Economy of Zimbabwe

Economy of Zimbabwe
Sam Nujoma Street in Harare.
Rank	104th (IMF); 157th (CIA); 127th (WB)
Currency	US Dollar & South African Rand
Fiscal year	calendar year
Trade organisations	WTO
Statistics
GDP	$7.366 billion (2013 est.)
GDP growth	4.4% (2012 est.)
GDP per capita	$600 (2012 est.)
GDP by sector	Agriculture: 20.3%, Industry: 25.1%, Services: 54.6% (2012 est.)
Inflation (CPI)	8.2% (2012 est.)
Population below poverty line	80% earn below poverty line of ZWD 13 Trillion per month (USD $41.00) (July 2008). However, the average wage is only ZWD 100 Billion (30c) per month.[2]
Gini coefficient	50.1% (1995) 56.8% (2003) List of countries by income equality
Labour force	3.856 million (2011 est.)
Labour force by occupation	Agriculture: 60%, Services: 9%, Wholesale, Retail, Hotels, Restaurants: ~4%, Manufacturing: 4%, Mining: 3% (2003)
Unemployment	94%[3] (end of 2008)
Main industries	mining (coal, gold, platinum, copper, nickel, tin, clay, numerous metallic and non-metallic ores), steel; wood products, cement, chemicals, fertilizer, clothing and footwear, foodstuffs, beverages
Ease of doing business rank	171st[4]
External
Exports	$3.314 billion (2012 est.)
Export goods	platinum, cotton, tobacco, gold, ferroalloys, textiles/clothing
Main export partners	China 20.4%  South Africa 14.9%  DR Congo 12.9%  Botswana 11.5%  Italy 4.4% (2012 est.)[5]
Imports	$4.569 billion (2012 est.)
Import goods	machinery and transport equipment, other manufactures, chemicals, fuels, food products
Main import partners	South Africa 51.2%  China 9.7% (2012 est.)[6]
Public finances
Public debt	Domestic: (est) USD $1 Billion (Dec 2010), International: (est) USD $7.6 billion (Dec 2010 IMF),[7] USD $5.3 billion (March 2010),[8] USD $1.3 billion (Dec 2002)
Revenues	ZWD $216 billion (rev) (2006)
Expenses	ZWD $451 billion (rev) (2006)
Economic aid	recipient: $178 million; note - the EU and the US provide food orange aid on humanitarian grounds (2000 est.)
Main data source: CIA World Fact Book All values, unless otherwise stated, are in US dollars

The economy of Zimbabwe shrunk significantly after 2000, resulting in a desperate situation for the country and widespread poverty and an 80% unemployment rate.^[9] The participation from 1998 to 2002 in the war in the Democratic Republic of the Congo set the stage for this deterioration by draining the country of hundreds of millions of dollars.^[10] Hyperinflation has been a major problem from about 2003 to April 2009, when the country suspended its own currency. Zimbabwe faced 231 million per cent peak hyperinflation in 2008.^[11]

The country has reserves of metallurgical-grade chromite. Other commercial mineral deposits include coal, asbestos, copper, nickel, gold, platinum and iron ore.^[12]

Current economic conditions

Since 2000 the Zimbabwean government has taken most of the farmland previously used by commercial farmers (mostly white) and reallocated it. Due to bad publicity claiming that most of this land reform happened in a corrupt way and land went to politicians from ZANU-PF, military leaders or leaders in the police forces who account to less than 1,000 individuals, actually more than 100,000 blacks were resettled on land which was previously owned by few whites. These new farmers were usually inexperienced or uninterested in farming, and could not maintain the intensive, industrialized farming of the previous owners. Short term gains were often made by selling the farms . The loss of agricultural expertise also triggered a loss of agricultural financing and market confidence which made recovery almost impossible. A considerable amount of this land has however gone to local people who use it mainly for subsistence farming. Therefore production of staple food, such as maize has not suffered as much as typical export crops, such as tobacco or coffee.^[13] Zimbabwe has sustained the 30th occurrence of hyperinflation ever recorded in world history.^[14] The previously large exports of tobacco, cotton, soya and horticultural produce have consequently reduced dramatically and the income derived from them lost to the national economy.

Government spending is 97.8% of GDP. It has partly been financed by printing money, which has led to hyperinflation. State enterprises are strongly subsidized, taxes and tariffs are high. State regulation is costly to companies, starting or closing a business is slow and costly.^[15] Labor market is highly regulated, hiring a worker is cumbersome, firing a worker is difficult and unemployment has risen to 94% (at the end of 2008; the figure was 80% in 2005).^{[citation needed]}

(See Heritage: Zimbabwe.)

Infrastructure and resources

Transportation

Zimbabwe has adequate internal transportation and electrical power networks, however maintenance has been neglected over several years. Paved roads link the major urban and industrial centers, and rail lines managed by the National Railways of Zimbabwe tie it into an extensive central African railroad network with all its neighbours.

Energy

The Zimbabwe Electricity Supply Authority is responsible for providing the country with electrical energy. Zimbabwe has two larger facilities for the generation of electrical power, the Kariba Dam (owned together with Zambia) and since 1983 by large Hwange Thermal Power Station adjacent to the Hwange coal field. However, total generation capacity does not meet the demand leading to rolling blackouts. The Hwange station is not capable of using its full capacity due to old age and maintenance neglect. In 2006, crumbling infrastructure and lack of spare parts for generators and coal mining lead to Zimbabwe importing 40% of its power - 100 megawatts from the Democratic Republic of Congo, 200 megawatts from Mozambique, up to 450 from South Africa, and 300 megawatts from Zambia.^[16] In May 2010 the country's generation power was an estimated 940MW against a peak demand of 2500MW.^[17] Use of local small scale generators is widespread.

Telephone

The telephone service is problematic, and new lines used to be difficult to obtain. This has since changed as sim cards are readily available at most retail shops. Zimbabwe has only one terrestrial service provider however and the lack of competitiveness impacts badly the local population^{[citation needed]}. Cellular phone networks are an alternative. Principal mobile phone operators are Telecel, Net*One

Agriculture

Agriculture in Zimbabwe can be divided into two parts: industrialized farming of crops such as cotton, tobacco, coffee, peanuts and various fruits and subsistence farming with staple crops such as maize or wheat. The former of the two was almost exclusively in the hands of the white minority until the highly controversial and disastrous land redistribution program that started in 2000. This part of the agricultural economy was highly profitable and large amounts of the produce were exported. Subsistence farming is important for the black majority and has gained importance under the land redistribution program.

Industrialized farming was once the backbone of the domestic Zimbabwean economy and contributed up to 40% of the exported produce. The result of large scale eviction of competent commercial white farmers, the government's land reform efforts and the severing of economic ties with Mozambique, means that was longer the case.^[18]

Reliable crop estimates are no longer available since the agricultural marketing system collapsed. The Government banned maize imports, stating record crops for the year of 2004.^[19] The University of Zimbabwe estimated in 2008 that between 2000 and 2007 agricultural production decreased by 51%.^[20]

Maize was the country's largest domestic crop prior to the farm evictions. Tobacco was the largest export crop followed by cotton. Poor government has exacerbated meagre harvests caused by drought and floods, resulting in significant food shortfalls beginning in 2001. Land reform has found considerable support in Africa and a few supporters among African-American activists,^{[citation needed]} but Jesse Jackson commented during a visit to South Africa in June 2006, "Land redistribution 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 meltdown."^[21]

Mining sector

As other southern African countries, Zimbabwean soil is rich in raw materials. Namely platinum,^[22] coal, iron ore, gold and lately also diamonds have been found in considerable deposits. Also copper, chromite and nickel deposits exist, though in lesser amounts. The Marange diamond fields, discovered in 2006 are thought to be among the richest in the world.

In March 2011, the government of Zimbabwe implemented laws which required local ownership of mining companies; following this news, there were falls in the share prices of companies with mines in Zimbabwe.^[23]

Gold production year [24]	kg
1998	27,114
2007	7,017

It has been reported by various NGOs that the diamond sector in Zimbabwe is rife with corruption; a November 2012 report by NGO Reap What You Sow revealed a huge lack of transparency of diamond revenues and that Zimbabwe’s elite are benefitting from the country’s diamonds.^[25] This followed former South African President Thabo Mbeki’s warning days earlier that Zimbabwe needed to stop its “predatory elite” from colluding with mining companies for their own benefit.^[26] Also in that month, the Associated Press reported that at least $2 billion worth of diamonds had been stolen from Zimbabwe’s eastern diamond fields and had enriched Mugabe’s ruling circle and various connected gem dealers and criminals.^[26]

In January 2013, Zimbabwe’s mineral exports totalled $1.8 billion.^[27]

Education

Zimbabwe has one of Africa's highest literacy rates at over 90%. The population is usually better educated than the African average, making the people one of the greatest assets of this country. The crisis since 2000 has however diminished these achievements because of general lack of resources and the exodus of teachers to other countries.

History

1980-2000

At the time of independence, annual inflation was 5.4 percent and month-to-month inflation was 0.5 percent. Currency of Z$2, Z$5, Z$10 and Z$20 denominations were released. US$1 was equivalent to Z$0.657. Roughly 95 percent of transactions used the Zimbabwean dollar.^[14] 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, primarily because of drought and the foreign exchange crisis faced by the country.^{[citation needed]} Zimbabwe's GDP grew on average by about 4.5% between 1980 and 1990.^[28] The government started crumbling when a bonus to independence war veterans was announced in 1997 (which was equal to 3 percent of GDP) followed by unexpected spendings in Congo's civil war in 1998. In 1999, the country also witnessed a drought which weakened the economy more; the economy could not recover, which ultimately led to the country's bankruptcy in the next decade.^[14]

2000–2009

In recent years, there has been considerable economic hardship in Zimbabwe. Many western countries argue that the Government of Zimbabwe's 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 1 November 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 December 2007, the national economy contracted by as much as 40%; inflation vaulted to over 66,000%, and there were persistent shortages of hard currency, fiat currency, fuel, medicine, and food. GDP per capita dropped by 40%, agricultural output dropped by 51% and industrial production dropped by 47%.

Direct foreign investment has all but evaporated however there is renewed activity in indirect investment via international partnerships with South Africa in particular. In 1998, direct foreign investment was US $400 million. In 2007, that number had fallen to US $30 million ^[20]

How much money was spent in the country's involvement in the war in the Democratic Republic of the Congo has never been reported nor the benefits derived from the military's involvement in commercial mining in that country. 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.

The Mugabe Government attribute Zimbabwe's economic difficulties to sanctions imposed by the Western powers. It has been argued that the sanctions imposed by Britain, the US, and the EU have been designed to cripple the economy and the conditions of the Zimbabwean people in an attempt to overthrow President Mugabe's government. These countries on their side argue that the sanctions are targeted against Mugabe and his inner circle and some of the companies they own. Critics point to the so-called "Zimbabwe Democracy and Economic Recovery Act of 2001", signed by Bush, as an effort to undermine Zimbabwe's economy. Soon after the bill was signed, IMF cut off its resources to Zimbabwe. Financial institutions began withdrawing support for Zimbabwe. Terms of the sanctions made it such that all economic assistance would be structured in support of "democratisation, respect for human rights and the rule of law." The EU terminated its support for all projects in Zimbabwe. Because of the sanctions and US and EU foreign policy, none of Zimbabwe's debts have been cancelled as in other countries.^[29]

Other observers also point out how the asset freezes by the EU on people or companies associated with Zimbabwe's Government have had significant economic and social costs to Zimbabwe.^[30]

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.

Hyperinflation 2004-2009

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 substantial financial support has been publicly reported.

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).^{[citation needed]}

In November 2006 it was announced that sometime around 1 December there would be a further devaluation and that the official exchange rate would change to revalued ZWD 750 per USD.^[31] 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)^[32] and by year end it had fallen to ZWD 3,000 per USD.^[33]

On 1 April 2007 the parallel market was asking ZWD 30,000 for $1 USD.^[34] By year end, it was down to about ZWD 2,000,000. On 18 January 2008, the Reserve Bank of Zimbabwe began to issue higher denomination ZWD bearer cheques (a banknote with an expiry date), including $10 million bearer cheques - each of which was worth less than US $1.35 (70p Sterling; 0.90 Euro) on the parallel market at the time of first issue. On 4 April 2008 the Reserve Bank of Zimbabwe introduced new $25 million and $50 million bearer cheques.^[35] At the time of first issue they were worth US$0.70 & US$1.40 on the parallel market respectively.

On 1 May 2008, the RBZ announced that the dollar would be allowed to float in value subject to some conditions.^[9]

On 6 May 2008, the RBZ issued new $100 million and $250 million bearer cheques.^[36][37] At the date of first issue the $250 million bearer cheque was worth approximately US$1.30 on the parallel market. On 15 May 2008, a new $500 million bearer cheque was issued by the RBZ.^[38] At time of first issue it was worth US$1.93. In a widely unreported parallel move, on 15 May 2008, the RBZ issued three "special agro-cheques" with face values $5 billion (at time of first issue - $19.30), $25 billion ($96.50) & $50 billion ($193).^[39] It is further reported that the new agro-cheques can be used to buy any goods and services like the bearer cheques.

On 30 July 2008, the Governor of the RBZ, Gideon Gono announced that the Zimbabwe dollar would be redenominated by removing 10 zeroes, with effect from 1 August 2008. ZWD10billion became 1 dollar after the redenomination.^[40]

More banknotes were issued since Gono vowed to continue printing money: $10,000 and $20,000 (29 September); $50,000(13 October); $100,000, $500,000 and $1 million(3 November); $10 million(2 December); $50 million and $100 million(4 December); $200 million (9 December); $500 million (11 December); $10 billion (19 December); $1 trillion (17 January 2009)

On February 2, 2009 a final denomination was implemented, cutting 12 zeroes, before the Zimbabwe dollar was officially abandoned on April 12, 2009. Since then, Zimbabwe has issued a new currency.^{[citation needed]}

Dollarization: 2009 to present

In February 2009, the newly installed national unity government allowed foreign currency transactions throughout the economy as a measure to stimulate the economy and end inflation. The Zimbabwean dollar quickly lost all credibility, and by April 2009, the Zimbabwean dollar was suspended entirely, to be replaced by the US dollar in government transactions. In 2014 there were eight legal currencies - US dollar, South African rand, Botswana puta, British pound sterling, Australian dollar, Chinese yuan, Indian rupee and Japanese yen.^[41]

Dollarization reversed inflation, permitting the banking system to stabilize and the economy to resume slow growth after 2009. Dollarization also had several negative impacts, however:

• Reduced taxation and financial transparency, as people continued to keep their money out of the formal banking system.
• Extremely high real interest rates due to lack of capital.
• Government forced into a "pay as you go" system, unable to spend more than it takes in.
• Deficits of coinage for everyday transactions, leading the adoption of South African rand coins, sweets, airtime for mobile phones or even condoms for small change.^[41]
• Counterfeiting currencies with which Zimbabweans are not familiar.^[41]

In January, 2013 Finance Minister Tendai Biti announced that Zimbabwe's national public account held just $217.^[42] The election budget for the July 2013 presidential election was $104 million and government budget for 2013 was $3.09 billion at a projected economic growth of 5 per cent.^[43]

Poverty and unemployment

Poverty and unemployment are both endemic in Zimbabwe, driven by the shrinking economy and hyper-inflation. Poverty rates run near 80%,^[44] while the unemployed in ranked as the world's largest, at 95%.^[45]

As of January 2006, the official poverty line was ZWD 17,200 per month (US$202). However, as of July 2008 this had risen to ZWD 13 Trillion per month (US $41.00) . Most general labourers are paid under ZWD 200 Billion (US 60c) per month.^[46] A nurse's salary in September was Z$12,542 (12 US cents), less than the cost of a soft drink.

The lowest 10% of Zimbabwe's population represent 1.97% of the economy, while the highest 10% make 40.42%. (1995).^[47] The current account balance of the country is negative, standing at around US -$517 million.^[48]

Government response

The 2007 Empowerment Bill to increase local ownership of economy was drafted for presentation to parliament in July 2007.^[49] It was signed into law by President Mugabe on 7 March 2008. The law requires all White or foreign owned business to hand over 51 percent of their business to indigenous Zimbabweans. Many economists predict this will plunge the country into deeper economic woes^{[citation needed]}.

In response to inflation the government has introduced price controls, but enforcement has been largely unsuccessful.^[50] 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. This has not been a significant problem during the term of Reid. However, goods can usually be purchased for a high rate on the black market.^[44]

In January 2010, Finance Minister Tendai Biti announced that Zimbabwe would seek highly indebted poor country (HIPC) status in order to cancel the country's $6 billion debt. Despite criticism from some government officials and economists,^[51] Biti stated that, among other strategies considered, seeking HIPC status was the best option.^[52] In addition to debt forgiveness, HIPC status (which is attained from the International Monetary Fund (IMF) and World Bank) would also allow Zimbabwe access to World Bank resources and loans through the IMF’s Poverty Reduction and Growth Facility.^[53]

The Government of National Unity

By the start of the 2009 the situation had been catastrophic for some time. The three parlamental parties agreed on a Government of National Unity. Despite serious internal differences this government made some important decisions that improved the general economic situation, first of all the suspension of the national currency, the Zimbabwean Dollar in April 2009. That stopped hyperinflation and made normal forms of business possible again, by using foreign currency such as the US American Dollar, the South African Rand, the EUs Euro or the Botswana Pula. The finance minister Tendai Biti (MDC-T) tries to hold a disciplined budget. Zimbabwe recorded in 2009 an economic growth for the first time in a decade.^[10]

See also

• Economy of Africa
• Economic history of Zimbabwe
• History of Zimbabwe
• Zimbabwean dollar
• Tobacco Trade in Zimbabwe

References

External links

• Economy of Zimbabwe on the Open Directory Project
• Zimbabwe latest trade data on ITC Trade Map
• CIA World Fact Book
• MBendi Zimbabwe overview
• Donors will move in when Mugabe finally leaves office

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