In terms of Zimbabwe’s power-sharing deal, the parties
have agreed to prioritize the restoration of economic stability and growth in
the country. The southern African nation’s financial sector is ravaged. Its
official inflation rate is the highest in the world at 11 million per cent,
with unemployment estimated at 80 per cent. Most Zimbabweans are mired in
poverty. Shortages of food, fuel, electricity and foreign currency persist.
Economists agree that a vibrant economy is non-negotiable for a lasting peace
in the country.
Dr. Raymond Gilpin, an economist at the United States
Institute of Peace – the USIP - who’s originally from Sierra Leone, has
conducted intensive research into Zimbabwe’s economy, and the consequences of
the country’s “mind boggling” inflation rate.
“The people of Zimbabwe have to contend with prices that
rise practically every minute. You have the curious circumstance there where
the moment you make a purchase, it devalues almost immediately. People’s money
also loses value every minute. If you have savings in Zimbabwe, they’re
practically worthless,” says the Cambridge and Georgetown University-educated
financial expert, who’s also served as an economist at the World Bank and
African Development Bank Group.
attributes the sad state of Zimbabwe’s economy first and foremost to “two
decades of bad economic policies” by President Robert Mugabe’s government,
which instituted “catastrophic” price controls, fixed exchange rates and harmed
mainstays of Zimbabwe’s economy, such as agriculture.
says the ZANU-PF administration simply spent too much on the wrong things.
clause in the power-sharing agreement reads, “the parties are committed to
working together on a full and comprehensive economic programme to resuscitate
Zimbabwe's economy, which will urgently address the issues of production, food
security, poverty and unemployment and the challenges of high inflation,
interest rates and the exchange rate.”
As a result of the deal, the Movement for
Democratic Change – MDC – led by Morgan Tsvangirai wants to assume responsibility for
reviving Zimbabwe’s economy. However, some analysts have concluded that this will be a poisoned chalice for the country’s new Prime Minister, given the massive
scale of the task ahead.
“It’s daunting, to say the least,” Gilpin told VOA.
“There are problems everywhere.”
Mr. Mugabe’s government though is balking at permitting
Tsvangirai’s MDC to take control of key ministries, including that of finance,
even though observers are in agreement that ZANU-PF has in recent years
presided over economic degradation on a grand scale.
recent USIP briefing moderated by Gilpin concluded that the Mugabe government’s
“failure to uphold the rule of law created chaos and uncertainty, which eroded
business confidence, led to the misallocation of resources and depressed
burgeoned under Mugabe, says Gilpin, and was evident for example in allocation
of prime crop land confiscated from white farmers to ruling party members and
allies with little or no experience in agriculture.
USIP briefing found that politics and economics were “very closely intertwined
in Zimbabwe…. Bad governance has fostered a culture of impunity and helped
reinforce the political and economic muscle of the regime’s leadership. This
group has become deeply vested in the status quo. They have demonstrated a
capacity to do whatever it takes to maintain their privileged positions, which
guarantee unfettered access to wealth and power - at the expense of the vast
majority of Zimbabweans.”
says president Mugabe’s “very close relationship” with Zimbabwe’s armed forces
has “exacerbated the fiscal pressures” in the country, as it’s resulted in the
state spending a lot of money on the security sectors, and reducing spending on
sectors such as health, education and job creation.
to Bernard Harborne, Lead Conflict Specialist at the World Bank, Zimbabwe’s
military and its leaders have been “major beneficiaries” of government
transfers and subsidies are made to keep them loyal and in check. This fiscal
drain has reinforced the regime-focused nature of the military and cultivated a
culture of entitlement,” Harborne says.
adds that fiscal reform in Zimbabwe will have “profound ramifications” for the
country’s armed forces.
says the “paradox” in Zimbabwe presently is that certain people in the country
are getting rich directly as a result of the chaotic state of the economy.
you have economic policies that impose controls on currency and trade, those
with access to the levers of power are able to use that for their benefit. They
control trade; they impose premiums on currency transactions. Those are the
people who are making the most money. The few who have access to political
power use that to derive vast economic benefit.”
effect of this, Gilpin explains, is that Zimbabwe’s dollar continues to weaken
and inflation rises, “meaning that the ordinary Zimbabwean earns less every day
for the same amount of work, and their savings – particularly if it’s in local
currency – is devalued on an ongoing basis.”
Foreign investments still pouring in
Yet as the economic situation has progressively worsened
for Zimbabwe’s citizens, large investments have continued to flow into the
“The Zimbabwean economy, back into the mid-1980s, had
always been a strong economic regional anchor. As such, a number of large
companies have ongoing investment programs in Zimbabwe. A number of the more
recent investments are continuation plans by these large companies,” Gilpin
In June, Anglo American, one of the largest mining
conglomerates in the world, decided to invest a further $400 million in
Zimbabwe’s platinum mines. The London-based Lonhro mining group is also
planning to invest about $66 million in the country this year. But economic
observers say it’s mainly South African mining operations that have been
injecting investments into Zimbabwe.
Gilpin says it’s “very difficult to say” if this foreign
money has benefited “ordinary” Zimbabweans. “One could hypothesize that at the
household level there might be some benefit in terms of employment, in terms of
availability to some services provided by large companies.”
officials have previously blamed some big international companies for “propping
up” the ZANU-PF government with cash, and have said that many of the Mugabe
administration’s abuses wouldn’t have happened without the money provided to it
by certain foreign enterprises. The opposition members warned that such firms
would suffer consequences in the event of the MDC wielding executive power in
Gilpin says it is “important to distinguish between the excesses of the Mugabe
regime and their mismanagement of the economy, and private sector enterprise.”
economist says it’s the ZANU-PF administration, and not international big
business, that’s ultimately to blame for human rights and financial abuses in
addition, he says, “A number of the companies doing business in and business
with Zimbabwe do not do business directly with the Zimbabwe regime. To that
degree, there has been some degree of welfare benefit to the people.”
Innovative methods used to circumvent inflation rate
says an informal economy that’s sprung up in Zimbabwe as a result of the poor
economy has in effect saved the country from complete economic devastation.
“Households and firms have developed mechanisms to go
around the frightening inflation rate.”
the USIP briefing, Frank Young, the vice-president of one of the largest
international for-profit government and business research and consulting firms,
Abt Associates, explained how citizens and businesses had developed
“imaginative and extremely agile strategies” to survive because “the Zimbabwean
currency has lost value as a medium of exchange.”
barter system has re-emerged in the country, for example.
briefing concluded: “The failure of financial institutions to attract deposits
and provide credit has forced Zimbabweans to adopt mechanisms to avoid the
costs and perils of doing business via official channels. The practically
worthless currency has been replaced with innovative means of exchange, like
petrol coupons and non-perishable groceries. Savings are widely held in US
dollars and South African rand. The ‘official’ economy is irrelevant and a
number of informal, barter systems have developed, based on strong community
networks. They allow groups to purchase and barter essential commodities (like
food and fuel) while hedging against inflation and currency depreciation.”
agreement proposes the creation of a National Economic Council, comprised of
members of the different parties, with members of major sectors of the economy,
such as manufacturing and mining, to advise government on policy.
some economists estimate that, if there’s true political and economic reform in
Zimbabwe as a result of the power-sharing agreement, it’ll take at least 15
years for the country’s economy to reach a favorable level.
says there are certain steps that need to be taken as soon as possible for this
necessary first step is an answer to the political situation. Policy frameworks
have to be completely changed, controls have to be removed; institutions have
to be depoliticized.”
points out that the Mugabe government “ran ongoing budget deficits” and that
these were primarily financed by Zimbabwe’s Central Bank, which injected money
at extraordinary rates. This action by the Central Bank, he states, must end,
as must control of certain sectors of the economy by the top brass of
Zimbabwe’s security forces.
need to be channeled to more needy sectors of the economy, not the army and
Mugabe’s political allies,” Gilpin comments.
says Zimbabwe’s economy can eventually be stabilized if inflation is
also have to make sense of the currency to stop the wide gap between the
official exchange rate and the market exchange rate. To do that, firstly – and
very, very simply but politically it has been difficult to do – the Reserve
Bank of Zimbabwe needs to stop printing money. The main impetus for the
printing of money is the fact that the Reserve Bank has been lumped with a
number of quasi-fiscal responsibilities, like paying subsidies, paying
government debt and providing export credits to the favored few. That has to
stop. Once we stanch the flow of money into the economy, inflation will come
in Zimbabwe’s economy and its currency are also essential to economic recovery,
in the economy will only come once people recognize that there are focused and
transparent policies, and that the key institutions – primarily the Reserve
Bank – are doing the right things.
to the USIP briefing, the massive debt amassed by the ZANU-PF administration
must be addressed, and “external resources” and international assistance must
be mobilized to “help finance reform and provide social safety nets.”
Campbell, whose South Africa-based risk analysis firm, Executive Research
Associates, has been closely monitoring the situation in Zimbabwe, is convinced
that “in the end, there’s only one way” to ensure economic rehabilitation in
must be a political solution that takes the economy away from ZANU-PF. Then,
the failed policies of the past can be corrected, and this network of people
around Mugabe that have been monopolizing government contracts and subsidies
can be broken down.”