Economy of Zimbabwe

Economy of Zimbabwe

Currency	Zimbabwean dollar (ZWD)
Fiscal year	calendar year
Trade organisations	WTO
Statistics
GDP	USD $25.690 billion (2005)
GDP growth	-5.7% (2007) -3.6% (2008) (IMF est.)
GDP per capita	USD $2,607 (2005 est.)
GDP by sector	Agriculture: 17.3%, Industry: 24.5%, Services: 58.3% (2003)
Inflation (CPI)	est. 4530% (May 2007) [1] 6,430% (2008) (IMF est.)
Population below poverty line	80% (June 2007) earn below ZWD 5.5 million per month (USD $46.00) [2]
Gini coefficient	50.1% (1995) 56.8% (2003) [3]
Labour force	4.23 million (2004 est.)
Labour force by occupation	Agriculture: 60%, Services: 9%, Wholesale, Retail, Hotels, Restaurants: ~4%, Manufacturing: 4%, Mining: 3% (2003)
Unemployment	80% (2005 to 2007 est.)
Main industries	mining (coal, gold, platinum, copper, nickel, tin, clay, numerous metallic and nonmetallic ores), steel; wood products, cement, chemicals, fertilizer, clothing and footwear, foodstuffs, beverages
External
Exports	USD $1.644 billion (2005 est.)
Export goods	Cotton, tobacco, gold, ferroalloys, textiles/clothing
Main export partners	South Africa 33.3%, China 7.5%, Japan 6.4%, Netherlands 4.9%, US 4.7%, Italy 4.3%, Zambia 4.2%, Germany 4.1% (2005)
Imports	USD $2.059 billion (2005 est.) f.o.b.
Import goods	machinery and transport equipment, other manufactures, chemicals, fuels
Main import partners	South Africa 43%, China 4.6%, Botswana 3.3% (2005)
Public finances
Government debt	Domestic: ZWD $1 trillion (rev) (April 2007) [4] . International: USD $5.2 billion (September 2006)
Revenues	ZWD $216 billion (rev) (2006)
Expenses	ZWD $451 billion (rev) (2006)
Economic aid	recipient: $178 million; note - the EU and the US provide food aid on humanitarian grounds (2000 est.)
All values, unless otherwise stated, are in US dollars.

Properly managed, Zimbabwe's wide range of resources should enable it to support continuing economic growth. The country has an important percentage of the world's known 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 to feed itself. As of mid-2006 Zimbabwe has a fast shrinking economy and the highest inflation rate in the world.

Rhodesia era

The Rhodesian economy experienced a modest boom in the early 1970s. 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 Ian 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, before full independence in 1980. 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.

The manufacturing sector, already well-developed before the Unilateral Declaration of Independence (UDI) in 1965, was given a major stimulus by the imposition of United Nations sanctions. The sanctions obliged Rhodesian industry to diversify and create many import-substitution undertakings to compensate for loss of traditional sources of imports. Rhodesian processing of local raw materials also grew rapidly. Major growth industries included steel and steel products, heavy equipment, transportation equipment, ferrochrome, textiles, and food processing.

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. Growth in 1988-1990 averaged about 4.5%.

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.

With considerable hydroelectric power and plentiful coal deposits for thermal power stations, Zimbabwe is less dependent on oil as an energy source than most other comparably industrialized countries. 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 litres per year. Dependence on petroleum is managed through the price controls for vehicle fuels, the use of gasohol, and the substitution of diesel-electric locomotives on the railway system. Zimbabwe also has substantial coal reserves that are utilized for power generation, and recently discovered in Matabeleland province are coalbed methane deposits 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.

The telephone service is problematic, and new lines are difficult to obtain.

Agriculture was once the backbone of the Zimbabwean economy. Due to largescale 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 went as far as banning maize imports, stating record crops for the year of 2004

Before the farm evictions, Maize was the largest crop. 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] is the major cause of this economic melt down."

Effects of political turmoil on the economy (2000 - 2007)

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 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 2007, the national economy contracted by as much as 40%; inflation vaulted to over 4530%, and there were persistent shortages of foreign exchange, local currency, fuel, and food.

Direct foreign investment has all but evaporated. 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.

Robert Mugabe has repeatedly denied charges that his policies have been responsible for the economic crisis. He and his supporters maintain that the economic hardships have been brought about by Western "economic" sanctions. 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.

Starting in 2000, Zimbabwe experienced severe foreign exchange shortages, exacerbated by the difference between the official rate and the black market rate. 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 US Dollar. 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 Sept 2006).

In November 2006, it was announced that sometime around December 01, there would be a further devaluation and that the official exchange rate would change to revalued ZWD 750 per USD. This never did materialize. However the parallel market immediately reacted to this news, with the parallel rate falling to ZWD 2,000 per USD (18 Nov 2006) and by year end it had fallen to ZWD 3,000 per USD.

On Apr 1, 2007, it was reported that the parallel market was asking ZWD 30,000 for $1 USD. By mid June it was down to ZWD 120,000.

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 15,000 revalued dollars (special rate)	3,000 - 120,000 revalued dollars
Note: Official rates quoted are Government set exchange rates. Parallel (Black market) rates differ significantly.

For more details, please see Zimbabwean dollar.

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 poverty line was ZWD 17,200 per month.

As of June 2007, this had risen to ZWD 5.5 million per month (US $46.00). The average farm worker's monthly wage was under ZWD 100,000 per month (US $0.83) and the average worker's monthly wage was $500,000 (US $4.17).

The lowest ten percent of Zimbabwe's population consume only 1.97% of the economy, while the highest ten percent consume 40.42%. (1995) . The current account balance of the country is negative, standing at around US -$517 million.

'2007 Empowerment Bill to increase local ownership of economy' (This legislation is being drafted (June 2007) for presentation to parliament in July 2007)

Donors will move in when Mugabe finally leaves office

[5]

Donor countries, including former colonial power the UK, have drawn up a list of Zimbabwe's needs, including about $3 billion (R21.4 billion) over five years to stabilise the country's economy and cope with what is described in a secret report as "the day when" President Robert Mugabe leaves office.

A key point the International Monetary Fund (IMF) makes to the donor community - dubbed the Fishmongers Group - is that "a big bang approach" to liberalising the exchange rate will send the Zimbabwean dollar "into a free-fall for some time". Liberalisation would have to be managed carefully.

Foreign assistance of $650 million would be required in the first year to support an economic reform programme that is part of a five-year, $3 billion package, the international donors have been told.

This package would include:

(a) $150 million in food support in the first two years, including $125 million in the first year;

(b) $500 million for land agrarian reform over five years;

(c) $325 million for health services and education;

(d) $550 million for infrastructure;

(e) $1.7 billion for various emergency aid programmes; and

(f) $1.3 billion for balance of payment support and budgetary support.

A report by the Institute for Democracy in South Africa (Idasa), released by deputy executive director Ivor Jenkins, notes that a national economic and land reform programme would be necessary to lift Zimbabwe out of its economic crisis.

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)

See also

• Economy of Africa
• History of Zimbabwe

External links

• CIA World Fact Book
• MBendi Zimbabwe overview