Impact of Corruption on Economic Growth in Zimbabwe from 1995 to 2022

Chapter one

Introduction and Background

1.1 Introductions

Although experts have been interested in corruption for more than 30 years, it remains one of the
most critical political concerns that all countries face. Furthermore, there is a strong link between
corruption and many macroeconomic environment variables. Corruption lowers innovative
tactics (Anokhin and Schulze, 2009), discourages immediate and total foreign direct investment,
slows the formation of new workplaces, and raises product and service pricing (Huang 2016).
Furthermore, it appears that corruption wreaks havoc on the distribution of wealth in the
economy. Furthermore, international and private donors and organizations planning to invest in
various countries want to direct their funds to governments that will put them to better use.

There are two hypotheses about how corruption would affect economic progress. According to
the "grease the wheels" notion, corruption promotes economic growth by avoiding ineffective
legislation. Bribing politicians and bureaucrats is likely to result in an increase in economic
activity when it is difficult to start a business. Corruption, according to the "sand in the wheels"
idea, stifles economic growth by impeding efficient production and innovation. Evidence
demonstrates that corruption slows economic growth, particularly in countries with low
investment rates and bad governance (d'Agostino et al. 2016, Huang 2016, Tsanana et al. 2016,
Chang and Hao 2017, Cielik and Goczek 2018, Campos et al. 2010 and Ugur 2014).

According to economic theory, high levels of corruption are correlated with lower quality goods
and services provided by the government. The main issue is that their administrators consume
resources for their own profit and do not reach the end-user. In light of this, the purpose of this
research is to give a critical examination of the influence of corruption on economic growth in
Zimbabwe. This is an introductory chapter that looked at the study's history, problem statement,
aims, research questions, hypothesis, study importance, research plan, and chapter summary.

1.2 Background of the study

Economic growth Patterns

The goal of ESAP was to attain a 5% annual GDP growth rate; however, the target was not met;
instead, inflation jumped, interest rates skyrocketed, and the currency rate was overvalued. The
reform's implementation was impeded further by the 1991/92 drought, which caused GDP to fall
by 4.8 percent in 1992 (Zimstats, 2014). Figure 1 displays the patterns of GDP growth.

Fig: 1.1 Trends of Gross domestic product for Zimbabwe from 1990 to 2020

25

20

15
GDP annual growth rate

10

0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
-519 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20

-10

-15

-20
Year

Source: World Bank, 2022

Figure 1 shows that there have been oscillations in GDP growth from 1990 to 2018. When
ZIMPREST was implemented as a successor to ESAP from 1996 to 2000, its major targets were
the restoration of macroeconomic stability, a per capita income growth rate of 3.4 percent, and an
annual economic growth rate of 6 percent. The strategy, like its predecessor, failed to provide
notable advances in terms of economic growth; real economic growth was 2.42 percent, while
per capita growth was 1.04 percent (UNDP, 2008).

In 1997, Zimbabwe launched on an unplanned expenditure, the Democratic Republic of the

Congo War and War Vet Compensation. According to Saungwene and Matandire (2014), as a
result of these events, GDP decreased from 10.6 percent in 1996 to 2.9 percent in 1998, and the
economic crisis worsened when GDP plummeted to -3.1 percent. From 2000 to 2008, Zimbabwe
experienced hyperinflation, unemployment, high interest rates, an overvalued currency, poor
economic performance, and industry closures. The government implemented many
macroeconomic reforms but saw no discernible improvement. Zimbabwe had a 231 million
percent inflation rate in 2008, and its GDP growth rate was at its lowest point, -17.6 percent
(Ministry of Finance, 2009).

Zimbabwe dollarized its economy in 2009 to solve existing macroeconomic weaknesses

hampering economic growth. Positive results were discovered, with GDP rising by 5.6 percent in
2009 and 8.1 percent in 2010. (2012) (Tsaurai and Odhiambo). Throughout the dollarization
regime, inflation declined to a single digit, ranging from 3.1 percent in 2010 to 3.7 percent in
2019 (World Bank, 2019), proving that the macroeconomic climate remained stable, resulting in
significant economic development.

The government introduced the Transitional Stabilization Program (TSP) in 2018. The TSP's
priority areas include macroeconomic and financial sector stabilization, enacting required policy
and institutional reforms to transition to a private-sector-led economy, and introducing quick-win
initiatives to encourage growth. The TSP is based on Vision 2030, which is titled "Towards an
Upper Middle-Income Country." According to the TSP, total real GDP growth (percentage)
would be 6.3 percent in 2018, 9.0 percent in 2019, and 9.7 percent in 2020. The projected total
real GDP growth rate (percentage point) for 2018 and 2019 was not met.

In 2018, the economy grew by only 3.4 percent against a TSP goal of 6.3 percent, and in 2019,
the economy grew by -6.5 percent against a TSP goal of 9 percent. The World Bank anticipated a
-10% economic downturn in 2020, compared to the TSP target of 9.7 percent, due to the
COVID-19 pandemic, among other factors. Similarly, the inflation targets for 2018 and 2019
were missed, as was the target for 2020. The IMF forecasts annual inflation of 221 percent in
2020 (IMF, 2020).

Due to the economic slowdown, revenues (as a proportion of GDP) fell short of estimates in both
2018 and 2019. However, the spending targets (as a percentage of GDP) for 2018 and 2019 were
met. As a result, the country achieved a budget deficit (as a percentage of GDP) of -5.3 percent
in 2018 compared to a target of -9 percent, and a budget surplus (as a percentage of GDP) of 0.6
percent in 2019 compared to a target of -5.2 percent. In 2018, the country also recorded a 0.41
percent positive current account balance (as a percentage of GDP).
The COVID-19 pandemic has harmed the Zimbabwean economy in a variety of ways, including
trade disruptions that have hampered the country's ability to import raw materials, a decrease in
tourist arrivals, a decrease in commodity prices, and the diversion of government resources to
combat the outbreak, which has reduced funds available for key development priorities.
Zimbabwe has a sizable expatriate population, which may have an impact on remittances.
Foreign direct investment inflows would also be affected. According to the World Bank (2020),
Zimbabwe's GDP would fall by -10% in 2020.Zimbabwe recorded 7.8% growth in 2021 and is
predicted to fall to 3.6% in 2022, owing to the country's current stable macroeconomic climate,
good agricultural performance, higher international mining commodity prices, and increasing
domestication of value chain.

Corruption Patterns in Zimbabwe

Following the adoption of the Anti-Corruption Commission Bill in June 2004, the Zimbabwean
Anti-Corruption Commission (ACC) was established. The Commission has signed the Southern
African Development Community (SADC) Protocol, the African Union (AU), and the United
Nations Convention Against Corruption. According to a 2009 Global Integrity report, the
Commission is terribly ineffectual and "has very little power to pursue actions aimed at reducing
corruption in Zimbabwe." Only four of the 147 corruption cases investigated by the Commission
in 2006 only four were successfully resolved. Corruption has spread into Zimbabwe's political,
private, and civil realms. Zimbabwe, together with Honduras, Iraq, and Cambodia, is placed
157th out of 180 countries in the 2021 Transparency International Corruption Perceptions Index,
with a high rating indicating a perception of significant public-sector corruption. According to
the Corruption Perceptions Index, Zimbabwe scored a score of 23 on a scale of 0 (extremely
corrupt) to 100 (very clean). Since 2012, when the country achieved a score of 20, there has been
a decrease in corruption.
According to the results of a study commissioned by Transparency International Zimbabwe in
2000, Zimbabweans rated the public sector to be the most corrupt in the country. The police were
identified as the most corrupt by respondents in this poll, followed by political parties,
parliament/legislature, public officials/civil servants, and the judiciary. According to a
Transparency International director, Zimbabwe loses $5 million each day due to corruption.
At the time, Finance Minister Tendai Biti said that at least US$1 billion in diamond-related
revenues owed to the national government remained unaccounted for. Biti has blamed persistent
diamond underselling and the inability to recoup losses on corruption, theft, and a lack of
transparency. In an address to parliament, Biti observed, "It is troubling because there is no link
whatsoever between diamond exports generated by Zimbabwe and the money collected from
them." Below is figure 2 which shows the corruption perception index for Zimbabwe since 2012
to 2021
Figure 2: Corruption Perception Index

CPI Score
25

24

23

22

21

20

19

18
2010 2012 2014 2016 2018 2020 2022

Source: Transparency International (2021)

As seen in figure 1, the level of corruption in Zimbabwe, as well as the poor state of our
electrical, transportation, health, education, and communications sectors, is a serious hindrance
to economic growth and business behavior in the country. The Zimbabwean government has
embarked on a series of economic growth reforms over the years as part of its efforts to combat
corruption and strengthen the economy, including privatization, banking sector reform, anti-
corruption campaigns, and the establishment of transparent fiscal standards. The major purpose
of Zimbabwe economic reform is to provide a favorable environment for private companies and
foreign direct investment (FDI) (African economic outlook 2011). As such, given the overview
background of economic growth trends and corruption perception index it can alluded that there
is a problem indeed that requires attention. Therefore, the purpose of the study is to examine the
effect of corruption on economic growth in Zimbabwe.
1.3 Problem Statement

Recent public discussions in Zimbabwe have concentrated on the rising prevalence of corruption
as a result of insufficient public finance planning and implementation, which impedes the
country's economic growth, particularly in certain emerging economies such as Zimbawe.
Corruption emerged when the institution of government was established as a consequence of the
activities of those nominated or elected to run government institutions (Anyanwu, 2012; Idomeh,
2016). Corruption has recently emerged as a serious concern in both foreign aid and Zimbabwe
as a whole. Corruption is an old activity that may be traced back to pre-biblical times and has
been documented in both developed and developing countries' ancient civilizations. Corruption is
a disease that erodes a country's cultural, political, and economic advancement while also
undermining the operations of numerous government organizations (Cielik and Goczek 2018).
According to Transparently International (2021), "corruption is one of the world's most serious
problems because it undermines good governance, fundamentally distorts public policy, leads to
resource misallocation, impedes private sector development, and harms the poor."

However, there is no agreement in the literature on the actual consequences of corruption.

According to the "grease the wheels" theory, theoretical aids economic progress by avoiding
wasteful legislation. Bribing politicians and bureaucrats is likely to result in an increase in
economic activity when starting a business is difficult. Corruption, according to the "sand the
wheels" idea, stifles economic growth by impeding efficient production and innovation. Given
this knowledge gap, the study was motivated to evaluate the impact of corruption on
Zimbabwean economic growth.

1.4 Research Objectives

The overall objective of the study is to examine the influence of corruption on economic growth.
Specific objectives are:

 To examine if there is a link between corruption and economic growth rate in Zimbabwe
 To examine effect of inflation, FDI and trade openness on economic growth

1.5 Research Questions

The overall question is to what extent does corruption impedes economic growth in Zimbabwe.
Specific questions are:

 Is there a link between corruption and economic growth rate in Zimbabwe?

 What is the effect of inflation, FDI and trade openness on economic growth?

1.6 Study Hypothesis

H0: Corruption has a negative and significant effect on economic growth

H1: Corruption has no significant effect on economic growth

1.7 Significance of the study

Corruption has adverse effects on economic well-being of any nation. Academics, economists,
bankers, politicians, researchers, and the general public have been split in recent years on the
subject of rising corruption and its influence on economic progress. The effects of corruption on
economic growth remain an unresolved issue, both philosophically and experimentally. This is
because academic viewpoints on corruption differ greatly, and common belief is that a high level
of corruption in the country is a source of economic instability or stagnation in Nigeria. Some
empirical studies challenged popular belief. Several studies (Swaleheen 2011, d'Agostino et al.
2016, Huang 2016, Tsanana et al. 2016, Chang and Hao 2017, Cielik and Goczek 2018, Campos
et al. 2010 and Ugur 2014) have established a positive and significant link between corruption
and economic progress, whereas others, such as Rotini, Obasaju, Lawal, and Ise (2013), have
found no such relationship.

Despite the fact that many research have been conducted, studies of this type are few in
Zimbabwe. As a result, the relevance of this work is dependent on filling a vacuum in the
literature. However, because of the differences in the macroeconomic environment, this study is
conducted with the understanding that the economic fundamentals and circumstances that
determine the influence of corruption on economic growth in Zimbabwe may be nation specific.
This study is critical because its findings will be useful in policymaking and analysis, ultimately
enhancing GDP. The study will also add to the current literature on the influence of corruption
on economic growth by providing precise information on how corruption is harmful to the
economy.
1.8 Organisation of the rest of the study

The research is organized as follows: Chapter Two aims to provide theoretical and empirical
conclusions linked to the influence of corruption on economic performance. The third chapter
will describe the approach that will be used by the study to investigate the link between the
corruption and economic growth. The fourth chapter will mostly concentrate on data collection,
regression model estimation, result interpretation, and analysis. Finally, Chapter Five offers the
study’s results, conclusions, topics for additional research, and policy recommendations.

1.9 Chapter Summary

The chapter introduced the research problem. The chapter looked on aspects of background,
problem statement, objectives. Significance, hypothesis, Organisation of the study. The
proceeding chapter looked at literature review.