Economy of Zimbabwe Totally Explained

Everything about Economy Of Zimbabwe totally explained

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 over 160,000%, with the next highest in Burma at 39.5%. The government has attributed the economy's poor performance to ZDERA, a US congressional act hinging debt relief for Zimbabwe on democratic reform, and freezing the international assets of the ruling class. 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 the world's highest rate of AIDS 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's citizens to feed themselves.

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.

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.
Independent analyst put the inflation rate at +165 000% a figure which critics claim is far less than the actual inflation rate. Parity rates of measurement show point torwads a figure of close to 500 000% but these can't be cited for obvious reasons. The use of oppressive laws as manifested in the likes of the infamous National Price and Income Commision has seen the country at the bottom list of the of the World Bank Index. Recentley the President of the republic signed the Empowerement bill whose effect is to transfer ownership from all foreigners into the hands of the local people something that has already had its toil on the DI. 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. 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%. (External Link

) 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's the major cause of this economic melt down."

2000–2008

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 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 (External Link

) 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. 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 April 1 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 April 4 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 May 6 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 May 15 2008, a new $500 million bearer cheque was issued by the RBZ. At time of first issue it was worth US$1.93.
   On May 1 2008, the RBZ announced that the dollar would be allowed to float in value subject to some conditions.

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
2008 (Mar)	30,000 revalued dollars	35 - 70,000,000 revalued dollars
2008 (Apr)	30,000 revalued dollars	35 - 241,750,000 revalued dollars
2008 (May)	30,000 revalued dollars	193 - 457,800,000 revalued dollars
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$

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 (17c US). However, as of March 2008 this had risen to ZWD 875 million per month (US $35.00) . Most general labourers are paid under ZWD 250 million (US $10) per month (External Link

).
Salaries for most government employees range from 200 million to 500 million Zimbabwe dollars (per month) and a union representing teachers making up the bulk of state workers is pushing for a wage hike to at least Z$1.7 billion to keep up with inflation. (External Link

) 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 is being drafted for presentation to parliament in July 2007. It is signed into law by President Mugabe on 7th 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. However, goods can usually be had for a high rate on the black market.

Gold

Production

27,114 Kg. (1998)

7,017 Kg. (2007) (External Link

)

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)

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