Zimbabwe was once a prominent economic leader in the African continent. Boasting a vibrant, affluent capital city, being home to Victoria Falls and having been heavily endowed with resource-rich land accommodating gold and diamond reserves to rival the world’s elite; the country had a flourishing tourism sector fuelling economic growth. In 1980, the Zimbabwean dollar was more valuable than it’s US counterpart. By 1994, Zimbabwe had a stable positive outlook with a debt-to-GDP ratio of 60%, GDP per capita at purchasing-power-parity of $2,500 (On par with African counterpart Nigeria at that time) and an arguably enviable unemployment rate of 5%. All signs of the economy pointed to the ascendance of the nation in the 21st century to follow a growth path similar to that of South Africa. So what caused the subsequent downturn the country witnessed in the two decades following?
Zimbabwe’s ‘fall from grace’
The crash of the Zimbabwean dollar occurred on Friday 14th November 1997 seeing the currency fall a staggering 71.5% against the US dollar overnight. The primary factor of which was fiscal indiscipline. Public sector wages accounting for 80% of the government budget were not viewed as an anomaly in the Zimbabwean economy. The process of ‘indigenisation’ become synonymous with the nation. This acculturation towards inward-looking political policies, which are atypical in an era of globalisation, debatably stemmed from structural socio-economic inequalities which came about during the decolonisation process.
Zimbabwe gained independence from British ruling in 1980, however up to the year 2000, white farmers had majority holdings over the arable land in Zimbabwe. This accounted for approximately 8.24% of the total land with much of the residual land being infertile and arid. As one would expect, this heightened socio-economic tensions and inevitably led to the passing of the Land Aquisition Act by the incumbent President in 2000. Originally with the intentions of redistributing this land to the indigenous people, this quickly led to violent outbreaks once “White farmers were immediately forced out of their lands” by law in 2001. This led to a bloodbath with numerous murders. Many would argue this modern-day fascism led to a deterioration in Zimbabwe’s international relations as a result of media coverage allowing the world to witness the horrific scenes and initiated the international isolation of the country.
The passing of the fertile lands to less-experienced farmers in a manner which did not allow for the necessary transfer of skills to continue mass-production led to a stark drop in agricultural productivity. This was further augmented the prevalent food shortages in the nation. The World Bank estimated that 7.5 million of the population failed to meet basic food needs in 2007 – half of the population. Lower agricultural productivity also crippled economic performance using trade. Zimbabwe, like many other resource-rich nations, are a primary product exporter with raw tobacco accounting for 18% of Zimbabwean exports ($614 million). Tobacco production falling by three-quarters contributed to the cumulative GDP decline from 1998-2007 of 54%, in an outrageous 10-year recession.
Another iconic feature of the Zimbabwean economy was rampant hyperinflation. As a result of increasing government debt of an economy unable to pay back aid loans, the reserve bank resorted to printing money. This expansion of money supply over the real inflation rate of the economy resulted in a vicious cycle peaking in 2008 with an annual CPI inflation rate equal to 11.2 million percentage points. A loaf of bread cost 1.6 trillion Zimbabwean dollars in August 2008. In this instance, the value of biodegradable goods such as crops would hold their value longer than printed money. Suppliers were disincentivised to sell in the domestic market, all sectors of the economy fell and unemployment at one point rose to 80%. The decline in the domestic GDP combined with the political isolation of Zimbabwe led to a $2.8 billion dollar peak in publicly guaranteed external debt in arrears in 2013. As it stands: Zimbabwe is indebted to the IMF for $110m, The World Bank for $1.2bn and The African Development Bank for $600m.
Catalysts for recovery
The adoption of a multi-currency regime in 2009, brought about a period of stabilisation in the country with cumulative GDP growth of 320% over a 6-year period, however, more must be done to ensure a reversal of the misfortunes the country has been subjected to.
The nation became more profitable in 2013 due to a spike in the price of minerals and tobacco acting as a viable form of collateral for a country previously unable to borrow. This led to increasing investment from China and explained the downward trend in the external debt of the country over the past couple of years. Given China’s growth decline (2-3% less annual GDP growth) and the subsequent fall in commodity prices, Zimbabwe needs to find an alternative primary investor and trading partner in this current global economic climate. The US is heads above all other candidates. Well governed, capital-rich, the world’s largest oil producer (oil accounting for the largest share of Zimbabwean imported goods), the world’s largest tobacco importer and with an extremely diversified economy; the establishment of healthy political relations and trading channels to the US economy will be essential in the drastic improvement Zimbabwe’s balance of payments and the provision of a stable, reliable growth engine through trade and aid.
In the long-run, for Zimbabwe to reduce its debt burden and restore its position as a key driver in Africa; electoral malpractice and corruption must be addressed. The prominence of this political practice in the country deters investment and worsens international relations. This hinders development as the government fails to provide sufficient capital for savvy development initiatives which seek to provide a structural change in a flawed economy.
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