Economy of Zimbabwe

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Economy of Zimbabwe
Rank 104th (IMF); 149th (CIA); 127th (WB)
Currency US Dollar & South African Rand
Fiscal year calendar year
Trade
WTO
organisations
Statistics
USD (est) $3.5 billion (2010) (IMF) [1] ; USD
GDP $28.098 billion (2007) (IMF);
USD $6.186 billion (2007) (CIA+WB)
GDP growth -5.7% (2007) -3.6% (2008) (IMF est.)
GDP per capita USD $188 (2008 est.)
Agriculture: 16.7%, Industry: 21.6%, Services:
GDP by sector
61.6% (2007)
231,000,000% (CSO - July 2008) [2]
Inflation (CPI)
HHIZ Nov 14. 8.97 × 1022% [3]
80% earn below poverty line of ZWD 13 Trillion per
Population month (USD $41.00) (July 2008). However, the
below poverty line average wage is only ZWD 100 Billion (30c) per
month.[4]
50.1% (1995) 56.8% (2003) List of countries by
Gini index
income equality
Labour force 4.23 million (2004 est.)
Agriculture: 60%, Services: 9%, Wholesale, Retail,
Labour force
Hotels, Restaurants: ~4%, Manufacturing: 4%,
by occupation
Mining: 3% (2003)
Unemployment 94%[5] (end of 2008)
 mining (coal, gold, platinum, copper, nickel, tin,
clay, numerous metallic and non-metallic ores), steel;
Main industries
wood products, cement, chemicals, fertilizer,
clothing and footwear, foodstuffs, beverages
Ease of Doing
159th[6]
Business Rank
External
Exports USD $3.44 billion (2010 est. IMF) [1] ;
Export goods Cotton, tobacco, gold, ferroalloys, textiles/clothing
South Africa 36.4%, (China, Japan, Zambia) 7.3%
Main export
each, Mozambique 4.7%, (US, Botswana, Italy,
partners
Germany, Netherlands) 3.6% each (2006)
Imports USD $2.059 billion (2005 est.) f.o.b.
machinery and transport equipment, other
Import goods
manufactures, chemicals, fuels
Main import South Africa 43%, China 4.6%, Botswana 3.3%
partners (2005)
Public finances
Domestic: (est) USD $1 Billion (Dec 2010),[1]

Public debt International: (est) USD $7.6 billion (Dec 2010

IMF),[7], USD $5.3 billion (March 2010),[8] USD $1.3
billion (Dec 2002)
Revenues ZWD $216 billion (rev) (2006)
Expenses ZWD $451 billion (rev) (2006)
recipient: $178 million; note - the EU and the US
Economic aid provide food orange aid on humanitarian grounds
(2000 est.)
Main data source: CIA World Fact Book
All values, unless otherwise stated, are in US dollars

Zimbabwean exports in 2006

The economy of Zimbabwe has shrunk significantly from economic mismanagement after 2000,
resulting in a desperate situation for the country and widespread poverty from among others 94%
unemployment.[9] The participation from 1998 to 2002 in the war in the Democratic Republic of
the Congo set the stage for this deterioration by draining the country for hundreds of millions of
dollars.[10] Hyperinflation has been a major problem from about 2003 to April 2009, when the
country suspended its own currency. The economy deteriorated from one of Africa's strongest
economies to the world's worst.

The country has reserves of metallurgical-grade chromite. Other commercial mineral deposits
include coal, asbestos, copper, nickel, gold, platinum and iron ore. Historically the country had
farming and tourism as its other main industries.

Contents
[hide]

 1 Current economic conditions

 2 1980s
 3 Infrastructure and resources
 4 2000–2010
o 4.1 Government response
 5 The Government of National Unity
 6 Gold
 7 Energy
 8 See also
 9 References
 10 External links

[edit] Current economic conditions

Since 2000 the Zimbabwean government has taken most of the farmland previously used by
commercial farmers (mostly white) and reallocated it in a corrupt way to politicians from the
reigning party ZANU-PF, military leaders or leaders in the police forces. These persons were
usually inexperienced or uninterested in farming, resulting in a catastrophic reduction in
agricultural output. The loss of agricultural expertise also triggered a loss of agricultural
financing and market confidence which made recovery almost impossible. Short term gains were
often made by selling the farms equipment. The previously large exports of tobacco, cotton, soya
and horticulutural produce have consequently reduced dramatically and the income derived from
them lost to the national economy.

Government spending is 97.8% of GDP. It has partly been financed by printing money, which
has led to hyperinflation. State enterprises are strongly subsidized, taxes and tariffs are high.
State regulation is costly to companies, starting or closing a business is slow and costly.[11] Labor
market is highly regulated, hiring a worker is cumbersome, firing a worker is difficult and
unemployment has risen to 94% (at the end of 2008; the figure was 80% in 2005).

(See Heritage: Zimbabwe.)

[edit] 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 primarily because of drought and foreign exchange crisis faced by the country.[citation needed]
Zimbabwe's GDP grew on average by about 4.5% between 1980 and 1990.[12]

[edit] Infrastructure and resources

Zimbabwe has adequate internal transportation and electrical power networks, however
maintenance has been neglected over several years. Paved roads link the major urban and
industrial centers, and rail lines managed by the National Railways of Zimbabwe tie it into an
extensive central African railroad network with all its neighbours. Electrical power is mainly
generated by the Kariba Dam on the Zambezi River and augmented since 1983 by large thermal
plants adjacent to the Wankie coal field.

The telephone service is problematic, and new lines are difficult to obtain[citation needed].

Agriculture was once the backbone of the domestic Zimbabwean economy and contributed up to
40% of the exported produce. The result of large scale eviction of competent commercial
farmers, the government's land reform efforts and the severing of economic ties with
Mozambique, means this is no longer the case.[13] Reliable crop estimates are no longer available
since the agricultural marketing system collapsed. The Government banned maize imports,
stating record crops for the year of 2004.[14] The University of Zimbabwe estimated in 2008 that
between 2000 and 2007 agricultural production decreased by 51% [15].

Maize was the country's largest domestic crop prior to the farm evictions. Tobacco was the
largest export crop followed by cotton. Poor government has exacerbated meagre harvests
caused by drought and floods, resulting in significant food shortfalls beginning in 2001. Land
reform has found considerable support in Africa and a few supporters among African-American
activists,[citation needed] but Jesse Jackson commented during a visit to South Africa in June 2006,
"Land redistribution 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 is the
major cause of this economic meltdown."[16]
Zimbabwe has one of Africa's highest literacy rates at over 90%. The population is usually better
educated than the African average, making the people one of the greatest assets of this country.

[edit] 2000–2010
See also: Hyperinflation in Zimbabwe

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.

On 1 November 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 hard currency, fiat
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 however there is renewed activity in indirect
investment via international partnerships with South Africa in particular. In 1998, direct foreign
investment was US $400 million. In 2007, that number had fallen to US $30 million [15]

How much money was spent in the country's involvement in the war in the Democratic Republic
of the Congo has never been reported nor the benefits derived from the military's involvement in
commercial mining in that country. 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.

Some observers[who?] attribute Zimbabwe's economic difficulties to sanctions imposed by the

Western powers, a thesis also advanced by the Mugabe Government. It has been argued[by whom?]
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. Critics[who?] point to the so-called "Zimbabwe Democracy and Economic
Recovery Act of 2001" signed by Bush in 2001 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.[17][unreliable source?]
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.[18]

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 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).[citation needed]

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.[19]
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)[20] and by year end it had fallen
to ZWD 3,000 per USD.[21]

On 1 April 2007 the parallel market was asking ZWD 30,000 for $1 USD.[22] 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.[23] 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.[9]
On 6 May 2008, the RBZ issued new $100 million and $250 million bearer cheques.[24][25] 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.[26]
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).[27] 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.[28]

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.[citation needed]

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
85,158–101,196 100,000–550,000
2006
(250 revalued dollars) (550–3,000 revalued dollars)
250 revalued dollars 3,000–2,000,000 revalued dollars
2007
30,000 revalued dollars (Sept) (4,000,000 revalued dollars - see note)
5,000,000 - 7,500,000 revalued dollars [29]
2008 (Jan) 30,000 revalued dollars [30]

20,000,000 revalued dollars [31][32]

2008 (Feb) 30,000 revalued dollars
7.2 - 30 million [33]
35 - 70,000,000 revalued dollars [34][35][36]
[37][38][39][40]
2008 (Mar) 30,000 revalued dollars
32 - 70 million [33]
35 - 241,750,000 revalued dollars [40]
2008 (Apr) 30,000 revalued dollars
62 - 235 million [33]
[9]
2008 (May) 30,000 - 580,678,132 revalued dollars 193,000,000 - 869,850,000 revalued
 dollars [40]

235 - 1,000 million [33]

972 Million - 40.9 Billion revalued
648 Million - 11.4 Billion revalued dollars Zimbabwean dollar
2008 (June)
dollars
1.3 - 50 billion [33]
53 Billion - 759 Billion revalued
12.2 Billion - 69.5 Billion revalued dollars[41] [4]
2008 (July)
dollars
60 - 950 billion [33]
38 "third dollars" (1st);[44]

51 (1st); [5] 61 (2nd); [6] 138 (13th) 393

(24th) 750 (26th) 1330 (28th) 1780 (29th)
2008
7.58 - 36.70 "third" dollars [42][43] [41]
(August)
90 (1st); 120 (13th); 160 (14th); 220
(15th); 300 (18th); 350 (19th); 425
(20th); 500 (21st); 750 (22nd); 1,000
(25th); 1,600 (28th); 3,000 (29th) [7]
37.15 (1st); 41.73 (2nd); 45.75 (3rd); 3,362 (1st); 3,949 (2nd); 4,311 (3rd);
47.83 (4th); 50.97 (5th); 56.80 (8th); 5,085 (4th); 11,815 (5th); 13,583 (8th)
2008 62.00 (9th); 66.70 (10th); 70.02 (11th); 14,936 (10th); 25,384 (11th); 34,606
(September) 74.94 (12th); 79.83 (15th); 84.20 (16th); (18th); 38,000 (19th); 80,000 (22nd);
84.325 (17th); 96.287 (18th); 100.00 130,000 (23rd); 270,000 (24th); 557,000
(19th); 103.60 (22nd); 104.30 (23rd)[45] (29th) [8]
176.33 (8th); 208.65 (14th); 229.90 1,400,000 (1st), 1,700,000 (6th),
(16th); 244.00 (17th); 266.40 (20th); 2,000,000 (8th), 3,150,000 (9th),
2008 323.45 (21st); 345.10 (22nd); 352.00 7,700,000 (13th), 121,000,000 (17th),
(October) (23rd); 388.00 (24th); 450.61 (25th); 333,500,000 (20th), 1.2 billion (21st),
505.27 (27th); 561.00 (28th); 567.50 3.2-26 billion (23rd), 3.95 trillion (30th),
(29th); 667.05 (30th) 11.8 trillion (31st)
769.68 (3rd); 854.21 (4th); 892.00 (5th);
859.01 (6th); 855.51 (7th); 8,399.31
2008 135 trillion (6th), 663 trillion (7th), 22.4
(12th); 10,788.70 (13th); 13,469.56
(November) quadrillion (10th), 183 quadrillion (13th)
(14th); 25,593.66 (18th); 38,128.72
(21st); 49,237.71 (25th); 56,197.60 (26th)
67,501.50 (1st); 84,901.50 (2nd);
2008 92,501.50 (3rd); 100,330.21 (4th); Cash rates: 2 million (2nd)- 2 billion
(December) 128,734.67 (8th); 731,425.01 (16th); (24th)
925,825.00 (17th)
8,676,674 (8th); 9,326,444 (9th);
2009
10,148,113 (12th); 13,856,763 (14th);
(January)
18,683,139 (19th); 25,599,608 (21st)[46]
2009 12,336,416,667 (2nd)
(February)
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.[47]

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$[40]

Note(5): ZimbabweanEquities.com is now publishing updates twice daily (morning and afternoon) and uses a
logarithmic scale to depict daily movement of the Zimbabwean dollar.

Note(6): Due to serious cash shortages, the rate above in the right column(parallel) during third dollar differ to cash
rate significantly.

Note(7): Old Mutual plc has not traded on the Zimbabwe Stock Exchange since 21 November 2008, therefore no
meaningful value was given.

Poverty and unemployment are both endemic in Zimbabwe, driven by the shrinking economy
and hyper-inflation. Both unemployment and poverty rates run near 80%.[48]

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.[49] 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).[50] The current account balance of the country is negative, standing at
around US -$517 million.[51]

[edit] Government response

The 2007 Empowerment Bill to increase local ownership of economy was drafted for
presentation to parliament in July 2007.[52] 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[citation needed].

In response to inflation the government has introduced price controls, but enforcement has been
largely unsuccessful.[53] 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.[48]
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,[54] Biti stated that, among other
strategies considered, seeking HIPC status was the best option.[55] 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.[56]

[edit] The Government of National Unity

By the start of the 2009 the situation had been catastrophic for some time. The three parlamental
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 of the
Botswana Pula. The finance minister Tendai Biti (MDC-T) tries to hold a disciplined budget.
Zimbabwe recorded in 2009 an economic growth for the first time in a decade.[10]