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Economy of Zimbabwe
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The economy of Zimbabwe is collapsing under the weight of economic mismanagement, resulting in 94% unemployment and spiraling hyperinflation. The economy poorly transitioned in recent years, deteriorating from one of Africa's strongest economies to the world's worst. Inflation has surpassed that of all other nations at over 80 sextillion(1021)% (although it is impossible to calculate an accurate value), with the next highest in Ethiopia at 41%.
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The economy of Zimbabwe is collapsing under the weight of economic mismanagement, resulting in 94% unemployment and spiraling hyperinflation. The economy poorly transitioned in recent years, deteriorating from one of Africa's strongest economies to the world's worst. Inflation has surpassed that of all other nations at over 80 sextillion(1021)% (although it is impossible to calculate an accurate value), with the next highest in Ethiopia at 41%. It currently has the lowest GDP real growth rate in an independent country and 3rd in total (behind Palestinian territories.)
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 one of the world's highest rate of infection have greatly hampered its progress. Spiraling inflation, which many critics argue was caused by president Robert Mugabe's policies towards land reform, have led to internal upheaval and population displacement, and poverty.
Current economic conditions
The economic freedom in Zimbabwe has weakened lately. Since 2000 president Mugabe has confiscated lands of white farmers, and this former net importer of grain has now been plagued by hunger.
Government spending is 56.4 % 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.
Labor market is highly regulated, hiring a worker is cumbersome, firing a worker is difficult and the unemployment has risen to 80 % (2005).
(See .)
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 primarily because of drought and foreign exchange crisis faced by the country. Zimbabwe's GDP grew on average by about 4.5% between 1980 and 1990.
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, up to 450 from South Africa, and 300 megawatts from Zambia.
Independent analysts put the inflation rate at +165,000%, a figure which critics claim is far less than the actual inflation rate. Parity rates of measurement point towards a figure of close to 500,000% but these cannot be cited for obvious reasons. The use of oppressive laws as manifested in the likes of the infamous National Price and Income Commission has seen the country at the bottom list of the World Bank Index. Recently the President of the republic signed the Empowerment bill whose effect is to transfer ownership from all foreigners into the hands of the local people, something that has already had its toll on the DI.
The telephone service is problematic, and new lines are difficult to obtain.
Agriculture was once the backbone of the Zimbabwean economy. The result of large scale eviction of white farmers and the government's land reform efforts, means this is no longer the case.
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.
The University of Zimbabwe estimates that between 2000 and 2007 agricultural production decreased by 51%.
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 meagre 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 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 melt down."
2000–2008
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 foreign exchange, local 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. In 1998, direct foreign investment was US $400 million. In 2007, that number had fallen to US $30 million
Billions were spent in the country's involvement in the war in the Democratic Republic of the Congo. Price controls have been imposed on a wide range of products including food (maize, bread, steak), fuel, medicines, soap, electrical appliances, yarn, window frames, building sand, agricultural machinery, fertilisers and school textbooks.
Mugabe's supporters maintain that economic hardship has been brought about by Western-backed economic sanctions instituted through the United Nations. However, the only sanctions in place are personal sanctions against about 130 senior Zanu-PF figures; there are no sanctions against trade or investment with Zimbabwe.
As of February 2004 Zimbabwe's foreign debt repayments ceased, resulting in compulsory suspension from the International Monetary Fund (IMF). This, and the United Nations World Food Programme stopping its food aid due to insufficient donations from the world community, has forced the government into borrowing from local sources.
Zimbabwe began experiencing severe foreign exchange shortages, exacerbated by the difference between the official rate and the black market rate in 2000. In 2004 a system of auctioning scarce foreign currency for importers was introduced, which temporarily led to a slight reduction in the foreign currency crisis, but by mid 2005 foreign currency shortages were once again chronic. The currency was devalued by the central bank twice, first to 9,000 to the US$, 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 1 December there would be a further devaluation and that the official exchange rate would change to revalued ZWD 750 per USD. 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) and by year end it had fallen to ZWD 3,000 per USD.
On 1 April 2007 the parallel market was asking ZWD 30,000 for $1 USD. 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. 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..
On 6 May 2008, the RBZ issued new $100 million and $250 million bearer cheques.. 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. 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). . 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.
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 2 February 2009 another denomination was implemented, this time cutting 12 zeroes.
| year | Official exchange rate | Parallel exchange rate |
|---|
| 2000 | 38 | 56–70 | | 2001 | 55 | 70–340 | | 2002 | 55 | 380–1740 | | 2003 | 55; 824 | 1400–6000 | | 2004 | 824–5730 | 5500–6000 | | 2005 | 5,730–26,003 | 6,400–100,000 | | 2006 | 85,158–101,196
(250 revalued dollars) | 100,000–550,000
(550–3,000 revalued dollars)
| | 2007 | 250 revalued dollars
30,000 revalued dollars (Sept) | 3,000–2,000,000 revalued dollars
(4,000,000 revalued dollars - see note)
| | 2008 (Jan) | 30,000 revalued dollars | 5,000,000 - 7,500,000 revalued dollars | | 2008 (Feb) | 30,000 revalued dollars | 20,000,000 revalued dollars
7.2 - 30 million | | 2008 (Mar) | 30,000 revalued dollars | 35 - 70,000,000 revalued dollars
32 - 70 million | | 2008 (Apr) | 30,000 revalued dollars | 35 - 241,750,000 revalued dollars
62 - 235 million | | 2008 (May) | 30,000 - 580,678,132 revalued dollars | 193,000,000 - 869,850,000 revalued dollars
235 - 1,000 million | | 2008 (June) | 648 Million - 11.4 Billion revalued dollars | 972 Million - 40.9 Billion revalued dollars
1.3 - 50 billion | | 2008 (July) | 12.2 Billion - 69.5 Billion revalued dollars | 53 Billion - 759 Billion revalued dollars
60 - 950 billion | | 2008 (August) | 7.58 - 36.70 "third" dollars | 38 "third dollars" (1st);
51 (1st);
61 (2nd);
138 (13th)
393 (24th)
750 (26th)
1330 (28th)
1780 (29th)
90 (1st); 120 (13th); 160 (14th); 220 (15th); 300 (18th); 350 (19th); 425 (20th); 500 (21st); 750 (22nd); 1,000 (25th); 1,600 (28th); 3,000 (29th) | | 2008 (September) | 37.15 (1st); 41.73 (2nd); 45.75 (3rd); 47.83 (4th); 50.97 (5th); 56.80 (8th); 62.00 (9th); 66.70 (10th); 70.02 (11th); 74.94 (12th); 79.83 (15th); 84.20 (16th); 84.325 (17th); 96.287 (18th); 100.00 (19th); 103.60 (22nd); 104.30 (23rd) | 3,362 (1st); 3,949 (2nd); 4,311 (3rd); 5,085 (4th); 11,815 (5th); 13,583 (8th) 14,936 (10th); 25,384 (11th); 34,606 (18th); 38,000 (19th); 80,000 (22nd); 130,000 (23rd); 270,000 (24th); 557,000 (29th) | | 2008 (October) | 176.33 (8th); 208.65 (14th); 229.90 (16th); 244.00 (17th); 266.40 (20th); 323.45 (21st); 345.10 (22nd); 352.00 (23rd); 388.00 (24th); 450.61 (25th); 505.27 (27th); 561.00 (28th); 567.50 (29th); 667.05 (30th) | 1,400,000 (1st), 1,700,000 (6th), 2,000,000 (8th), 3,150,000 (9th), 7,700,000 (13th), 121,000,000 (17th), 333,500,000 (20th), 1.2 billion (21st), 3.2-26 billion (23rd), 3.95 trillion (30th), 11.8 trillion (31st) | | 2008 (November) | 769.68 (3rd); 854.21 (4th); 892.00 (5th); 859.01 (6th); 855.51 (7th); 8,399.31 (12th); 10,788.70 (13th); 13,469.56 (14th); 25,593.66 (18th); 38,128.72 (21st); 49,237.71 (25th); 56,197.60 (26th) | 135 trillion (6th), 663 trillion (7th), 22.4 quadrillion (10th), 183 quadrillion (13th) | | 2008 (December) | 67,501.50 (1st); 84,901.50 (2nd); 92,501.50 (3rd); 100,330.21 (4th); 128,734.67 (8th); 731,425.01 (16th); 925,825.00 (17th) | Cash rates: 2 million (2nd)- 2 billion (24th) | | 2009 (January) | 8,676,674 (8th); 9,326,444 (9th); 10,148,113 (12th); 13,856,763 (14th); 18,683,139 (19th); 25,599,608 (21st) | | | 2009 (February) | 12,336,416,667 (2nd) | | Note(1): Official rates quoted are Government set exchange rates. Parallel (Black market) rates differ significantly.
Note(2): Due to the Dec 2007 cash shortage, a rate of 4,000,000 revalued dollars was available on electronic funds transfers.
Note(3): Some news agencies are reporting exchange rates in terms of the weight of Zimbabwe dollar bearer cheques that can be purchased.
Note(4): ZimbabweanEquities.com publishes daily updates on the Zim$:US$ rate based on the trading values of stocks on the Harare and other stock markets, calculating an implied value for the Zim$
Note(5): ZimbabweanEquities.com is now publishing updates twice daily (morning and afternoon) and uses a logarithmic scale to depict daily movement of the zimbabwean dollar.
Note(6): Due to serious cash shortages, the rate above in the right column(parallel) during third dollar differ to cash rate significantly.
Note(7): Old Mutual plc has not traded on the Zimbabwe Stock Exchange since 21 November, 2008, therefore no meaningful value was given. |
Poverty and unemployment are both endemic in Zimbabwe, driven by the shrinking economy and hyper-inflation. Both unemployment and poverty rates run near 80%.
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. 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 consume only 1.97% of the economy, while the highest 10% consume 40.42%. (1995). The current account balance of the country is negative, standing at around US -$517 million.
Government response
The 2007 Empowerment Bill to increase local ownership of economy was drafted for presentation to parliament in July 2007. 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.
In response to skyrocketing inflation the government has introduced price controls, but enforcement has been largely unsuccessful. 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.
Gold
| Production | 27,114 kg. (1998) | 7,017 kg. (2007) |
Energy
| Electricity | | Production | 8.877 billion kWh (2003) | | Consumption | 11.22 billion kWh (2003) | | Exports | 0 kWh (2003) | | Imports | 3.3 billion kWh (2003)
9.50% from D.R.Congo
19.0% from Mozambique
28.5% from Zambia
43.0% from South Africa | | Oil | | Production | 0 bbl/day (2003 est.) | Consumption | 22,500 bbl/day (2003 est.) | | Exports | 0 bbl/day (2003) | | Imports | 23,000 bbl/day (2003) |
See also
External links
- [https://www.cia.gov/library/publications/the-world-factbook/geos/zi.html CIA World Fact Book]
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