The economy of Zimbabwe

The economy of Zimbabwe is in crisis, with rampant inflation, de-industrialisation and shortages of food and fuel.

Agricultural production is shrinking. For years it was a major tobacco producer and a potential bread basket for surrounding countries.

Zimbabwe's wide range of resources should enable it to support sustained economic growth. The country has an important percentage of the world's known reserves of metallurgical-grade chromite.

But the forced seizure of almost all white-owned commercial farms, with the stated aim of benefiting landless black Zimbabweans, led to sharp falls in production and precipitated the collapse of the agriculture-based economy. The country has endured rampant inflation and critical food and fuel shortages.

Many Zimbabweans survive on grain handouts. Others have voted with their feet; hundreds of thousands of Zimbabweans, including much-needed professionals, have emigrated.

Crop production in Zimbabwe has rapidly reduced. The government of Zimbabwe faces a variety of economic problems after having abandoned earlier efforts to develop a market-oriented economy. Problems include a shortage of foreign exchange, soaring inflation, and supply shortages. Zimbabwe's involvement from 1998 to 2002 in the war in the Democratic Republic of the Congo drained hundreds of millions of dollars from the economy.

Commercial mineral deposits include coal, platinum, asbestos, copper, nickel, gold, and iron ore. However, for the country to benefit from these mineral deposits, it must attract foreign direct investment.

Mineral exports, agriculture, and tourism are the main foreign currency earners of Zimbabwe. Zimbabwe is the biggest trading partner of South Africa on the continent. With international attractions such as Victoria Falls, the Great Zimbabwe stone ruins, Lake Kariba, and extensive wildlife, tourism historically has been a significant segment of the economy and contributor of foreign exchange. The sector has contracted sharply since 1999, however, due to the country's declining international image.

The downward spiral of the economy has been attributed mainly to mismanagement and corruption of the Mugabe regime and the eviction of more than 4,000 white farmers in the controversial land redistribution of 2000. Since this land edistribution began, agricultural exports, especially tobacco, have declined sharply. The Zimbabwe Conservation Task Force released a report in June 2007, estimating 60% of Zimbabwe's wildlife has died since 2000. The report warns that the loss of life combined with widespread deforestation is potentially disastrous for the tourist industry.

But in the early 1970s, the economy experienced a modest boom. Real per capita earnings for blacks and whites reached record highs, although the disparity in incomes between blacks and whites remained, with blacks earning only about one-tenth as much as whites.

After 1975, however, Rhodesia's economy was undermined by the cumulative effects of sanctions, declining earnings from commodity exports, worsening guerilla conflict, and increasing white emigration. When Mozambique severed economic ties, the Smith regime was forced to depend on South Africa for access to the outside world. Real gross domestic product (GDP) declined between 1974 and 1979.

An increasing proportion of the national budget (an estimated 30%-40% per year) was allocated to defense, and a large budget deficit raised the public debt burden substantially.

Following the Lancaster House settlement in December 1979, Zimbabwe enjoyed a brisk economic recovery. Zimbabwe inherited one of the strongest and most complete industrial infrastructures in sub-Saharan Africa, as well as rich mineral resources and a strong agricultural base. Real growth for 1980-81 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 a 3% contraction in GDP in 1987 due primarily to drought and foreign exchange crisis. Growth in 1988-90 averaged about 4.5%.

Since the mid-1990s, this infrastructure has been deteriorating rapidly, but remains better than that of most African countries. Poor management of the economy and political turmoil have led to considerable economic hardships. The Government of Zimbabwe's chaotic land reform program, recurrent interference with the judiciary, and maintenance of unrealistic price controls and exchange rates have led to a sharp drop in investor confidence. Since 1999, the national economy has contracted by as much as 35%; inflation vaulted over 7,634.8% (year on year) in July 2007; and there have been persistent shortages of foreign exchange, fuel, and food.

Direct foreign investment has all but evaporated. In a desperate attempt to control inflation, the government forced firms and supermarkets to reduce prices by half in July 2007, which resulted in severe shortages of basic and other commodities.

Agriculture is no longer the backbone of the Zimbabwean economy. Large scale commercial farming has been effectively destroyed over the course of the last five years under the government's controversial land reform efforts starting in 2000. Corn is the largest food crop and tobacco had traditionally been the largest export crop, followed by cotton. Tobacco production in 2006, however, slumped to its lowest level--about 50 million kg--since independence, off from a peak in 2000 of 237 million kg. Gold production, another former key foreign currency source, slid by about 48% in the first half of 2007 to 4.54 metric tons compared to the corresponding period in 2006.

Poor government management has exacerbated meager corn harvests in years of drought or floods, resulting in significant food shortfalls every year since 2001.

Inflation rose from an annual rate of 32% in 1998 to an official estimated high of 100,580.2% in January 2008, a state of hyperinflation. Local residents have largely resorted to buying essentials from neighbouring Botswana, South Africa and Zambia. IMF economists estimated inflation at about 150,000% in Dec 2007.

In August 2006, a new revalued Zimbabwean dollar was introduced, equal to 1000 of the prior Zimbabwean. The exchange rate fell from 24 old Zimbabwean dollars per U.S. dollar (USD) in 1998 to 250,000 prior or 250 new Zimbabwean dollars per USD at the official rate, and an estimated 120,000,000 old or 120,000 revalued Zimbabwean dollars per US dollar on the parallel market, in June 2007.

On July 13, 2007, the Zimbabwe government said it had temporarily stopped publishing (official) inflation figures, a move that observers said was meant to draw attention away from runaway inflation which has come to symbolize the country's unprecedented economic meltdown.

Paved roads link the major urban and industrial centers, but the condition of urban roads and the unpaved rural road network has deteriorated significantly since 1995 for lack of maintenance. Rail lines connect with an extensive central African railroad network, although railway track condition has also worsened in recent years, along with locomotive availability and utilization.

The electric power supply has become erratic and blackouts are common due to low generator availability at the Kariba hydroelectric power plant and unreliable or nonexistent coal supplies to the country's large thermal plants. Telephone service is problematic, and new lines are difficult of obtain.

The largest industries are metal products, food processing, chemicals, textiles, clothing, furniture and plastic goods. Most manufacturers have sharply scaled back operations due to the poor operating climate and foreign exchange shortages.

Zimbabwe is not a member of the African Growth and Opportunity Act (AGOA) and a number of textile businesses have migrated to other African countries in a bid to benefit from the opportunities offered by AGOA.

Zimbabwean producers still export lumber products, certain textiles, chrome alloys and automobile windscreens to the U.S.

Zimbabwe is endowed with rich mineral resources. Exports of gold, asbestos, chrome, coal, platinum, nickel, and copper could lead to an economic recovery one day. No commercial deposits of petroleum have been discovered, although the country is richly endowed with coal-bed methane gas that has yet to be exploited.

Mugabe points to foreign governments and alleged "sabotage" as the cause of the fall of the Zimbabwean economy, as well as the country's 80% formal unemployment rate. Critics of Mugabe's administration, including the majority of the international community, blame Mugabe's controversial programme which sought to seize land from white commercial farmers.

Mugabe has repeatedly blamed sanctions imposed on Zimbabwe by the European Union and the United States for the state of the Zimbabwean economy. However, these sanctions only target government officials and not ordinary citizens.

Last Updated on Monday 4th August 2008