Economy of Zimbabwe

Current economic conditions

Since 2000, Zimbabwe has seized and forcibly redistributed most of the country's white owned commercial farms. The new occupants, which included black only citizens and several prominent members of the ruling ZANU-PF administration, were usually inept, inexperienced, or uninterested in farming – thereby failing to retain the labour-intensive, highly efficient management of previous landowners. Short term gains were achieved by selling the land or equipment. The contemporary lack of agricultural expertise has triggered severe export losses and negatively affected market confidence. Idle land is now being utilised by local peasants practising meagre subsistence farming. Production of staple foodstuffs, such as maize, has recovered accordingly – unlike typical export crops including tobacco and coffee. Zimbabwe has also sustained the 30th occurrence of recorded hyperinflation in world history.

Government spending is 29.7% of GDP. State enterprises are strongly subsidised, taxes and tariffs are high. State regulation is costly to companies, starting or closing a business is slow and costly. Labour market is highly regulated, hiring a worker is cumbersome and firing a worker is difficult. By 2008 unemployment had risen to 94%.

A 2014 report by the Africa Progress Panel has found that of all the African countries looked at when working out how many years it would take to double per capita GDP, Zimbabwe fared the worst and that at its current rate of development it would take 190 years for the country to double its per capita GDP. Uncertainty around the indigenisation programme, the perceived lack of a free press, the possibility of abandoning the US dollar as official currency, and political uncertainty flowing the end of the government of national unity with the MDC as well as power struggles within ZANU-PF have increased concerns that the country’s economic situation could further deteriorate.

In September 2016 the finance minister identified "low levels of production and the attendant trade gap, insignificant foreign direct investment and lack of access to international finance due to huge arrears" as significant causes for the poor performance of the economy.

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. 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. Zimbabwe's GDP grew on average by about 4.5% between 1980 and 1990.

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 spending due to Zimbabwe's involvement in the Second Congo 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. In the same year, 1999, Zimbabwe experienced its first defaults on its IMF, World Bank, and African Development Bank debts in addition to debts taken out with Western lenders.

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.

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, fuel, medicine, and food. GDP per capita dropped by 40%, agricultural output dropped by 51% and industrial production dropped by 47%.

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.

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.

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 severe. 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).

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 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.

Dollarization: 2009 to present

In February 2009, the newly installed national unity government (which included the opposition to Mugabe) 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 pula, British pound sterling, Australian dollar, Chinese yuan, Indian rupee and Japanese yen.

Dollarization reversed inflation, permitting the banking system to stabilize and the economy to resume slow growth after 2009. Dollarization also had other consequences, including:

In January, 2013 Finance Minister Tendai Biti announced that Zimbabwe's national public account held just $217. 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. The Economist described the 2013 election as "rigged" and how, after regaining full control of the government, the Mugabe government doubled the civil service and embarked on "...misrule and dazzling corruption."

In August 2014, Zimbabwe began selling treasury bills and bonds to pay public sector salaries that have been delayed as GDP growth weakens while the economy experiences deflation. US$2 million was sold in July through private placements of Six-month Treasury bills at an interest rate of 9.5%. According to IMF data, GDP growth was forecast to be 3.1% by the end of 2014, a major decline from an average rate of 10% between 2009 and 2012, while government data showed that consumer prices declined for five consecutive months by the end of June.

By mid-2016 the net benefits of dollarisation seemed to have run out leading to protests and political instability.

Government of National Unity: 2009-2013

In response to the negative long term economic situation the three parliamentary 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 former finance minister Tendai Biti (MDC-T) tried to hold a disciplined budget. In 2009 Zimbabwe recorded a period of economic growth for the first time in a decade.

Post-Government of National Unity: 2013-present

Following ZANU-PF's landslide electoral victory in the 2013 general elections which The Economist described as "rigged" Patrick Chinamasa was appointed finance minister. Policies encouraging the indigenisation of the economy were fast tracked and laws requiring that 51% or more of non-black Zimbabwean owned companies had to be handed over to black Zimbabweans were implemented. This has been credited with creating further uncertainty in the economy and negatively impacting investment climate in the country. Although legislation dealing with the indigenisation of the Zimbabwean economy has been in development since 2007 and actively initiated by ZANU-PF in 2010 the policy has continued to be accused of being unclear and a form of "racketeering by regulation." The government doubled the civil service and embarked on what the Economist described as "...misrule and dazzling corruption."

In April 2014 Chinamasa admitted that the country was heavily in debt and that the country needed to better attract foreign direct investment. Officially Zimbabwe's debt is $7 billion or over 200% of the country's GDP however this figure is disputed with figures as high as $11 billion being quoted once debts to other African countries and China are included. As of May 2014 it has been reported that Zimbabwe's economy was in decline following the period of relative economic stability during the Government of National Unity. It is estimated that Zimbabwe's manufacturing sector requires an investment of roughly US$8 billion for working capital and equipment upgrades.

In 2016 Tendai Biti, an opposition politician estimated the government was running a deficit of up to 12% of GDP and Zimbabwe began experiencing a significant shortage of US dollars partly due to a consistent trade deficit. This prompted the Zimbabwean government to limit cash withdrawals from banks and change exchange-control regulations in order to try to promote exports and reduce the currency shortage. In June and July 2016, after Government employees had not been paid for weeks, police had set up road blocks to coerce money out of tourists and there were protests throughout Zimbabwe, Patrick Chinamasa, the finance minister, toured Europe in an effort to raise investment capital and loans, admitting "Right now we have nothing." In August 2016 the government announced that it would be laying off 25,000 civil servants (8% of the country's 298,000 civil servants), cut the number of embassies and diplomatic expenses and cut ministerial expenses in an attempt to save $4 billion in annual wages and secure help from the World Bank and the IMF.

Poverty and unemployment

Poverty and unemployment are both endemic in Zimbabwe, driven by the shrinking economy and hyper-inflation. Poverty rates in 2007 were nearly 80%, while the unemployment rate in 2009 was ranked as the world's largest, at 95%.

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 represent 1.97% of the economy, while the highest 10% make 40.42%. (1995). The current account balance of the country is negative, standing at around US -$517 million. The negative economic environment since the year 2000 has also impacted Zimbabwean entrepreneurs with a large number of them going bankrupt between 2000 and 2014.

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 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.

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, Biti stated that, among other strategies considered, seeking HIPC status was the best option. 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.