Bank data are available) was 16.4 percent, up from the 12.6 percent reported in the 2002 Index. As a result, Zimbabwe's trade policy score is 1 point worse this year. According to the U.S. Department of State, the government "maintains a `negative list' of prohibited items that require special permission from the government to import. The list includes nuclear reactors, radioactive materials, arms and ammunition, precious and semiprecious gems, gold jewellery, carbonated beverages for resale, and textiles and clothing for resale." The same source reports that "Periodic instances of corruption and a lack of uniform application of the law by customs officials continue to concern importers and users of imported goods or components."

Fiscal Burden of Government
Score Income and Corporate Taxation: 3-Stable (moderate tax rates)
Score Government Expenditures: 5-Stable (very high level of government expenditure)
Final Score: 4-Stable (high cost of government)
Zimbabwe's top income tax rate is 40 percent (income taxed at 40 percent is also subject to a 25 percent surcharge tax); the marginal rate for the average taxpayer is 0 percent. The top corporate income tax rate is 30 percent, down from the 35 percent reported in the 2002 Index. In 2000, government expenditures equalled 48 percent of GDP.

Government Intervention in the Economy
Score: 3-Stable (moderate level)
The World Bank reports that the government consumed 24 percent of GDP in 2000 and is very active in the economy. According to the U.S. Department of State, "Regarding privatization of Zimbabwe's parastatal companies, progress has been very slow in the decade since it was identified as a priority, with only six organizations out of the 57 earmarked making the transition. Arguments about the allowable extent of foreign investment, retention amount for indigenization, pricing and means of offering have yet to be clearly or transparently resolved."

Monetary Policy
Score: 5-Stable (very high level of inflation)
From 1992 to 2001, Zimbabwe's weighted average annual rate of inflation was 66.43 percent.

Capital Flows and Foreign Investment
Score: 5-Stable (very high barriers)
The government will consider foreign investment up to 100 percent but applies pressure for eventual majority ownership by Zimbabweans. Zimbabwe passed a new foreign investment code in 1998, but significant restrictions on foreign participation remain in effect. According to the U.S. Department of State, "over the last two years the investment and operating climate in Zimbabwe has substantially worsened. Potential investors need to assess carefully this tougher environment, and to also factor in and plan for the government's goals for indigenization (black economic empowerment), privatization, and land reform/resettlement…. The local ownership requirement and the large areas of the economy where foreign investment is not allowed are other hindrances to business establishment and free cross-border capital and equity flows." The International Monetary Fund reports that both residents and non-residents may open foreign exchange accounts with the government's approval. The Reserve Bank of Zimbabwe must approve access to foreign exchange to make payments and transfers. According to the IMF, "Inward transfers of capital through normal banking channels are not restricted. Outward transfers of capital are controlled." Virtually all capital transactions between residents and non-residents are subject to controls and government approval.

Banking and Finance
Score: 5-Stable (very high level of restrictions)
Zimbabwe's relatively sophisticated financial system, developed under British colonial rule, has been squandered in recent years as the government has become ever more involved in the financial sector. The Reserve Bank of Zimbabwe has allowed the government to use it to finance deficit spending and direct loans to state-owned enterprises. According to the U.S. Department of State, the current environment of "high inflation, the hard currency shortage and Zimbabwe's declining credit standing make all forms of financing, including trade and project, a challenging task." The government's 90-day interest rate on negotiable certificates of deposit was approximately 30 percent in early 2002; combined with an inflation rate of well over 100 percent, this resulted in a real interest rate of 80 percent, according to the Economist Intelligence Unit, and non-performing loans are growing rapidly. The Reserve Bank issues currency and government loans, controls foreign reserves, and serves as lender of last resort for Zimbabwe's banks but is limited in its supervisory role because the Ministry of Finance issues banking licenses. The five main banks in 2001 were Standard Chartered Bank, Barclays Bank of Zimbabwe, Standard Bank of South Africa, the Commercial Bank of Zimbabwe (privatized by the government), and the majority state-owned Zimbank. According to the Economist Intelligence Unit, "In the absence of monitoring powers the [Reserve Bank] has been unable to enforce standards effectively, and the regulation of the banking sector has become increasingly political." Rising debt has exacerbated the instability of an already shaky sector and could lead to the collapse of the system.

Wages and Prices
Score: 4-Stable (high level of intervention)
Zimbabwe maintains many price controls. The U.S. Department of State reports that the prices "of many major commodities and food staples [are] controlled, formally or informally, by the government (for example sugar, oil, bread, flour, dairy products and mealie meal, or ground maize)…. Price controls and mismanagement have resulted in huge losses at some of Zimbabwe's largest parastatals, including the Posts & Telecommunications Company, the national railways, the national oil company and the Zimbabwe Electricity Supply Authority." The Herald, a Harare newspaper, reported in May 2002 that "Minister of State for Information and Publicity Professor Jonathan Moyo said contrary to false and inflammatory media reports on price increases appearing in the opposition press, the Government was in fact vigorously implementing price controls on designated products as per existing policies adopted last August." Price controls have been instituted for cement, paraffin, fertilizer, seed, agricultural chemicals, milk, bread, flour, meat, maize meal, margarine, sugar, poultry, soap, and salt. The government also has intervened in the pricing of goods for export, including tobacco, one of the country's most important exports. The government maintains a minimum wage.

Property Rights
Score: 5-Stable (very low level of protection)
According to the U.S. Department of State, the judiciary enjoys some independence, but "cases involving high or prominent ruling party or government officials usually do not reach court, regardless of the magnitude or egregiousness of the offense." The U.S. Trade Representative reports that "Zimbabwe is currently engaged in an aggressive, chaotic land occupation and resettlement program that has economic consequences that have not been fully realized…. [T]he government has proceeded with its `fast track' land resettlement program without benefit of a transparent, coherent plan, and in defiance of orders by the supreme court instructing compliance with the law…." Since June 2000, reports the U.S. Department of State, "the Government has orchestrated a campaign of violence and intimidation against the judiciary…."

Regulation
Score: 4-Stable (high level)
Businesses face considerable impediments in Zimbabwe. The bureaucracy is extremely arbitrary and not transparent. The U.S. Department of State reports that "many bureaucratic functions in this still heavily controlled economy are less than fully transparent and can by no means be considered streamlined. Corruption within the regulatory system is increasingly worrisome." In addition, "corruption at all levels within government is increasing. Many companies and the police do not have appropriate tools or skills for investigating and checking corruption, though the legislative and criminal law framework exists (for example, acceptance of bribes is a criminal offense)."

Black Market
Score: 4-Stable (high level of activity)
Transparency International's 2001 score for Zimbabwe is 2.9. Therefore, Zimbabwe's black market score is 4 this year.

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