Economy of Zimbabwe

Zimbabwean exports in 2006

The economy of Zimbabwe is collapsing under the weight of economic mismanagement, resulting in 85% unemployment and the highest rate of inflation in the world. The economy poorly transitioned after Mugabe's leadership, deteriorating from one of Africa's strongest economies to the world's worst. Inflation has surpassed that of all other nations at 11,000%, with the next highest in Burma at 40%. The government has attributed the economy's poor performance to international sanctions. The country has reserves of metallurgical-grade chromite. Other commercial mineral deposits include coal, asbestos, copper, nickel, gold, platinum and iron ore. However, its ongoing political turmoil and the world's highest rate of AIDS^[1] infection have greatly hampered its progress. Robert Mugabe's policies towards land reform have led to internal upheaval and population displacement, high inflation, and an inability of the country to feed itself.

1980s

Following the Lancaster House Agreement in December 1979, the transition to majority rule in early 1980, and the lifting of sanctions, Zimbabwe enjoyed a brisk economic recovery. Real growth for 1980-1981 exceeded 20%. However, depressed foreign demand for the country's mineral exports and the onset of a drought cut sharply into the growth rate in 1982, 1983, and 1984. In 1985, the economy rebounded strongly due to a 30% jump in agricultural production. However it slumped in 1986 to a zero growth rate and registered negative of about minus 3% in 1987 due primarily to drought and foreign exchange crisis faced by the country. Zimbabwe's GDP grew on average by about 4.5% between 1980 and 1990.^[2]

Infrastructure and resources

Zimbabwe has adequate internal transportation and electrical power networks. Paved roads link the major urban and industrial centres, and rail lines managed by the National Railways of Zimbabwe tie it into an extensive central African railroad network with all its neighbours. In non-drought years, it has adequate electrical power, mainly generated by the Kariba Dam on the Zambezi River but augmented since 1983 by large thermal plants adjacent to the Wankie coal field. As of 2006, crumbling infrastructure and lack of spare parts for generators and coal mining means that Zimbabwe imports 40% of its power - 100 megawatts from the Democratic Republic of Congo, 200 megawatts from Mozambique and up to 450 from South Africa, and 300 megawatts from Zambia.^[3] With considerable hydroelectric power and plentiful coal deposits for thermal power stations, Zimbabwe is less dependent on oil as an energy source than most other comparably industrialized countries. Only about 15% of Zimbabwe's total energy consumption is accounted for by oil, all of which is imported. Zimbabwe imports about 1.2 billion litres per year. Dependence on petroleum is managed through the price controls for vehicle fuels, the use of gasohol, and the substitution of diesel-electric locomotives on the railway system. Zimbabwe also has substantial coal reserves that are utilized for power generation, and recently discovered in Matabeleland province are coalbed methane deposits greater than any known natural gas field in Southern or Eastern Africa. In recent years poor economic management and low foreign currency reserves have led to serious fuel shortages. The telephone service is problematic, and new lines are difficult to obtain. Agriculture was once the backbone of the Zimbabwean economy. Due to large scale eviction of white farmers and the government's land reform efforts, this is no longer the case.^[4] Reliable crop estimates are not available due to the Zimbabwe government's attempts to hide the realities following the evictions. The ruling party banned maize imports, stating record crops for the year of 2004.^[5] Maize was the country's largest crop prior to the farm evictions. Tobacco was the largest export crop followed by cotton. Poor government management has exacerbated meager harvests caused by drought and floods, resulting in significant food shortfalls beginning in 2001. The land redistribution has been generally condemned in the developed world. It has found considerable support in Africa and a few supporters among African-American activists, but Jesse Jackson commented during a visit to South Africa in June 2006, "Land reform has long been a noble goal to achieve but it has to be done in a way that minimises trauma. The process has to attract investors rather than scare them away. What is required in Zimbabwe is democratic rule, democracy is lacking in the country and [that] is the major cause of this economic melt down."^[6]

2000–2007

In recent years, poor management of the economy and political turmoil has led to considerable economic hardship. The Government of Zimbabwe's chaotic land reform program, recurrent interference with, and intimidation of, the judiciary, as well as maintenance of unrealistic price controls and exchange rates has led to a sharp drop in investor confidence. On November 1 1989 a former government minister in Rhodesia, Denis Walker, produced a paper in London for the Conservative Monday Club's Foreign Affairs Committee on Land Reform in Zimbabwe. In his last paragraph he stated that "once the land has been redistributed, the commercial farms will be broken up, the remaining white farmers reduced by exile or imprisonment; Zimbabwe's government, already morally bankrupt, will decline towards economic collapse." Between 2000 and 2007, the national economy contracted by as much as 40%; inflation vaulted to over 4530%, and there were persistent shortages of foreign exchange, local currency, fuel, and food. Direct foreign investment has all but evaporated. Billions were spent in the country's involvement in the war in the Democratic Republic of the Congo. Price controls have been imposed on a wide range of products including food (maize, bread, steak), fuel, medicines, soap, electrical appliances, yarn, window frames, building sand, agricultural machinery, fertilisers and school textbooks. Mugabe's supporters maintain that economic hardship has been brought about by Western backed-economic sanctions instituted through the United Nations. However, the only sanctions in place are personal sanctions against about 130 senior Zanu-PF figures; there are no sanctions against trade or investment with Zimbabwe. As of February 2004 Zimbabwe's foreign debt repayments ceased, resulting in compulsory suspension from the International Monetary Fund (IMF). This, and the United Nations World Food Programme stopping its food aid due to insufficient donations from the world community, has forced the government into borrowing from local sources. Zimbabwe began experiencing severe foreign exchange shortages, exacerbated by the difference between the official rate and the black market rate in 2000. In 2004 a system of auctioning scarce foreign currency for importers was introduced, which temporarily led to a slight reduction in the foreign currency crisis, but by mid 2005 foreign currency shortages were once again chronic. The currency was devalued by the central bank twice, first to 9,000 to the US$, and then to 17,500 to the US$ on 20 July 2005, but at that date it was reported that that was only half the rate available on the black market. In July 2005 Zimbabwe was reported to be appealing to the South African government for US$1 billion of emergency loans, but despite regular rumours that the idea was being discussed no financial support has been obtained from South Africa. The official Zimbabwean dollar exchange rate had been frozen at Z$101,196 per U.S. dollar since early 2006, but as of 27 July 2006 the parallel (black market) rate has reached Z$550,000 per U.S. dollar. By comparison, 10 years earlier, the rate of exchange was only Z$9.13 per USD. In August 2006 the RBZ revalued the Zimbabwean Dollar by 1000 ZWD to 1 (revalued) dollar. At the same time Zimbabwe devalued the Zim Dollar by 60% against the USD. New official exchange rate revalued ZWD 250 per USD. The parallel market rate was about revalued ZWD 1,200 to 1,500 per USD (28 September 2006). In November 2006 it was announced that sometime around December 1 there would be a further devaluation and that the official exchange rate would change to revalued ZWD 750 per USD.^[7] This never materialized. However, the parallel market immediately reacted to this news with the parallel rate falling to ZWD 2,000 per USD (18 November 2006)^[8] and by year end it had fallen to ZWD 3,000 per USD.^[9] On April 1 2007 the parallel market was asking ZWD 30,000 for $1 USD.^[10] By October 18 it was down to ZWD 1,000,000.^[11]

Poverty and unemployment are both endemic in Zimbabwe, driven by the shrinking economy and hyper-inflation. Both unemployment and poverty rates run near 80%.^[12] As of January 2006, the poverty line was ZWD 17,200 per month. As of October 2007 this had risen to ZWD 16 million per month (US $21.33). The average farm worker's monthly wage was under ZWD 100,000 per month (US $0.15) and the average worker's monthly wage was ZWD 1,000,000 (US $1.15). The lowest 10% of Zimbabwe's population consume only 1.97% of the economy, while the highest 10% consume 40.42%. (1995).^[13] The current account balance of the country is negative, standing at around US -$517 million.^[14]

Government response

The 2007 Empowerment Bill to increase local ownership of economy is being drafted for presentation to parliament in July 2007.^[15] In response to skyrocketing inflation the government has introduced price controls, but enforcement has been largely unsuccessful.^[16] Police have been sent in to enforce requirements that shopkeepers sell goods at a loss. This has resulted in hundreds of shop owners being arrested under accusations of not having lowered prices enough. Because of this, basic goods no longer appear on supermarket shelves and the supply of petrol is limited. This has diminished public transport. However, goods can usually be had for a high rate on the black market.^[12]

Energy

See also

• Economy of Africa
• Economic history of Zimbabwe
• History of Zimbabwe
• Zimbabwean dollar

References

External links

• CIA World Fact Book
• MBendi Zimbabwe overview
• Donors will move in when Mugabe finally leaves office

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