ZIMBABWE: Allegory of the Caving Economy

scan-13-zimbabwe-money

Zimbabwe’s economic troubles used to make headlines. The situation has improved but challenges still remain. On paper, Zimbabwe’s economy is doing well. Between 2009 and 2011, the country’s Gross Domestic Product grew by 20.1 percent. Zimbabwe benefited especially from high demand for its gold, platinum and other metals, which are valuable export commodities.That trend seems to be turning in 2013. “Zimbabwe’s growth has been threatened somewhat in the last year or so,” independent analyst John Robertson tells DW.

Still, Zimbabwe is far from the economic decline of the early years of this century. Between 1999 and 2008, economic output declined by 45 percent, according to World Bank statistics. Invasions of farm land by self-styled war veterans led to the collapse of the agricultural sector, triggering an economic crisis. At one time, inflation reached more than 500 billion percent.

South African firms are resisting the urge to pull out of Zimbabwe despite an increasingly hostile business climate in the hope they will be in prime position to benefit from a future upturn. Zimbabwe’s banks are reluctant to approve loans

When the coalition government took office in February 2009, the economy was in a hyper inflationary mode. To counter inflation, Finance Minister Tendai Biti decided to scrap the country’s currency, the Zimbabwe Dollar. Now, US dollars, South African rands and British pounds can be used to buy goods. That measure yielded some success. In 2012, inflation stood at 5.5 percent.

The ‘dollarization’ of Zimbabwe’s economy is making life harder for many small-scale business owners. “It was easier to do business when we had Zimbabwe dollars. Now only the most effective businesses can survive,” John Robertson says. Zimbabwe is facing a liquidity crisis and many banks are short of money. Getting loans is therefore a big challenge.

Land reform

Agricultural production has improved, with the agricultural sector growing by four percent in 2011. Some reports published in recent years also claim that some of the farmers who acquired land after the chaotic land reform program of the early 2000s have been able to increase the output of their farm. Zimbabwe’s agricultural sector had almost collapsed after the reform, because many of the program’s beneficiaries lacked the skills and the capital to take care of their farms. Mining, too, is one of the sectors driving the economy

Nevertheless, Zimbabwe is still dependent on food imports. Prices for imports such as maize and wheat are rising to levels we have never seen before. That particularly hurts poor Zimbabweans who can ill afford the high prices for goods.

Indigenization – a new bone of contention?

While the economy is growing, poverty remains high. Close to 72 percent of the population lives below the poverty line. President Robert Mugabe’s ZANU-PF party is promoting the concept of indigenization to change that. Under the law, international subsidiaries of foreign companies have to transfer at least 51 percent of their shares to black Zimbabweans.

“We are not opposed to foreign investors. Zimbabwe will always welcome foreign investors but on the terms that make the indigenous people realize maximum benefit from their God given resource,” says Zimbabwe’s Minister for Youth Development, Indigenization and Economic Development, Saviour Kasukuwere,

Some international companies have already complied with the new law. In March 2013, Impala Platinum agreed to transfer 51 percent of its Zimplats subsidiary into local hands. Still, the business community is not happy. “The law has dampened the business mood,” says the World Bank’s Nginya Mungai Lenneiye. Prime Minister Morgan Tsvangirai’s MDC-T party is opposed to the indigenization program. The party plans to introduce its own program called “Juice” if it wins the July 31 poll. Business leaders and analysts will therefore be watching election day with a great deal of interest.

Umm…..51% share transfer? Good luck with that Mugabe. You tell me how that turns out.

(See: http://www.dw.de/poverty-remains-despite-economic-growth-in-zimbabwe/a-16985305)

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s