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Zimbabwe - Economy

About half of Zimbabwe’s population faces severe hunger amid a devastating drought and economic collapse, the United Nations warned 03 December 2019. The World Food Program said it that in total, 5.5 million people in the countryside and 2.2 million in urban areas need help, and acute malnutrition had risen from 2.5 percent last year to 3.6 percent. Nearly US$300 million was urgently needed to provide 240,000 tons of humanitarian aid to Zimbabwe, which is in the biggest economic crisis in decades, according to WFP spokeswoman Bettina Luescher. Luecher's statements come after a U.N.-appointed independent expert Hilal Elver said a week ago that the country, once seen as the breadbasket of Africa, is now in the grip of "man-made starvation." The WFP expert explained that "a climate disaster" and an "economic collapse" are responsible for the current crisis, with normal rains recorded in just one of the last five growing seasons.

By the end of 2018 Zimbabwe was experiencing its worst economic meltdown in a decade, reminding many of the days when inflation soared to more than 1 billion percent and the local currency was abandoned. Now there is such a shortage of US dollars in circulation that many people are forced to tap the black market. Zimbabweans had hoped that new President Emmerson Mnangagwa, who came to power last year when Robert Mugabe resigned under military pressure, would bring new economic growth. But Zimbabwe has seen people struggling to cope with huge price rises and shortages of necessities such as bread, cooking oil and petrol.

Prices of basic commodities and education materials have been spiralling out of control, as the economy’s health continues to deteriorate. To insulate themselves from the price increases, individuals and companies were demanding payment in foreign currencies while rejecting the bond note and the Real Time Gross Settlement System [RTGS] transfers.

Zimbabwe's economy is half the size it was at the turn of the millennium. Once considered the breadbasket of Africa, Zimbabwe's agricultural production plunged at the turn of the century after government-sanctioned farm seizures. After nearly four decades of Robert Mugabe's unchallenged power, the country's banking system, agricultural system and industrial sectors are in urgent need of reform. Formal jobs are rare, and official unemployment runs at more than 90%. Zimbabweans have one of the greatest resources and that's the resource of education. It's one of the most educated countries in Africa, it has the highest literacy levels. The Zimbabweans that are no longer here, the expatriate Zimbabweans, are really economic refugees.

One of the key challenges for Zimbabwe's new leader Emmerson Mnangagwa will be to transform the economy into one that can offer good employment opportunities. China is possibly the most likely cash benefactor in the initial stages of a Mnangagwa administration. In some circles, Mnangagwa is seen as Zimbabwe's Deng Xiaoping, the Chinese leader who instigated a degree of market liberalisation.

Zimbabwe’s recovery from decades of economic contraction has faltered and again the economy faces serious challenges due to external shocks and policy. Growth has slowed sharply from an average 8% from 2009 to 2012, caused by significant shifts in trade and a series of major droughts. An ill-timed fiscal expansion in 2016 saw the deficit rise to 10% of Gross Domestic Product (GDP) and the banking sector suffer severe cash shortages. Extreme poverty, estimated to have fallen from 2009 to 2014, is projected to have risen substantially.

The El Niño-induced drought hit the economy hard. Lower commodity prices and the appreciation of the US dollar have compounded difficulties. Policy action is needed to reverse this trend. ZANU-PF's abuse of power echoed throughout the economy and the party's influence certainly inhibited economic recovery. Investors not yet active in Zimbabwe generally understood this and accordingly choose to do business elsewhere. While the government of Zimbabwe has implemented a number of measures since 2009 designed to attract foreign direct investment (FDI), many of its macroeconomic policies, such as the indigenization and economic empowerment laws, are significant deterrents.

The political and economic crises that characterized the economy between 2000 and 2008 nearly halved its GDP, the sharpest contraction of its kind in a peacetime economy. This raised poverty rates to more than 72%, and left a fifth of the population in extreme poverty. Health, education, and other basic services—once regional models—largely collapsed, and the Human Development Index (HDI) in 2011 stood at 173 out of 187 countries. A lengthy isolation from the international community restricted aid flows and saw a build-up of arrears to multilateral and bilateral partners.

At independence Zimbabwe was fortunate in having some advantages that few other new African states have enjoyed. Although much of the country remained underdeveloped, Mugabe's government inherited an economy that was more advanced and viable than any on the continent except that of South Africa. Moreover it boasted a certain degree of self-sufficiency derived from fifteen years of resisting economic sanctions through the development of domestic industries. Nevertheless the country had to cope with a number of economic difficulties.

Mugabe, hoping to gain the confidence of foreign investors, gave assurances that multinational companies would not be nationalized and that a joint capitalist-socialist approach will be necessary for some time to come. Mugabe and his black governmental ministers went to great lengths to assure the white workers that the country needs their abilities and output. This is particularly true of the modern white farmers on whose proven skills the country's food supply will depend for some years to come.

In the early 1970s, the economy experienced a modest boom. Real per capita earnings for both 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, the cumulative effects of sanctions, declining earnings from commodity exports, worsening guerilla conflict, and increasing white emigration undermined Rhodesia’s economy. When Mozambique severed economic ties, the Smith regime was forced to depend on South Africa for access to the outside world. Real 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 from 1982 through 1984. In 1985 the economy rebounded strongly due to a 30% jump in agricultural production. But drought and a foreign-exchange crisis triggered another slump in 1986 and 1987. Annual real GDP growth from 1988 through 1990 averaged about 4.5%.

Since the mid-1990s, Zimbabwe’s infrastructure has been deteriorating rapidly, but it remains better than that of most African countries. Political turmoil and poor management of the economy have led to considerable economic hardships. The Government of Zimbabwe's chaotic land reform program, recurrent interference with the judiciary, and imposition of unrealistic price controls and exchange rates caused a sharp drop in investor confidence. Since 1999 the national economy had contracted by as much as 40%. Foreign direct investment all but stopped. In July 2007, the government made a desperate attempt to control inflation, which brought persistent shortages fuel, food, and other goods, by forcing firms and supermarkets to reduce prices by half, which resulted in severe shortages of basic commodities. Inflation vaulted over 200 million percent (year on year) in July 2008, according to official estimates; independent economists estimated inflation was at least in the quadrillions of percent. In January 2009, official recognition of dollarization stopped hyperinflation. Investor confidence remains low due to insecurity of land tenure and indigenization laws that require, in theory if not always in practice, 51% of investments to be owned by Zimbabwean citizens.

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 unreliable or nonexistent coal supplies to the country's large thermal plants and power plant breakdowns. Telephone service is problematic, and new lines are difficult of obtain. Municipal water supply is also erratic.

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 eligible for preferred trade status under the African Growth and Opportunity Act. Zimbabwean producers still export lumber products, certain textiles, chrome alloys, and automobile windscreens to the US.

Zimbabwe is endowed with rich mineral resources. Exports of gold, diamonds, 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.

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.

With considerable hydroelectric power potential and plentiful coal deposits for thermal power station, Zimbabwe is less dependent on oil as an energy source than most other comparably industrialized countries, but it still imports 40% of its electric power needs from surrounding countries--primarily Mozambique. Only about 15% of Zimbabwe's total energy consumption is accounted for by oil, all of which is imported. Zimbabwe imports about 1.2 billion liters of oil per year. Zimbabwe also has substantial coal reserves that are utilized for power generation, and coal-bed methane deposits recently discovered in Matabeleland province are greater than any known natural gas field in Southern or Eastern Africa. In recent years, poor economic management and low foreign currency reserves have led to serious fuel shortages.

Zimbabwe's interconnected economic and political crises from 1998 through 2008 prompted many of the country's most skilled and well-educated citizens to emigrate, leading to widespread labor shortages for managerial and technical jobs. At the same time, the decade-long severe contraction of the economy caused formal sector employment to drop significantly. The Zimbabwe Statistical Agency (Zimstat) began to compile meaningful employment statistics in 2010. According to these figures, Zimbabwe’s non-farm employment rose from 721,000 in December 2011 to 802,000 in June 2012 (the latest date for which official data are available). Anecdotal evidence shows widespread youth unemployment as the country continues to churn out graduates without any meaningful employment growth. As a result, most end up joining the informal sector estimated at over 90 percent of the workforce.





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