an overview of zimbabwe’s macroeconomic environment 3 issue 1... · an overview of zimbabwe’s...

AN OVERVIEW OF ZIMBABWE’S MACROECONOMIC ENVIRONMENT

Macleans Mzumara, Department of Economics, Bindura University of Science Education, Private Bag 1020, Bindura, Zimbabwe. Phone +263 71 7531, Mobile +263 712735723, Fax

+263 71 7534. Email: [email protected]

Abstract Zimbabwe’s macroeconomics environment has evolved from an inward looking specifically import substitution and very high growth rates during pre-independence to another high growth rate immediately after independence to slow growth rates in the 1990s and virtually negative growth rates in the 2000s. A policy direction maintained during post-independence. Despite high achievements in the areas of health and education the economy experienced setbacks in the late 1980s. This was followed by Economic Structural Adjustment Programme (ESAP) which turned to be a failure. The successor programmes were not successful either. The economy seriously deteriorated in late 1990s. The situation further worsened during the period 2000-2008. The country experienced a runaway inflation, shortage of basic commodities, shortage of foreign currency, capacity underutilisation, exodus of skilled manpower etc. There has been dearth of data in some years e.g when ZIMSTAT stopped publishing inflation statistics as inflation figures became huge and frightening. This paper fills a gap on the dearth of information on Zimbabwe and provide in-depth information for policy makers, prospective investors, researchers and other stakeholders on macroeconomic environment in Zimbabwe for all relevant periods. Keywords: Macroeconomics environment; Macroeconomic policies; Economic meltdown 1.1 Introduction There has been dearth on literature on Zimbabwe’s macroeconomics environment. The period of crisis 2000-2008 there were no meaningful studies which were carried out in Zimbabwe. Individuals, firms and others experienced the meltdown of the economy but not much has come into the body of literature. This paper attempts to give description and analysis of the macroeconomic environment of Zimbabwe from pre-independence to the present moment. This paper is structured such as to cover the following: overview of macroeconomic environment – Unilateral Declaration of Independence (UDI) era; post-independence era; Economic Structural Adjustment (ESAP); crisis period; post-conflict reconstruction/recovery; sectoral overview; macroeconomic policies and programmes- fiscal policy, exchange rate policy, monetary policy, price control; inflation; unemployment; external debt; Short Term Emergency Recovery Programme(STERP I and II); Medium Term Plan; Indigenisation and Economic Empowerment Act, sanctions and summary and conclusion. The paper begins looking at the overview of macroeconomic environment. 1.2 Overview of macroeconomic environment The overview of macroeconomic is covered under: Unilateral Declaration of Independence (UDI), 1965-1979; post-independence era, 1980-1990; Economic Structural Adjustment Programme (ESAP) era, 1990-1996 and the crisis period, 1997-2008; and post-conflict reconstruction/recovery, 2009-. In the next section the paper discusses UDI era (1965-1979). 1.2.1 Unilateral Declaration of Independence (UDI) era (1965-1979) This is the period before independence. Rhodesia as the country was known was slapped with United Nations’ sanctions. During this period, the country embarked on import substitution strategy even though this was at a very high cost. The import substitution strategy became the industrial base of the economy. Starnberger Institute (1989) brings in a historical perspective that Rhodesia was able to withstand sanctions for a very long time and the economy experienced high growth because of import substitution strategy that the regime implemented. The high growth was achieved with the assistance of South Africa. The government employed wider interventionist policies that included inward looking and import

Macleans Mzumara, Int. J. Eco. Res., 2012, v3i1, 33-69 ISSN: 2229-6158

IJER | JAN - FEB 2012 Available [email protected]

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substitution strategy which was aimed to encourage local manufacturing and attainment of autarky in a wide range of consumer goods. These were reinforced through the clear controls on prices, wages, interest rates and exchange rates. The period from 1965-1973 was characterised by very high growth. However, the growth was affected in 1974 due to intensification of the liberation war and the global recession brought about as a result of oil shock (UNDP, 2008). This slow down of an economic activity affected the economy that year. The UDI economy was generally managed well even though racially a few people benefited as opposed to the majority who were marginalised, the prices were very much stable, savings rates were high and the currency was stable. There was close partnership between government and the private sector (UNDP, 2008). This era was followed by post-independence era (1980-1990). 1.2.2 Post – independence era (1980-1990) At independence on 18 April 1980, the Zimbabwe government assumed a dual economy which had both a poor rural sector and a relatively developed modern sector (Institute of Development Studies, 2003). The economy at independence was a well functioning one. The new government maintained the various controls used by Smith’s regime. These were done in the context of the command economy. It expanded expenditure on health, education and other social services (UNDP, 2008:). Auret (1990) observes also that the new government recorded very high achievements in education and health sectors. The country experienced very high growth rates of 10.7% and 9.7% in 1980 and 1981 respectively engineered by external factors on growth, fiscal driven redistributive programmes and the return of access to external markets (UNDP, 2008). The growth in social sectors was not matched with the growth in productive sectors, diminishing demand of Zimbabwean exports, a decline in investment and capital formation, severe shortages of foreign currency their combination brought in recession and the country had no option but to settle for International Monetary Fund (IMF) initiated Economic Structural Adjustment Programme (ESAP) (UNDP, 2008). Zimbabwe experienced fiscal and current account deficit (Parson, 2007). This era is preceded by the Economic Structural Adjustment Programme (ESAP). 1.2.3 Economic Structural Adjustment Programme (ESAP) era (1990-1996) The UNDP (2008) points out that this is a period of economic liberalisation and was meant to: move away from import substitution to an open market driven economy; implement monetary policy reform which included market based interest rates and liberalisation of the financial sector; opening of one stop investment centre; commercialisation of the parastatals; and liberalisation of the labour market. The Economic Structural Adjustment Programme failed miserably and led to a decline in job security in the public sector and winding up of some industries (Parson, 2007). The government failed to meet the domestic logic of the reforms for example it failed to implement fiscal stabilisation as was needed out of fear of becoming politically unpopular to reduce expenditure and drought experienced in 1992//93 season complicated the situation as a result the deficit ballooned to 8% as compared to the target of 5% and GDP growth was marginal at 0.8% against the target of 5% (UNDP, 2008). Then the government abandoned ESAP and came up with its own programme known as Zimbabwe Programme for Economic and Social Transformation (ZIMPREST) and it was short-lived due its failure to have any impact and also the donors did not participate in it ( Institute of Development Studies, 2003). ZIMPREST failed in the same way as ESAP due to government fiscal indiscipline as a result of not conforming to macroeconomic principles leading to high inflation, depleted foreign currency reserves, disequilibrium in the balance of payment (BOP) and declining economic growth (UNDP, 2008). This era leads us to the crisis era.



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1.2.4 Crisis period era (1997-2008) The UNDP (2008) gives an account that the economic crisis began on what is known as ‘Black Friday’ when the domestic currency crashed on 14 November 1997 which was caused by unplanned grant payment to ex-combatants. Each combatant received Z$50 000 which was not budgeted for but was enough to cause the crash of the domestic currency. In 1998, Zimbabwe rendered a hand by sending troops to DR Congo. The involvement in DR Congo’s conflict further increased the fiscal deficit. The frequent interventions by the government after the failure of both ESAP and ZIMPREST saw the deepening of the crisis (UNDP, 2008). The above factors really brought instability in the economy. The UNDP(2008) points out that since the onset of the crisis in 1997, GDP declined significantly from 0% in 1998 to -7.4% in 2000 further declining to -10.4 in 2003. Then real GDP growth average of -5.9 was achieved between the periods 2005 to 2007. The period from 2000 was when the land reform programme was intensified and sanctions were imposed in response to the political environment and land reform programme. The period up to 2008 saw increasingly quasi fiscal activities by the central bank which is blamed to have further fuelled the decline of the economy. The same period the country experienced very high inflation. Fixed exchange rate regime was in place leading to a parallel market, declined capacity utilisation and decreased production and shortages of almost all products and basic services and loss in value of the Zimbabwe dollar. It is also a period of the departure to other countries of both skilled and unskilled labour. The UNDP (2008) further points out that Zimbabwe experienced very high rate of HIV/Aids epidemic thereby reducing life expectancy to 37 years for men and 34 years for women in 2007. It was further estimated that about 1.6 million adult Zimbabweans under 50 years were suffering from HIV/Aids. This is a group of economic active people signifying greater impact on the economy. However, figures of 2007 show HIV preverance rate declined to 15.9% (UNDP, 2008). The next discussion will centre on post-conflict reconstruction/recovery era. 1.2.5 Post – conflict reconstruction/recovery era (2009- ) This is the period when the Government of National Unity formed by three parties, Zimbabwe African National Union, ZANU PF, Movement of Democratic Change, MDC (T) and Movement of Democratic Change, MDC (M) began its operations. In this period the government abandoned the Zimbabwe dollar in favour of multi currency regime specifically the United States dollar and South African rand to lesser extent Botswana pula and the British pound. It is in this period that the hyper inflation was tamed when the Zimbabwe dollar was abandoned as a legal tender in Zimbabwe. It is in this period the Reserve Bank of Zimbabwe1

1 The Reserve Bank of Zimbabwe has lost assets through litigations. In 2010 budget it got US$10 million from Treasury for its operations. During its quasi fiscal activities it was owing many suppliers some of them had supplied farm machinery to the central bank which it had distributed to some farmers. Now that the central bank cannot print money anymore to pay its debt many creditors have resorted to suing the central bank leading to attachment of assets by the Deputy Sheriff and subsequently being sold by auction realizing very little money than their book value. The government has now put in place measures to prevent the current stripping off of the central bank’s assets by creditors.

stopped its quasi fiscal activities owing to inability to print the Zimbabwe dollar bearers cheques used to pay suppliers after they were no longer a legal tender. It is in this period that the Short Term Emergency Recovery Programme (STERP I) I and II were launched with the aim of getting things working again which had in fact halted. Although the economy is not out of danger, basic commodities began to be available in the shops although consumers do not have liquidity to purchase them. The next presentation is the sectoral overview.



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1.3 Sectoral overview Below table 1.1 shows Gross Domestic Product by industry. Table 1.1 Gross Domestic Product by Industry (US$ million) Industry 2000 2001 20002 2003 Agriculture, Hunting & Fishing

1,682.7 1,527.5 1,255.4 661.6

Mining &Quarrying

95.7 48.5 43.5 70.7

Manufacturing 958.6 659.2 1,248.8 1,102.1 Electricity & Water

147.1 92.2 107.4 200.6

Construction 155.5 113.1 65.8 131.3 Finance & Insurance

511.9 282.5 267.1 498.1

Real Estate 146.5 105.3 96.1 483.3 Distribution & Tourism

1,127.6 1,229.1 1,531.5 1,132.1

Transport & Communication

645.6 1,139.7 1,562.1 1,352.1

Public Administration

328.2 107.2 106.4 128.8

Education 673.0 357.6 248.8 177.7 Health 199.2 102.0 77.5 39.7 Domestic Service

33.7 12.9 11.0 25.7

Other Services 418.5 1,504.3 193.3 133.8 Less Fin Int Services Indirectly measured

(478.2) (173.1) (158.0) (96.9)

GDP at factor cost

6,645.7 7,108.0 6,668.6 6,041.3

Net other taxes on production

25.2 5.8 3.5 1.4

Other taxes on production

25.2 5.8 3.5 1.4

GDP at basic prices

6,670.9 7,113.8 6,662.2 6,042.8

Net taxes on products

680.6 222.1 238.4 347.1

Taxes on products

680.6 222.1 238.4 347.1

GDP at market prices

7,351.5 7,335.9 6,900.6 6,389.9

Industry 2004 2005 2006 2007 2008 Agriculture, Hunting &

444.8 677.0 861.4 1,165.1 1,201.1



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Fishing Mining & Quarrying

632.5 1,000.5 1,323.1 1,239.3 340.3

Manufacturing 976.0 1,351.5 1,564.5 436.3 351.9 Electricity & Water

208.5 194.2 151.2 621.0 389.3

Construction 83.6 32.8 84.4 169.4 46.5 Finance & Insurance

333.7 264.4 175.1 80.2 0.7

Real Estate 145.7 113.0 59.5 27.3 7.5 Distribution & Tourism

1,655.6 1,360.2 934.3 598.0 1,312.1


762.1 237.5 114.7 265.7 529.3


93.4 65.2 38.1 90.9 75.7

Education 235.5 150.7 80.6 105.0 47.3 Health 45.7 51.4 48.3 169.3 145.3 Domestic Service

147.6 89.7 10.6 69.9 38.1

Other Services 97.8 63.4 66.5 432.5 476.3 Less In Int Service Indirectly measured

(41.4) (19.1) (7.4) (3.1) (3.4)

GDP at factor cost

5,821.6 5,532.4 5504.9 5,466.0 4,958.0


0.4 0.1 0.0 0.0 0.0

Other taxes on production

0.4 0.1 0.0 0.0 0.0

GDP at basic prices

5,821.6 5632.4 5,504.9 5,466.0 4,958.0


337.0 276.9 190.2 43.0 0.0

Taxes on products

337.0 276.9 190.2 43.0 0.0

GDP at market prices

6,158.6 5,909.3 5,695.1 5,509.0 4,958.0

Source: Central Statistical Office (CSO) (now renamed ZIMSTAT) The sectors contribution to gross domestic product (GDP) clearly shows a very troubled economy for the period 2000 to 2008. It is very clear that the economy shrunk significantly for the same period. Every sector was negatively affected. The next table 4.2 below shows Gross Domestic Products (GDP) by industry at constant prices.



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Table 1.2 Gross Domestic Product (GDP) by Industry at constant (1990) prices: Growth rates Industry 200

0 2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Agriculture, Hunting & Fishing

-2 14 -24 -15 -9 -5 -4 -7 -36 10 10 10 10

Mining & Quarrying

-7 -14 -2 -31 23 1 -6 -3 -30 2 40 17 15

Manufacturing

-11 -5 -13 -13 -10 4 -3 -5 -12 8 10 12 9

Electricity & Water

-1 10 6 1 8 -7 -4 -1 -9 1.9 3.4 4.5 5

Construction

-15 -35 -41 -10 -2 -2 -5 -3 -3 2.1 3.2 3.5 4.5

Finance & Insurance

1 -1 21 3 -4 -29 -8 -4 -24 4.5 5.5 6.5 8

Real Estate 5 4 4 2 1 1 -5 -3 -33 2 2.2 4.5 5.2 Distribution & Tourism

-9 -5 -5 -31 -20 -20 -2 2 9 6.5 10 7 7.5


-6 -4 -1 -8 -1 1 -1 -2 11 2.2 4 3.8 4.4


-6 5 2 2 6 6 -2 -4 0 2 3 3.2 2.5

Education 4 6 1 1 1 1 -3 -5 -1 2.8 3.2 2.3 3 Health -8 18 -13 0 -1 -1 -1 -3 -2 3.2 1.1 3 4 Domestic Service

-5 6 2 0 -1 1 -1 -2 -2 2.2 2.3 1.3 2.7

Other Services

-2 -3 2 -7 -7 -7 -5 -3 -3 2.3 2.7 1.5 3.2

Less Fin Int Service Indirectly measured

29 16 -12 -52 -35 -34 -4 -2 -24 -2.2 -2.8 -2.1 -

GDP at factor cost

-6 -1 -6 -8 -4 -5 -4 -4 -11 5.9 11.9

7.7 7.8


-17 -24 -44 -72 -70 -60 0 0 0 -22.3

2 2 2

GDP at basic prices

-6 -1 -6 -8 -4 -5 -4 -4 -11 5.9 11.9

7.7 7.8


-24 7 0 1 1 6 -4 0 0 3.5 4 2.5 2.8

GDP at market price

-8.2 -0.2 -5.9 -7.4 -3.6 -4 -3.6 -3.3 -10 4.7 7 5.3 6.3



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Source: ZIMSTAT The figures for 2009 are estimates while figures for 2010 to 2012 are projections. The Minister of Finance, Tendai Biti during the Mid Year Fiscal Policy Review statement on July 14, 2010 revised the projections of growth rates for 2010 for agriculture to 18%, mining to 31%, manufacturing to 4.5% and tourism to 3.5% respectively. GDP projected growth rate was also revised for 2010 from 7% to 5.4%. He also revised 2009 GDP estimates from 4.7% to 5.7% with the individual sectors being: agriculture 14.9%; manufacturing 10.2; mining 8.5%; tourism 6.5%; electricity and water 1.9%; construction 2.1%; Finance and insurance 4.5%; real estate 2%; transport and communication 2.2% and public administration 2%. The agriculture sector was affected by land reform which began in 2000. The sector shrunk as commercial farms were invaded and production stopped. The next presentation is agriculture sector. 1.3.1Agriculture In table 1.3 below we show crop production. Table 1.3: Crop production Year

Maize Tons

Wheat Tons

G/nuts Tons

Cotton Tons

Tobacco Tons

Soya Tons

Sunflower Tons

1980 1510700 155000 77675 157533 97403 10792 1981 2833400 183500 118797 170594 72881 12676 1982 1808400 191900 111377 134886 91596 8952 1983 909800 124200 31652 146521 80626 3373 1984 1348500 99000 24914 221746 89733 8770 1985 2711000 207200 67938 274186 87217 18106 1986 2412000 248300 60710 251162 73560 18360 1987 1083700 215000 79060 280016 94795 26028 1988 2253000 260000 135270 338953 120410 64713 1989 1931200 285000 100875 270225 126115 60814 1990 1993800 325000 118815 205241 110313 63990 1991 1585800 300000 107040 261051 97295 63963 1992 361000 70000 34032 76232 51125 19503 1993 2063003 250000 55550 214300 70520 67650 1994 2109283 221811 91050 194269 177039 110758 39775 1995 884962 238578 45675 98411 178652 96555 17421 1996 2065347 205000 67562 233979 177884 96948 28180 1997 1552703 250000 123633 195212 171191 97063 18863 1998 1195929 242121 46148 179347 197222 116327 14227 1999 1606588 260909 80240 197259 175282 120685 12308 2000 1619651 229775 124117 241964 190242 135417 9224 2001 1526328 197526 168749 280254 159853 140793 30393 2002 604758 19500 56378 134189 113635 84441 4631 2003 1058786 122427 86494 159497 93574 41197 16923 2004 1686151 247048 64157 364266 78312 85827 20239 2005 915366 229089 57754 196300 8330 56230 7419 2006 1484839 241924 83170 207912 44451 70273 16742 2007 952600 125000 235000 79000 112300 25700



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2008 435160 13536 226435 69791 48320 5461 2009 1242566 216619 246757 63600 115817 39098 2010 1322572 186214 172129 85045 70256 13960 Source: Ministry of Agriculture Agricultural production has been fluctuating Production from 2000 was too affected by the land reform programme. In 1992 there was drought and all crops were badly affected. Table 1.4 below shows production of sugar, coffee, horticulture and beef. Table 1.4: Production of sugar, coffee, horticulture and beef Year Sugar (Tons) Coffee (Tons) Horticulture(Tons) Beef (Tons) 2002 10 000 2005 430 000 2 500 60 000 90 000 2006 447 000 64 000 90 000 2007 442 000 66 000 95 000 2008 298 000 60 000 90 000 2009 286 000 35 000 93 000 2010 250 000 300 43 000 95 000 Source: Midterm Fiscal Policy Review Statement, 14 July 2010 Coffee production has also been greatly reduced from 10 000 tonnes in 2002 to 2 500 tonnes in 2005. Production of coffee by April 2010 was below 300 tonnes. According to the Mid Year fiscal policy statement of July 2010, the national grain requirement of Zimbabwe is 1.95 million tonnes. The cereal production stands at 1.52 million tonnes leaving a deficit of 432 540. Sugar production has been on the decrease substantially in 2008 to 298 000 tonnes from 447 000 tonnes in 2006 and decreasing to 286 000 tonnes in 2009 and decreasing further to 250 000 tonnes in 2010. Horticulture industry is affected by inefficient air transport services from Zimbabwe as well as some players in the industry are those affected by sanctions in Europe which is the biggest market of horticulture products. Beef has seen marginal increase from 90 000 tonnes in 2005 to 95 000 tonnes in 2007 and going down to again to 90 000 tonnes in 2008 and picking up a little bit to 93 000 in 2009 then back to 2007 level in 2010. The biggest problem affecting cotton, tobacco and other crops farmers is the issue of funding. Since the government removed subsidies to allow private players to fund farmers, farmers are now heavily indebted to contractors. Farmers have entered agreements with big corporations which finance their cotton and tobacco and they have been ruthless to farmers resulting in no gain to farmers as all proceeds go to those who financed and others are still indebted to contractors. Tobacco bought by contractors is 50 cents lower than bought by independent buyers thereby reaping off farmers. The farmers are having a problem they cannot secure loans from banks because they demand collateral. The farmers only have the offer letters giving them 99 year lease of land from the state. The Minister of Finance in his Mid Year Policy Review Statement of July 2010 urged the government to find ways of giving title deeds to the farmers as in their absence banks are sceptical of giving loans without a tradable security such as title deeds. He further said that the government doesn’t have money to wholly finance the sector hence there is a need for banks to assist but the banks have made it clear they cannot assist without security. The normal operations of the bank is that if someone defaults, they can recover their money by selling the collateral security but current land reform, the farmers only have an offer letter no title deed as the land remains that of the state hence the banks are shunning the sector. The Minister of Lands and Resettlement, Herbert



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Murerwa was quoted recently that the government is considering giving title deeds. The government had resisted all long fearing that former Zimbabwean white commercial farmers would regain the land by default by new resettled farmers paying back their loans. Producer prices have also affected production, however in June 2010 government increased producer price of cotton to US$0.42 for grade A, US$0.39 for grade B, US$0.36 for grade C and US$0.33 for grade D. What is also hampering recovery of agriculture is the large portions of the land remain idle with some new farmers not being able to utilize their land. This has significantly affected food production hence Zimbabwe becoming a net importer of food instead of a net exporter as the case was decades ago. The shortage of power and the resultant of load shading have significantly affected winter cropping. In table 1.5 below the study present herds of dairy, pigs, cattle, sheep, goats, number of day old chick and eggs. Table 1.5: Dairy, pigs, cattle, sheep, and goats. Day old chicks and eggs Year Dairy

cows Pigs Cattle Sheep Goats Day old

chicks Eggs

1980 106000 132000 5173000 387000 982000 1981 104000 183000 5182000 469000 1243000 1982 102000 183000 5560000 400000 920000 1983 105000 183000 5442000 399000 1681000 1984 111000 178000 5354000 431000 1507000 1985 111000 171000 5338000 461000 1624000 1886 112000 216000 5671000 569000 1986000 1987 121000 238000 5797000 2162000 1988 121000 504000 5699000 671000 2317000 1989 123000 289000 5723000 569000 2368000 1990 127000 305000 6280000 592000 2540000 1991 126000 278000 5223000 584000 2545000 1992 124000 240000 5900000 485000 2540000 1993 115000 232000 5040000 416000 2297000 1994 105000 264000 5662000 436000 4471000 1995 105000 268600 4712000 435000 5001000 1996 99000 510000 4841000 379000 4823000 1997 96000 324000 4879000 416000 505400 1998 90000 257000 5476000 386000 4990000 1999 82000 257000 5893000 351000 4601000 2000 270000 340000 4248000 2001 55150 360000 5418116 598000 3657000 2002 50650 282000 5240694 576000 3380998 25400000 15995447 2003 45000 216000 5296865 511000 3260000 27000000 17003034 2004 43159 203000 5226619 477567 3105458 28200000 17755724 2005 44000 169236 5184613 415901 3247606 31759024 20000000 2006 44000 33400000 21033383 Source: Ministry of Agriculture Dairy farming was also affected by land reform programme. Dairy farming is a more specialised area. The heard of dairy became almost half of what it used to be from 2000. The trend clearly shows that it was affected by land reform programme as commercial farmers who were in dairy farming lost their farms. Pig industry has also fluctuated after land reform programme. Land reform also affected cattle for example in 1999 there were 5 898 000



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however by 2001 they had gone down to 5 418 116. The sub sector has maintained 5 000 000 and above possibly because there are also small holders who keep cattle. Sheep farming seems not have been affected by land reform as the herd was higher after 2000 than late 1990s. Small holders raise goats hence were not negatively affected by the land reform programme. The next sector to discuss is mining and quarrying. 1.3.2 Mining and Quarrying Zimbabwe is known to have large deposits of several minerals. Table 1.6 below shows some of the known deposits. Table 1.6 Mineral deposits in Zimbabwe Mineral Reserves Current annual

extraction rate Future years of extraction at current production levels

Gold 13 million tonnes 20 tonnes 650 thousand years Platinum 2.8 billions ounces 2.4 million ounces 1 200 years Chromite 930 million tonnes 700 000 tonnes 1 300 years Nickel 761 000 tonnes 9 000 tonnes 500 years Diamonds 16.5 million tonnes Infancy 300 years Iron ore 30 billion tonnes 300 000 tonnes 100 years Copper 5.2 million tonnes Coal-bed methane The largest known

reserves in Sub Saharan Africa

Source: Zimbabwe Geological Survey/ Mzumara, et al (2007) The above table shows some of the known mineral deposits in the country and the number of years they will take to exhaust them. Chromite will take about 1 300 years while platinum will be exhausted after 1200 years. Zimbabwe has the largest known reserves of coal – bed in Sub Saharan Africa. Below is table 1.7 showing mineral production in Zimbabwe. Table 1.7 Mineral production for period 1996-2005 Year Asbestos

Tons Chrome Tons

Coal Tons

Copper Tons

Gold Kgs

Iron Ore Tons

Iron Pyrite Tons

Nickel Tons

1996 169,487 658,416 475,707 9,028 24,699 323,942 59,831 9,694 1997 162,444 669,757 4,749,790 4,993 24,156 479,032 48,101 10,300 1998 123,295 605,405 4,574,604 2,941 25,175 371,589 52,908 10,135 1999 115,221 653,079 4,575,802 4,977 27,114 598,650 55,472 9,594 2000 145,000 668,043 3,807,827 558 22069 438,495 69,119 360 2001 138,751 780,150 4,064,497 2,056 18,049 360,862 98,037 371 2002 167,954 749,339 3,721,112 2,502 15,469 271,812 87,592 1,943 2003 147,209 725,822 2,871,962 2,767 12,564 366,737 93,010 3,449 2004 104,457 668,391 3,323,356 2,383 21,330 228,731 10094

0 3,564

2005 122,041 667,199 2,370,826 2,570 14,024 363,048 59,693 3,879 Source: Chamber of Mines/ Mzumara, et al (2007)



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Production of asbestos was at its highest in 1996 with 169 487 tonnes but then began to fluctuate with 2000 recording the lowest at 104 457. Chrome was at its highest in 2001 when production was 780,150 tonnes then there were fluctuations. Coal has been declining since 1998. Copper declined significantly due to closure of mines. Zimbabwe Mining Development Company (ZMDC) a company wholly owned by the government which took over many mines after independence closed some mines owing mainly to falling prices at the world market and viability problem. Although copper prices have significantly improved however, ZMDC has not reopened those mines such as Mhangura Mine and others which have become ghost towns where thousands of workers lost jobs when the mines closed. Gold for many years was controlled by the Reserve Bank of Zimbabwe and its production has been very much fluctuating and during the crisis years there were some leakages. Both iron ore and iron pyrite production has been fluctuating. Nickel dropped from 10 300 tonnes in 1996 to 341 tonnes in 2001 before picking up but not at 1996 level. In the next table (Table 4.8) the study shows mineral production from 2000-2009. Table 1.8 Mineral production (2000-2009) Produce White

matte (Ozs)

Perm concentrates (Tons)

Nickel (Tons)

Chrome (Tons)

Chrysotile (Tons)

Black Granite (Tons)

2000 - 11,005 7,364 - - 180,732.83 2001 - 9,655 8,109 - 108,148.30 175,398.60 2002 118,977 11,957 4,866.14 - 148,686.98 166,668.91 2003 117,854 40,557 11,350.94 - 175,025.23 153,406.87 2004 189,067 41,518 11,163 - 81,736.16 168,696.28 2005 208,116 49,959 8,933 1,092 105,617.54 191,736.64 2006 192,904 52,052 8,428 4,455 109,558.70 193,300.31 2007 181,874 57,070 6,536 67,431 76,408.70 225,436.44 2008 203,431 52,358 4,598 110,394 18,885.21 162,000.93 2009 272,527 61,295 2,693 89,570 5,280 162,412.81 Product Coal

(Tons) Diamond (Carats)

Coke (Tons)

Gold (Tons)

Platinum (Tons)

Asbestos (Tons)

2000 15,067.05 27,932.47 184,824.59 - - - 2001 26,261.50 - 191,581.19 - - - 2002 44,242.77 - 166,664.00 - - - 2003 83,078.96 26,844.26 141,502.71 - - - 2004 86,181.43 6,408.40 88,627.58 - - 2005 49,042.80 132,766.44 147,190.12 13.45 4.56 123.15 2006 98,907.10 287,479.14 86,533.29 10.80 5.19 110 2007 90,588.01 469,775.78 114,336.58 6.80 5.30 115 2008 100347.8 383,273.85 156,891.24 3.07 5.50 11.49 2009 86,311.03 1305629.88 93,552.65 4.97 6.86 5.50 Source: Chamber of Mines a Mid Year Fiscal Policy Review Statement, July 14, 2010 Production of minerals have been fluctuating. The discovery of diamonds has created a great controversy with Zimbabwe being prevented to sell the stockpile of diamonds. Recently the Kimberly Process Certification Scheme (KPCS) monitor issued a favourable report for Zimbabwe however, at the stakeholders meeting held in Israel there was no consensus to allow Zimbabwe sell diamonds. 75% of the delegates were in favour of Zimbabwe to sell her



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stockpile of diamonds while 25% were against. The issue came up again at another meeting which was held in Russia where African delegates threatened to move out of KPCS if Zimbabwe was not allowed to sell her diamonds. Zimbabwe has now been allowed to sell her diamonds in two batches under stringiest supervision by KPCS then there after Zimbabwe’s case will be reviewed again. The Minister of Mines and Mining Development, Obert Mpofu announced that Zimbabwe has 6 million carats in stock ready for sale. It is estimated that Zimbabwe will realise about US$2.5 billion if the gems will sell at US$400 per carat or US$300 million if sold at a lower price of US$50 carat. At recent sale, Zimbabwe sold about US$45 million worth of diamonds under the supervision of KPCS. Another sale took place but was guarded as secret and no figures were released. It is further estimated that Zimbabwe will capture 25% share of the world diamond market. The Minister of Finance has proposed a bill that all deposits of alluvial diamonds in Zimbabwe become State property. This is an attempt to exclude the private sector who have technical know how of mining diamonds. In the absence of donor support the country is banking on diamond sales to revitalise its economy. In November 2011 Zimbabwe won her rights back to sell her diamonds without stringest conditions of KPCS like any other diamond producer. At a meeting held in DR Congo, Zimbabwe was approved to sell her gems. The USA government did not oppose the approval as it feared that KPCS would break if Zimbabwe is denied her rights to sell her gems for so long. The KPCS has done a lot to ensure that trade in diamonds is legitimate by providing a mechanism of excluding blood diamonds. However, the only snag are sanctions which some countries may enforce to exclude Zimbabwe. .The Minister of Mines and Mining Development Obert Mpofu said Zimbabwe is expected to realise US$ 2 billion in sales every year. The diamonds will contribute 50% to GDP. Under KPCS restrictions about US$30 million in revenue from diamonds is being received every month by the treasury. Production of coke has also been fluctuating. Platinum has been on the increase however at a very slow pace. Production of asbestos has significantly dropped. This could be because many countries have banned the importation of asbestos due to healthy grounds. Generally the period 2000 onwards has seen fluctuation in mineral production. This is the period the country experienced both political and economic crisis. There has been no meaningful inflow of capital in this sector. The Indigenisation and Economic Empowerment Act which seeks every business with capital from US$500 000 to cede 51% of its shareholding to indigenous Zimbabweans is seen as a stumbling block to attract new investment in the sector. This discussion is followed below by manufacturing sector. 1.3.3 Manufacturing The manufacturing sector was the largest GDP contributor from 1980-1990 accounting for 22% ahead of agriculture which accounted for 14%. Estimates reveal that agriculture is the source of 63% of manufacturing sector’s input. In an input-output relationship 40% of manufacturing output is used in the mining and agriculture sectors. However due to supply constraint arising from capacity utilization, foreign currency shortages and many others, the contribution of manufacturing sector to GDP slided from 24% in 1991 to 16% in 2007 (Confederation of Zimbabwe Industries (CZI), 2009). Table 4.9 below shows capacity utilization. Table 1.9 Capacity utilization distribution Capacity 2005 2006 2007 2009 < 30% 14% 13% 38% 45% < 50% 48% 49% 78% 82% > 49% 55% 51% 24% 18% > 74% 13% 97% 4% 6% 100% 3% 0% 0% 0%



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Source: CZI (2009) In 2005 only 3% of the companies were producing with full capacity utilization of 100%. However from 2006-2009 there were no companies producing at 100% capacity utilization. In 2009 about 82% of companies were operating at less than 50% capacity utilization. The manufacturing improved its capacity utilization in the first half of 2009 to 32.3% from less than 10% in 2008 (CZI, 2009). Table 1.10 shows the reasons given by manufacturers for failing to operate at full capacity. Table 1.10 Reasons for manufacturing failing to operate at full capacity Reason Percentage % Foreign currency shortage 80% Raw material shortages 71.8% Working capital problems 90% Low domestic demand 42.3% Power cuts 6.4 Fuel shortages 9.0 Exchange rate policy 3.8 Source: CZI (2005)/ Mzumara et al (2007) Foreign currency shortage was a bigger problem which led to manufacturing sector operating below capacity for most of the crisis period. However, with the introduction of multi currency regime this is no longer the problem but operating capital. Raw material was reported to be the reason by 71.8%. The third reason respondent gave was low domestic demand which was 42.3%. In the next section, electricity and water is discussed. 1.3.4 Electricity and water Zimbabwe is currently experiencing acute shortage of both electricity and water. Zimbabwe Electricity Supply Authority (ZESA) is currently enforcing load shading which has negatively affected manufacturing, mining, agriculture and other areas of productive sectors. The recovery of capacity utilization has been significantly affected due to load shading power supply. There has been no significant investment in the sector to minimize the current problems. The table 1.11 shows electricity capacity. Table 1.11: Electricity capacities Power Station

Type Installed capacity

Current output

Current output %

Cost of production US$/KWH

Kariba Hydro 750 MW 750 MW 100% 2.39 Hwange Thermal 920 MW 300 MW 33% 6.04 Harare Thermal 100 MW 0 0% 13.04 Bulawayo Thermal 90 MW 0 0% 13.04 Munyati Thermal 100 MW 0 0% 13.04 Total 1960 MW 1050 MW 54% Source: Medium Term Plan/ Mid Year Fiscal Policy Review Statement



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The country is currently only producing 1050 MW from two stations Kariba and Hwange. This is equivalent to 54% of their capacity. This is far too little as national requirement is between 2000 MW and 2200 MW. This leaves the deficit of between 950 MW – 1150 MW which needs to be filled by importation but due to lack of funds the utility company is unable to import all required power hence there is constant load shading which is affecting production in mining, manufacturing and agriculture. The current water capacity utilization is 63% of the installed capacity. The major users are agriculture, urban and industrial sector, conservation and mining (Government of Zimbabwe, 2010). There has been a decay of water infrastructure and reduction of investment due to no support being received from donor countries. This has reduced the gain that was there of 100% water access coverage in urban areas and the 75% in service and rural areas (Government of Zimbabwe, 2009b). Although recently the role of distribution of water returned to local authorities from the Zimbabwe National Water Authority (ZINWA), the services have not improved. This section leads us to the construction sector below. 1.3.5 Construction The Mid Year Fiscal Statement by the Minister of Finance on 14 July 2010 claimed that the construction sector is on the road to recovery. The first half of 2010 has shown some signs of the recovery. The Minister projected cement production to increase by 140% or 555 000 tonnes in 2010. The sector was very much affected between the periods 2000 to 2008 as inflation affected the cost of building materials coupled with low capacity of utilization of cement production. The sector remained idle during the period as no major significant projects were carried out. Government of Zimbabwe (2010) has identified the following as the problems faced by the sector: shortage of building materials; skills flight with the relocation of construction companies to other countries; lack of water and electricity; lack of finance; uncoordinated town planning and rural settlement; and rural and urban migration. This sector is followed by finance and insurance sector. 1.3.6 Finance and Insurance The financial and insurance sector has not been spared by devastating economic downturn the country faced which began in the late 1990s most specifically 2000 to 2008. The inflation which affected the country completely destroyed the financial base of financial institutions such as banks and insurance companies. The banks and insurance companies performed well before independence and post- independence but problems began to surface from late 1990s and early 2000s to 2008. During the crisis period banks had been reduced to informal traders when they were involved in black market operations in order to survive. They further demanded fuel coupons for the services instead of cash. They were always in liquidity problems. When the Zimbabwe dollar was abolished early 2009, the banks like anybody else, found themselves without money with the introduction of multi-currency. They had to start from scratch. The central bank hence set new minimum capital requirements. Below is table 1.12 showing minimum capital requirements. Table 1.12: Minimum capital requirements for the banks Type of institution Minimum capital requirement

(US$) as at 30th September 2009 Minimum capital requirement (US$) as at 31 March 2010.

Commercial banks 6.25 million 12.5 million Merchant banks 5.0 million 10 million Building societies 5.0million 10million Finance houses 3.75 million 7.5 million Discount houses 3.75 million 7.5 million



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Source: Government of Zimbabwe (2009b ) According to the Mid Year Monetary Policy Statement by the Reserve Bank of Zimbabwe Governor delivered on 29 July 2010, 17 out of 24 banks in Zimbabwe institutions as at June 30, 2010 have complied with minimum capital thresholds. The remaining 7 banks were given grace period up to 31 December 2010 to raise capital minimum requirement. In regard of the insurance, the Ministry of Finance set a minimum capital requirement as shown in the table 1.13 below. Table 1.13 Minimum capital requirement in insurance firms Type of insurance firm Minimum capital requirement (in US$) Funeral Assurance companies 500 000 Reinsurance firms 400 000 Insurance firms 300 000 Source: Ministry of Finance In the table above shows the maximum capital requirement is US$ 500 000 for Funeral Assurance firms and the lowest being US$ 300 000 for insurance firms. The table 1.14 below shows companies which have complied and those have not with minimum capital requirement in this industry. Table 1.14 Minimum capital requirements in insurance industry Types of business Number of

companies Number of companies complied

% of compliance

Life Assurance 9 8 89 Life re-assurers 3 2 67 Short term insurance

31 23 74

Short term re-insurers

10 8 80

Funeral Assurers 14 6 43 Source: Mid Year Fiscal Policy Review Statement, 14 July 2010. Some of the companies which have not raised the minimum capital have closed. It is understood the reason for increasing the capital requirement is that some companies were unable to pay claims hence the government decided to bring order in the industry. The banking institutions on the other hand have not been making profit. The table 1.15 below shows comparative commercial banks results for half year ended 31 December 2009. Table 1.15: Comparative commercial banks results for half year ended 31 December 2009 US$ Kingdom CBZ Stanbic NMB Non interest income

4 488 264 10 358 855 4 662 000 802 922

Non funded income

8 994 990 23 622 901 21 715 000 7 496 336

Total income 13 883 254 33 981 756 26 377 000 8 299 258 Total operating costs

-15 288 415 -19 063 367 -16 237 000 -7 357 808

Working profit -1 405 161 14 918 389 10 140 000 941 450 Impairment -912 074 -3 199 296 -1 125 000 -92 887



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charges Trading profit -2 317 235 11 719 093 9 015 000 848 563 Taxation 671 989 -3 822 392 -2 282 000 1 395 178 Profit after tax

-1 645 246 7 896 701 6 733 000 2 243 741

US$ Metropolitan Barclays FBC Net interest 56 047 1 151 169 5 199 100 Non funded income

5 359 026 16 373 780 8 291 954

Total income 5 415 073 17 524 949 13 491 064 Total operating costs

-3 425 498 -17 238 048 -12 164 476

Working profit 1 989 975 286 901 1 316 588 Impairment charges

0 324 480 -149 430

Trading profit 1 989 975 611 381 1 177 158 Taxation -334 497 850 814 -205 607 Profit after tax

1 655 478 1 462 195 971 551

Source: Business Digest It is very clear that the banks are not making enough profit to sustain them. This brings a problem of liquidity. According to IMF Executive Board Statement of 2010 in respect of Zimbabwe, the banking sector faces liquidity crunch because fundamentally there is no lender of the last resort in Zimbabwe to support the sector. With the introduction of multi-currency has removed the ability of the central bank to play that role thereby exposing the sector to bank failure due to the central bank’s failure to provide effective supervision. The records show that banks advanced US$600 million in loans out of total deposit of US$1.3 billion in 2009. The IMF further recommended to the Government of Zimbabwe the following: to make a choice of monetary regime; to come up with a debt reduction plan; and methods to improve public sector capital budget. The IMF further recommends that Zimbabwe should adopt South African rand as its currency instead of multi-currency (which practically means the United States dollar and the South African rand). The IMF advises Zimbabwe to join South African Customs Union (SACU) so it can benefit from financial integration and seignorage and hence restore credibility with a functioning monetary authority to prepare itself for the return of the Zimbabwe dollar. The IMF further estimates that the official reserves as measured by import cover will remain in red until 2015. In the stock market, the government has established Securities Commission of Zimbabwe (SECZ) with the mandate of regulating securities market in Zimbabwe. According to the Mid Year Policy Review Statement of 14 July 2010, SECZ is in the process of establishing Central Securities Depository (CSD) whose objective is to immobilise or dematerialise securities, will be operational by December 2010. Between February 19 (after the country introduced multi-currency) and December 31, 2009, 4.5 billion shares worth US$413 976 724 had traded at Zimbabwe Stock Exchange (ZSE). Stock prices at (ZSE) have significantly tumbled following the publication of Statutory Instrument (SI) no. 21 of 2010 on Indigenisation and Economic Empowerment Regulations. The foreign investors who had kept the Zimbabwe Stock Exchange busy are now sceptical to invest. It is estimated that US$900 million in value of stock prices as a result of the Act has been lost. The volume of trade had reached



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US$2million a day in 2010 but with the publication of the Statutory Instrument on Indigenisation and Economic Empowerment trading was down to US$400 000 a day is expected to plunge further. The next discussion is on tourism sub sector. 1.3.7 Tourism sub sector In the table 1.16 below shows arrivals and receipts Table 1.16 Tourists and Receipts: 1980-2004 Year Arrivals Receipts in US$ 1980 237 668 $38 373 000 1985 303 387 $23 913 000 1990 582 602 $60 234 000 1995 1 415 530 $144 641 000 2000 1 966 580 $124 700 000 2002 2 041 202 $75 700 000 2003 2 256 205 $61 050 000 2004 1 854 488 $193 700 000 Source: Tourism Trends and Statistics Between the period from 1980-2003 there was steady increase in tourists visiting Zimbabwe before the trend began to decrease again in 2004. In terms of receipts there has been fluctuation this could be caused by the exchange rates ruling at the particular time. Receipts were US$144.6 million in 1995 and slided to US$124.7 million in 2000. In 2004, the receipts were US$193.7 million. In table 1.17 below we show foreign tourist arrivals by region. Table 1.17: Foreign Tourists Arrivals by Region Region 2009 2008 Change Africa 1 680 081 1 732 167 3% America 57 842 43 412 33% Asia 76 946 46 849 64% Europe 153 864 108 159 44% Middle East 10 076 4 308 69 Oceania 36 453 21 544 69% Total 2 017 262 1 956 439 3% Source: Tourism Trends & Statistics Africa continues to be the major contributor to tourism in Zimbabwe. In 2009 it was seconded by Europe. However, the biggest change in percentage terms from 2008 to 2009 came from Oceania and Middle East followed by America. There was slight change in Tourists from 2008 to 2009 from Africa in terms of percentage by highest in absolute figures. In the table 1.18 below we show investment, FDI projects, tourist arrivals and bed occupancy. Table 1.18: Investment, FDI projects, tourist arrivals and bed occupancy Investment 2005 2006 2007 2008 2009 Contribution to capital investment %

8.6 8.8 9.6 9.7 8.9



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FDI projects 2 2 6 3 Tourist arrivals

Tourist arrivals

1 558 501 2 266 572 2 508 255 1 955 594 2 017 262

Average Hotel Occupancy

Average Room Occupancy rate %

39 38 43 41 46

Average bed occupancy (%)

28 27 32 33 35

Source: Tourism Trend & Statistics Contribution to capital investment was 8.6% in 2005 and rose to 9.7% in 2008 before falling to 8.9% in 2009. There haven’t been many projects in the hospitality. There were two FDI projects each in 2005 and 2006. In 2007 there were 6 FDI projects. In table 1.19 contributions to wide activities is shown. Table 1.19: Contribution to economy wide activities Contribution to economy wide activities

2005 2006 2007 2008 2009

Contribution to GDP %

2.7 4.6 5.0 4.7 5.6

Contribution to total exports

13.5 14.9 17.9 16 19.7

Contribution to total imports

5.0 6.7 5.7 5.8 6.3

Tourism Receipts US$ (million)

97 338 365 294 523

Indigenisation & Employment

Contribution to Employment (%)

6.8 9.1 9.2 8.8 9.4

Percentage of indigenisation

62 62 62

Source: Tourism Trend & Statistics The contribution to GDP averaged 4.5% from the period 2005-2009 while average contribution to total exports was around 16% for the period 2005-2009.



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1.3.8 Transport and communication The road network in Zimbabwe covers 88 300 km. There are 15 000km roads which are paved. 56 000 km are weather roads. The remainder are earth roads. Their condition has deteriorated significantly due to lack of maintenance and investment (Government of Zimbabwe, 2010:53). The rail network has also not been spared in terms of deterioration of equipment and service. Table 1.20 below shows capacity utilization. Table 1.20: Capacity utilization Tonnage (in millions)

2000 2001 2002 2003 2004

Design capacity

18.0 18.0 18.0 18.0 18.0

Tonnage moved

9.5 8.9 8.1 6.3 4.9

Capacity utilisation %

53% 49% 45% 36% 27%

Tonnage (in millions)

2005 2006 2007 2008 2009

Design capacity

18.0 18.0 18.0 18.0 18.0

Tonnage moved

3.7 5.4 5.0 3.7 2.7

Capacity utilisation %

21% 30% 28% 21% 15

Source: Government of Zimbabwe ( 2010)/National Railways of Zimbabwe Capacity utilisation has been going down. It was 53% in 2000 and by 2009 it had decreased to 15%. There has not been any major investment by the government. Table 1.21 below shows the rolling stock. Table 1.21: Rolling stock Asset Total number of

asset Functional assets Functional as a %

Locomotive 168 55 33% Wagons 8 682 4 646 54% Coaches 315 117 37% Source: Government of Zimbabwe (2010) / National Railways of Zimbabwe. The table above shows that out of the total 168 locomotives only 55 are currently working. This is slightly above half (54%) of the wagons that are working. Only 37% of the coaches are working. National Railways of Zimbabwe is severely crippled and needs a massive investment to restore viability. Air transport is also experiencing challenges. Air Zimbabwe, a state owned carrier of both passenger and cargo has only eight aircrafts. These include five Boeings with an average age of more than 20 years. This is beyond acceptable age of 15 years. Then it has three MA 60s0 aircrafts and of all of them only one is working (Government of Zimbabwe, 2010). The next discussion will focus on education sector.



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1.3.9 Education This is one of the two sectors which recorded great success immediately after independence. However, things began to fall apart during the Economic Structural Adjustment Programme (ESAP). The programme entailed cost recovery. The country moved from offering universal free primary education to a fee charging situation. As from 2000, the situation had worsened with economic meltdown. Although Zimbabwe has experienced very high literacy rate than any country in Africa (at 98% according to latest UNESCO statistics), the quality has deteriorated since 2000 (Government of Zimbabwe, 2009b). The qualified and experienced teachers, lecturers and professors have left for other countries. There is currently shortage of all of them. The infrastructure has deteriorated and there hasn’t been any significant investment in the sector. These shortcomings threaten the high standards which prevailed at independence and there after. The other sector which recorded very high growth rates after independence is the health sector which is now covered below. 1.3.10 Health This is another sector which recorded success in post-independence era. The standards began to fall during Economic Structural Adjustment Programme (ESAP) when cost recovery became the most important thing. The situation further deteriorated after 2000 with the economic meltdown. Doctors, nurses and other health professional left for greener pastures to other countries. Infrastructure has deteriorated. There were significant shortages of drugs in hospitals. The standards have fallen. There is a need to embark on programmes which will lead to return of health personnel who are currently serving other countries. The discussions so far have focussed on sectors. However, we now shift to policies below. 1.4 Policies In this section we will discuss fiscal policy, exchange rate policy, industrial policy, monetary policy, price control and land reform programme. Each one is discussed below beginning with fiscal policy. 1.4.1 Fiscal Policy What has contributed most to poor performance of Zimbabwean economy is said to be poor management of fiscal policy (UNDP, 2008). In table 4.22 below we show Zimbabwe and Sub-Saharan Africa fiscal aggregates. Table 1.22: Zimbabwe and Sub – Saharan Africa Fiscal Aggregates 1985-2004 % of GDP Zimbabwe Sub-Saharan Africa

(Average) Revenues (excluding grants)

26.1 21.2

Taxation 22.7 16.5 Expenditure 32.2 24.9 Budget deficit 6.3 3.7 Capital expenditure 2.7 18.5 Wages and salaries 10.8 7.4 Interest 6.1 5.1 Source: UNDP (2008) In the above table it can be seen clearly that Zimbabwe from 1985-2004 has been living beyond her means. That is the expenditure exceeded the revenue. The budget deficit is 2.6%



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higher than the average Sub-Saharan Africa.. Of the US$810 million expected from international donors as of June 30, 2010 only US$207 million has since been received leaving US$603 million gap. Consequently, the Minister revised GDP projection for 2010 to 5.4% while inflation to 4.5%. He projected revenue to be 29.2% of GDP or US$1.75billion. He did not make changes in the projected expenditure of US$2.25 billion. Table 4.23 below shows 2010 revised macroeconomic and budget framework. Table 1.23: The 2010 Revised Macroeconomic and Budget Framework 2009 Outturn 2010 Original

Projections 2010 Revised Projections

Real GDP 5.7% 7.0% 5.4% Annual average inflation

-7.7 5.1% 4.5%

Nominal GDP US$5.22 billion US$5.561 billion US$5.517 billion Revenues US$0.973 billion US$1.44 billion US$1.75 billion % of GDP 18.6% 26% 31.7% Total expenditures US$1.013 billion US$2.25 billion US$2.25 billion % of GDP 19.4% 40.5% 40.75% Overall balance (US$93 million) (US$810 million) (US$500 million) Vote of Credit US$93 million US$810 million US$500 million % of GDP 1.8% 14.6% 9.7% External sector Exports of goods and services

US$1.591 billion US$2.018 billion US$1.929 billion

% of GDP 30.4% 36.30% 37.50% Import of goods and services % of GDP

US$3.213 billion 61.5%



Source: Mid Year Fiscal Policy Review Statement, July 14, 2010 In the above table trade deficit was US$1.622 billion in 2009 and the projected trade deficit in 2010 is US$1.706 billion. Such trade deficit has a tendency of causing disequilibrium in the Balance of Payment (BOP). This picture clearly shows the inability of the economy to produce and feed itself. This is considerable supply constraint and without imports the inflationary pressure could have been substantial than it is. As of June 30, 2010 only US$207 million has so far been received out of US$810 million pledged by international cooperating partners. This could mean that the cooperating partners have probably developed wait and see attitude. It is probably critical that all the provision of GPA is implemented so that donors on their party also deliver. The wrong projections could be explained through using faulty data which remain very unreliable. There is therefore bound to be many revisions of the projections. The projections in the tourism sector could have been exaggerated by expectation from the FIFA world cup in South Africa. There was a FIFA world cup fever in Zimbabwe that many businesses had hoped they would also reap from the world cup. The Minister of Tourism even announced that Zimbabwe would gain US$200 million from the world cup. Many analyst and captains of tourism industry disputed the figures produced by the Minister. He later admitted that the expectations were higher and that he had been let down by his colleague in South Africa. Zimbabwe was very much disadvantaged from gaining from the world cup due to distance and poor transport infrastructure especially limited air services. If



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tourists were to commute from Zimbabwe efficient transport was a must and Zimbabwe did not offer that. Effective marketing strategies were not employed to attract tourists who visited the world cup tournament. Businesses and individuals were also responsible for not doing research and assessment whether they were going to gain from the world cup but were simply influenced with what they watched on TV and made their investment decisions without proper analysis. The Minister of Finance in his statement said that according to the Kimberly Process Certification Scheme (KPCS) monitor, Zimbabwe has so far sold US$30 million worth of diamonds from Marange but Treasury and Zimbabwe Revenue Authority (ZIMRA) have no record of the proceeds or sale and emphasized on the need of accountability and transparency. He has proposed in his statement that changes be made through an amendment to Zimbabwe Mining Development Company (ZMDC) Act. Zimbabwe is the sole shareholder in ZMDC which is mining diamonds in Marange in joint ventures with two South African companies namely: Grandwell Investments and Core Investment through a subsidiary known as Marange Investments. According to the Minister, government receipts are so far restricted to dividends. He is therefore proposing a change to the Act so that all net income be deposited immediately with Treasury and not treated as normal revenue. Although such a move would increase the revenue of the government, however this is not how business is run and it clearly shows how desperate the government is and clearly shows it is putting all its hope on the diamonds as source of revenue. However, such a move would undermine the operations of the company. There is no where in the world where owners of a company are entitled to net income. Companies have retained earnings which help them expand or carryout certain projects and owners only get something when dividends are declared. It is very clear that operations will be negatively affected by way of desperate owner taking out all profits from the company. It is also not clear how the other shareholders in the joint ventures would take it. The move is also equivalent of nationalisation of diamonds. It is seen as the state wants to go it alone in mining diamonds. The Minister further said that the government is looking at a new model of mineral taxation. Currently the state can only charge corporate tax and royalties and this has proved to be unsustainable. The new model of taxation will ensure the mining sector to contribute more than is currently contributing. The Minister of Finance told Senators that the government only benefited US$44 million from the mining industry yet they exported more than US$1 billion in 2009 and during half of 2010 they had exported US$650 million yet the government has only benefited US$15 million. He then provided this as the reason the state wants to mine the diamonds itself. In terms of the loans, the Minister said that in 2009, arrangements with Afreximbank, PTA Bank and others disbursed US$195.92 million. In 2010, Afreximbank has already disbursed US$268.5 million. Table 1.24 below shows facilities approved and disbursement. Table 1.24 Facilities approved and disbursement Sector Facilities approved (US$

million) Disbursement (US$ million)

Agriculture 297.50 148.92 Manufacturing 115.00 13.00 Financial 76.00 19.00 Telecommunications 67.50 - Mining 33.50 10.00 Tourism 11.10 - Distribution 5.00 5.00 Total 605.63 195.92 Source: Mid Year Fiscal Policy Review Statement, 14 July 2010.



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As seen in the table funding is a major problem in revitalising the economy. Almost all the sectors were negatively affected. The amounts shown above are insignificant to ensure recovery of the sectors. The sectors need substantial capital inflow for them to increase capacity utilisation. The next section the study introduce sexchange rate policy. 1.4.2 Exchange rate policy Zimbabwe has been using fixed exchange rate. However, the fixed exchange rate was not backed by any reserve. As the result, a parallel market emerged. The Zimbabwe dollar became overvalued. Zimbabwe also experimented on auction rate and it did not work also. The fixed exchange rate severely crippled the economy. The financial institutions themselves were involved in speculation. The formal sector was starved of foreign exchange as those who had it were only interested speculative activities. 1.4.3 Industrial Policy (2004-2010) The vision of the industrial policy is to change Zimbabwe from a primary goods producer to a producer of manufactured and processed goods to satisfy both domestic and export market (Government of Zimbabwe, 2004). The industrial development policy objective is to make Zimbabwe a significant manufacturer of industrial goods and services in SADC (Government of Zimbabwe, 2004). Government of Zimbabwe (2004) gives the following strategies: provision of incentives for local production; encourage innovation, technology and value addition; provide incentives for industrial development; take situation assessment of the causes of dying industries and their recovery; provision of funding for industrial sector; provision of industrial parks; provision of infrastructure support; encouraging spatial development projects; harmonisation of regulations governing the sector; and establishment of a committee to promote industrialisation. The policy was not implemented due to the economic meltdown that the country experienced during the same period. The high inflation experienced, shortage of foreign currency, lack of aid and lack of investor confidence in the local economy resulted to the closure of many firms. There is nothing to talk about that was implemented. The donor community imposed sanctions on Zimbabwe making it difficult to accept credit or assistance to support her programmes. Although, there was still aid coming into the country from donor community, it was humanitarian aid not development. In the next section monetary policy is introduced. 1.4.4 Monetary policy Since independence in 1980, Zimbabwe had followed monetary policy consistent with theory and the rest of the world. This went on up to late 1990s. However, from 2003 onwards Zimbabwe began to drift from practising prudent monetary policy. Especially from 2004, the Reserve Bank of Zimbabwe became very powerful than the parent ministry (Ministry of Finance). It began to involve itself in quasi activities which were mainly supported by printing bearers cheques. The monetary policy at that time was never used to control price stability e.g. inflation. Instead the measures which were introduced readily fuelled inflation. The central bank did not act prudently to control money supply. In the absence of revenue base and donor support, the central bank became a ‘cash cow’ for government ministries, parastatals and others. The central bank achieved all this through printing of more bearers cheques without due regard to the implication in terms of price stability. As a result of the cheap money policy followed the value of the Zimbabwe dollar was significantly eroded. Table 1.25 below shows the programmes the central bank administered.



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Table 1.25: Central bank programmes administered Programme Year of inception Production sector facility 2004 Distressed companies fund 2005 National housing facility 2005 Medical professions fund 2005 Import substitution and value added facility

2005

Agriculture sector productivity enhancement facility

2005

Parastatals and local authorities reorientation programme

2005

Export support facility 2006 Small and medium enterprise facility 2006 Agriculture mechanisation programme 2007 National cattle herd rebuilding programme

2007

Basic commodities supply side interventions facility

2007

Women and youth facility 2007 Tourism development fund 2007 Source: Reserve Bank of Zimbabwe The central bank was involved in many quasi fiscal activities some of them listed above. They were financed from printing money by the central bank. It was involved in the distribution of groceries at subsidies prices at the height of nation wide shortages. The programme was known as Basic Commodities Supply Side Intervention (BACOSSI). The bank literally became a wholesale and retailer of groceries. When the Zimbabwe dollar was abolished, the central bank was heavily indebted to suppliers especially under Agriculture Mechanisation Programme. These suppliers had supplied farm implement to the central bank which it distributed to farmers. However, some of them abused the facilities which were meant to help them. Many suppliers took the central bank to Court and its assets were auctioned at a give away price until the government came to protect it through legislation but by that time it had lost a lot of assets. With the disappearance of the Zimbabwe dollar and demise of the ability to print, the central bank stopped quasi activities due to inability to raise foreign currency. There has been no active monetary policy to talk about and the central bank’s powers have been reduced to semi central bank. The South African Rand and the United States of America Dollar are governed by the monetary policies of those countries leaving the Reserve Bank of Zimbabwe with no role to play. These days no one really bothers about the monetary policy as it is no longer controlling the economy as powers have been transferred back to the Ministry of Finance. The Reserve Bank of Zimbabwe has been receiving very little budget funding from the parent ministry e.g. in 2010 budget, it received only US$10 million. The money is not enough for its everyday operation let alone to clear its indebtedness. The only recently monetary policy measure to talk about is the abolition of the reserve requirement the central bank announced in July 2010. This was done to improve liquidity, make credit available and reduce the soaring interest rates. Despite these measures liquidity remains a big problem. The discussion on monetary policy is followed below by price control.



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1.4.5 Price Control During the economic crisis, the government established a Price Control Commission which controlled prices. It was one of the major causes of shortages. The companies responded by selling their products in parallel products market. The officers of the Commission frequently raided shops and gave shoppers free items if the retailer was found in violation of price control. Sometimes shoppers used to follow them. The retailers were hurt so much with such measures. Price controls have never been perfect measures of containing inflation. These measures worsened the situation as shortages escalated. Products disappeared in the shops but were available on the black market some under unhealthy conditions. The government removed price controls and the Commission has a new role simply doing studies and monitoring prices regionally. It has very unclear mandate or accrued benefits with its existence. The next programme to discuss is the land reform. 1.4.6 Land Reform Programme The Lancaster House Constitution had a section which prevented the government for a 10 year period to compulsory acquisition of land (Kagoro, 2005). During this period, there was not much activity in terms of the government acquisition of land on willing seller willing buyer basis. The USA and the British governments did not honour their pledged US$2.5 billion for the purpose of acquiring land for resettlement purposes (Kagoro, 2005). During post –independence and late 1990s, the government had acquired and resettled very few people. It was in 2000 that the war veterans exploded and occupied white commercial farms and the government accepted it as its own programme meant to regain support it had lost in the draft Constitution referendum (Timbe, 2007). The government did not plan this land reform which began as farm invasions. It is not disputed that the land reform was necessary. However, what were wrong were the ways it was done (Parson, 2007). It brought a lot of disruption on the farms. Equipment which was used was destroyed on those farms. Production on the farms was significantly affected. However, a large number of black Zimbabweans for the first time owned a piece of land. With a large number of people owning a piece of land became also a challenge of having pieces of land remaining unutilised by those who were beneficiaries of land reform programme. It is assumed that not every one has a passion to farm. This evidence can be found in those who are keeping the land idle and those who have themselves become landlords by leasing their pieces of land to the former white commercial farmers. Some commercial farmers have moved to other countries where those governments have given them land to produce. Others have taken their cases to SADC Tribunal where they have scored major Court victory that it was illegal to have their farms taken. However, their victory was short lived as SADC Tribunal in 2010 was suspended until further notice. This is a severe blow to the white Zimbabwean former commercial farmers to repossess their farms. However, it is a major victory for the government which saw the SADC Tribunal as a leakage and threat to reverse land reform due to its land mark verdicts in favour of white Zimbabwean former commercial farm owners. Article V of the Global Political Agreement provides for transparent land audit to be carried without political affiliation to take stock and get lid of multiple land ownership. There are currently some people who own more than one piece of land yet there are many others who do not own a piece of land. The Ministry of Land and Rural Resettlement is in the process of coming up with a new land policy. In the next section we will look at other economic indicators. 1.5 Other economic indicators In this section the study will look at inflation, unemployment, foreign direct investment (FDI) and national debt. These are discussed below beginning with inflation.



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1.5.1 Inflation Inflationary pressure significantly affected Zimbabwe’s economy. Below is the table 1.26 that shows the official inflation rate since independence. Table 1.26: Zimbabwe inflation rate (official) Year Rate 1980 7% 1981 14% 1982 15% 1983 19% 1984 10% 1985 10% 1986 15% 1987 10% 1988 8% 1989 14% 1990 17% 1991 48% 1992 40% 1993 20% 1994 25% 1995 28% 1996 16% 1997 20% 1998 48% 1999 56.9% 2000 55.22% 2001 112.1% 2002 198.93% 2003 598.75% 2004 132.75% 2005 585.84% 2006 1281.11% 2007 66 212.3% 2008 2 310 000 000% Source: ZIMSTAT Zimbabwe had lowest inflation in 1980 at 7%. This clearly shows that at independence the economy was very strong. The period 1980-1990 inflation was generally below 20%. In 1991 inflation was at 48% and 1992 at 40%. This can be explained by the drought experienced in 1992. In 1998 inflation picked up to 48% from 20%. This increased can be attributed to cash grants awarded in 1997 to war veterans and the effects began to be experienced from that year. In 1999 inflation further increased to 56.9% with Zimbabwe’s participation in the DR Congo war. In 2001 inflation jumped to three digits as crisis began to worsen due to the unplanned land reform which began as land invasions in 2000. In 2006 the inflation reached four digits. In 2007 it hit five digits and then to ten digits in 2008. The actual inflation could have been much higher than the official figures. In 2009 inflation was tamed with the adoption of multi-currency. In his Mid Year Fiscal Policy Review Statement, the Minister of Finance said the period up to June 2010, inflationary pressure increased. The year to year



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inflation was 0.7% in January 2010, then rising to 1% in February, then surging to 3.5% in March, then increased to 4.8% in April 2010 and finally to 6.1% in May 2010. The next item to discuss below is unemployment. 1.5.2 Unemployment According to Parson (2007:8) many jobs were lost due to the failed Economic Structural Adjustment Programme (ESAP). Growth in employment decreased significantly to 1.5% in the period between 1996-1999 (Raftoplolous, 2003:227). The closure of mines which were very large employers also led to high unemployment. Then the farm invasions in 2000 under the land reform programme also caused job losses in the white commercial farms when production was disrupted causing thousands of jobs to be lost. The new owners of the farms were no longer producing in commercial sense hence were not employing many people resulting in net job losses on farms. The general decline in economic activity due to land reform, sanctions poor economic policies and other factors resulted in closure of many companies and retrenchment of many workers as capacity utilisation dwindled to lowest levels. The exodus of both skilled and unskilled labour to South Africa and other countries amongst other factors was non availability of jobs in Zimbabwe. With no significant FDI inflows the job market has remained depressed. Table 1.27 below shows unemployment rates for the period 2000-2009. Table 1.27: Unemployment rates 2000-2009 Year Unemployment rate 2000 50 2001 50 2002 60 2003 70 2004 70 2005 70 2006 80 2007 80 2008 80 2009 80 Source: Index Mundi2

2

Zimbabwe has experienced very high unemployment currently pegged at 80%. While some countries are concerned with unemployment of a single digit one can imagine the impact of 80% can have on society and attainment of Millennium Development Goals (MDGs) and eventually eradication of poverty. In the next section, we focus on foreign direct investment (FDI). 1.5.3 Foreign Direct Investment (FDI) Zimbabwe has of late not received much in terms of FDI. The Mid Year Fiscal Policy Review Statement of 14 July 2010 points out that in 2009 about US$ 852 million projects were approved but so far only US$105 million has been invested. Table 4.29 below shows FDI net inflows in Zimbabwe.

http://www.indexmundi.com/g/g.aspx?v=748c=zi8d=en Date of access 27 July 2010



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Table 1.28: FDI net flows in Zimbabwe Year Net inflows (US$) 1970 18 670 000 1971 21 840 000 1973 30 490 000 1974 33 350 000 1975 28 870 000 1976 29 090 000 1977 -3 819 527.34 1978 2 522 036.92 1979 147 118.32 1980 1 551 449.96 1981 3 550 092.81 1982 -842 240.69 1983 -2 076 677.99 1984 -2 491 023.55 1985 2 851 844.94 1986 7 453 585 1987 -30 541 337.45 1988 -18 054 106.94 1989 -10 192 327.80 1990 -12 219 712.90 1991 2 793 655.71 1992 14 966 881.70 1993 27 986 890.65 1994 34 688 238.62 1995 117 700 000 1996 80 900 000 1997 135 100 000 1998 444 300 000 1999 59 000 000 2000 23 200 000 2001 3 800 000 2002 25 900 000 2003 3 800 000 2004 8 700 000 2005 102 800 000 2006 40 000 000 2007 68 900 000 2008 52 000 000 2009 152 000 000 Source: Trading Economics.com/World Bank/Mid Year Policy Review Statement, 14 July 2010. Zimbabwe had the largest net investment inflow in 1998 amounting to US$444 300 000. In the 2000s there has been little inflow of FDI. Investment is very insensitive to governance indicators. The countries with poor governance indicators do not attract investment. The prospective foreign investors examine these indicators before they decide which country to



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invest in. In table 1.29 below the study presents governance indicators for Zimbabwe and Sub Saharan Africa. Table 1.29: Governance indicators for Zimbabwe and Sub Saharan Africa. Zimbabwe Voice and

accountability Political stability

Government effectiveness

Regulatory quality

Rule of law

Control of corruption

1996 29.2 24 45.5 21 28.1 49.5 2000 15.9 11.1 17.1 7.8 9 11.7 2005 6.3 6.3 7.1 0.0 2.4 4.9 2008 7.7 8.6 2.4 1.4 1.4 3.9 Sub Saharan Africa

1996 33 34.0 29.2 29.1 27.2 30.7 2000 30.1 31.4 28 29.8 29.0 31.9 2005 30.9 33.9 26.0 27.4 27.8 29.3 2008 32.6 33.5 26.3 28.9 28.6 30.8 Source: World Bank Voice and accountability, political stability, government effectiveness, regulatory quality, rule of law and control of corruption are some of the indicators that affect FDI. The countries with poor scores in the above indicators are negatively affected in receiving FDI and doing business with them. The indicators are widely used these days by prospective investors or business people before they invest in a particular country. In 1996, Zimbabwe faired well in the above governance indicators and compared favourably with Sub Saharan Africa averages. In 1996, Zimbabwe was ranked as follows: Voice and accountability 29.2; Political and stability 24; Government effectiveness 45.5; Regulatory quality 21; Rule of law 28.1; and Control of corruption 49.5. The Sub Saharan Africa average for the same period was: Voice and accountability 33; Political stability 24; Government effectiveness 29.2; Regulatory quality 29.1; Rule of law 27.2; and Control of corruption 49.5. Zimbabwe became worse scoring very poorly on all the governance indicators from 2000with the worst being 2008 when she scored: Voice and accountability 7.7; Political stability 8.6; Government effectiveness 2.4; Regulatory quality 1.4; Rule of law 1.4; and Control of corruption 3.9. However, the Sub Saharan averages largely remained the same level of 1996. These perceptions significantly contribute why the international community is shunning Zimbabwe either to invest or to do business with. There is a need to improve on these indicators if Zimbabwe can meaningfully become once again a big player in the global economy. The government has recently unveiled one stop investment centre which will reduce the processing time by 45 days from the existing 96 days it takes. Although, this is a plus for Zimbabwe but there are other issues which need to be addressed if the country is to become one of major players. The Indigenisation and Economic Empowerment Act is another major problem which will inhibit investment in Zimbabwe. These policy fundamentals need to be addressed. The government has either blocked or changed proposals deemed to interfere with its policies on indigenisation and market competition. In 1981, the government blocked FDI from the Bank of America for the take over of the Zimbabwe Banking Corporation when Nedcor of South Africa had pulled out but then government chose to nationalise it instead of allowing world’s financially sound bank run it (UNDP, 2008). The last item to discuss under other economic indicators is national debt.



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1.5.4 National Debt Zimbabwe is heavily indebted. According to Zimbabwe Coalition on Debt and Development workshop held on 2 November 2009, revealed that at independence in 1980, the Zimbabwe Government inherited the Smith’s regime debt amounting to: US$594 million being private sector debt; US$94 million being bilateral debt; and US$5million being owed to multilateral institutions. The amount needed was US$65 million to service the debt per year. According to the Minister of Finance, Tendai Biti during his Mid Year Fiscal review statement in 2009, he pointed out as of December 31, 2008, Zimbabwe’s external debt amounted to US$4.7 billion of this amount the government was owing US$3.6 billion and US$1.1 billion was owed by parastatals and the private sector. The buck of the debt was accumulated under the Economic Structural Adjustment Programme (ESAP) from 1991-1995 and it mounted to US$3.5 billion in new loans spread over the three year period. As of December, 2008, close to 65% of external obligations were in arrears. According to IMF statistics, Zimbabwe’s external debt rose to US$7.1 billion in 2009 and further increase to US$7.6 in 2010 being an increase of 8%. The domestic debt is expected to increase to US$1 billion by the end of 2010. The per capita debt per person amounts to US$7503

STERP I was launched in March 2009. According to Zimbabwe Government (2009b:9) STERP I was aimed at growth driven recovery, restoration of the value of the domestic currency and its stability; increasing capacity utilization in all sectors of the economy adequate availability of basic commodities revamping of collapsed social, health and education sectors and provision of water supply. STERP I life span was nine months. Although there are signs of some achievements, STERP 1 did not achieve all its objectives for example instead of restoring the value of the local currency, it was in fact abandoned in favour of multi-currency regime specifically the United States dollar and the South African

. The debt is equivalent to 162% of the GDP by the end of 2009. The debt presents a big threat to the economic reconstruction/recovery. IMF further project that by 2011 the Net Present Value (NPV) of government external debt and the external debt that the country is a guarantor will surpass 90% while the NPV debt-export ratio would be in the region of 440% by 2026 the debt-export ratio would hover around 1000%. Policies on their own cannot be sufficient for the sustainability of debt and that debt relief from multilateral institutions and bilateral must form part of stabilisation intervention (UNDP, 2008b:41). According to the Minister of Finance while addressing a meeting of the African Development Bank acknowledged that Zimbabwe was in a serious debt trap and that GDP that GDP growth rate target for 2010 of 7% was not realistic and was being revised to 4.8% because of the problem to raise capital. The Zimbabwe Government also owes its Ambassadors and other diplomatic staff in its missions abroad US$30 million in salary arrears and benefits. The Ministry of Foreign Affairs was being allocated US$4 million for the missions abroad from the Treasury the amount of which it is insignificant to meet salaries and operating costs. The Ministry of Foreign Affairs has issued directives to the diplomats to look for alternative cheaper accommodations a move that is difficult because they already owe. The government also owes about US$58 million to local service providers. In the next section, study will focus on programmes. 1.6 Programmes In this section we will discuss the Short term emergency recovery programme (STERP) I, Short term emergency recovery programme (STERP) II and Medium term plan (MTP). The discussion below will begin with STERP I. 1.6.1 Short Term Emergency Recovery Programme (STERP I)

3 The figure was arrived at by dividing the total external debt by 12 million being the population in Zimbabwe.



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rand. The switch from Zimbabwe dollar to multi-currency brought stability as inflation which had eroded the purchasing power of the Zimbabwe dollar was tamed. There was also improvement of availability of some basic commodities on the market although electricity in the form of load shading intensified. It was over ambitious to solve problems which inflicted the economy over a decade in just a few months. More over the donor community which was expected to bankroll the programme did not participate in it preferring to wait and see. The failure by the government to raise money to enable the implementation of the programme resulted into its failure. The programme did not have clear strategies how the goals would be achieved. It simply gave broader goals without offering how those goals would be attained. The launching of STERP II with a medium term out look was a clear admission that the problems are huge and were not solved in STERP I and require a longer period than 9 months to solve them. STERP II is discussed below. 1.6.2 Short Term Emergency Recovery Programme (STERP II) 2010-2012 STERP II was launched by the Government of Zimbabwe on 23 December 2009. It is a three year macroeconomic policy and budget framework whose life span is from 2010-2012. It is a strange short term with 3 year period which is normally a period for medium term plan. According to Zimbabwe Government(2009c:5) STERP I launched in March 2009 managed to attain some macro-economic stability but there are many other challenges which STERP I did not achieve hence the launch of STERP II. It is silent on the causes of STERP I’s failure to achieve its goals. It is understood that STERP I was based on the expectation of donors supporting the programme after signing the Global Political Agreement(GPA) and subsequently forming the Government of National Unity (GNU). However, the international donor community has developed wait and see attitude towards inclusive government hence have not pumped in money which could have been used to implement STERP I. The donor community cite disagreements in the inclusive government mainly non-implementation of all the provisions of the Global Political Agreement (GPA) as the reason for not supporting the programmes and lifting of sanctions. According to Zimbabwe Government (2009c:22-382) STERP II intends to turn around the agriculture sector which continuously recorded negative growth since 2000-2009 further it will conduct land audit and solve the problem of security of tenure, prevent new farm disruptions and finally to attain growth rates in the sector of upward 20%. The objective in manufacturing is to increase capacity utilization from almost below 10% to above 60% by the expiry of the programme. In the mining sector, the programme intends to remove surrender requirements, beneficiation added value, exploration, enacting new regulations for mining rights, reform in pricing of minerals and so on. In the tourism sector the programme will continue improving image of Zimbabwe. In the energy sector, it emphasizes the generation of enough and reliable energy supplies to enable industries and mines and other productive sectors to improve on capacity utilization. In transport sector, there will be rehabilitation of both rural and urban network. STERP II does not offer much what it will do in the other sectors. This is its major shortcomings in addition to how it intends to achieve the spelt out objectives. Since its launch, there is very little implementation taking place. The programme faces the same fate like STERP I, it is also being shun away by international donors. STERP II leads to Medium term plan (MTP) to be discussed below. 1.6.3 Medium Term Plan (MTP), 2010-2015 The Medium Term Plan (MTP) was launched in 2011 by the Ministry of Economic Planning and Investment Promotion while the Short Term Emergency Recovery Programme (STERP II) by the Ministry of Finance. STERP II was launched on 23 December 2009 but it has not really taken off since its launch. On the other hand the Medium Term Plan was supposed to



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be been launched in March 2010 but it took time to be approved by Cabinet. It was only launched in July 2011 a year behind the original intended start. It is not clear why the two plans are prepared by two different ministries and why STERP II has a life span of 3 years which overlap into the Medium Term Plan (MTP). MTP covers a period from 2011 to 2015 yet it was launched one year behind its schedule. STERP II has not taken off despite its launch. Government of Zimbabwe (2010) the theme of MTP is transforming and globally competitive economy growing with jobs, equity, freedom and democracy. The objectives of MTP are intralia: macroeconomic stability; good governance, maintenance of political stability; diversified economy with very high growth rates; access to social services by all; acceleration of rural development; equal opportunities for all; development and utilization of modern science and technology; achieve vibrant and dynamic culture; and sustainable utilization and management (Government of Zimbabwe, 2010). According to Government of Zimbabwe (2010) the government intends rebranding Zimbabwe by establishing Zimbabwe International Marketing Council (ZIMC) and the development of Brand Zimbabwe which is aimed at transforming how Zimbabwe is perceived domestically and internationally. The programme suffers the same fate like STERP I and STERP II in that it doesn’t have very clear strategies how the noble objectives will be achieved. It is further not very clear how the rebranding of Zimbabwe will be attained outside the land reform, Indigenisation Act and other policies which have led to sanctions and the international community shunning away the country. It is not clear that establishing the Council will just add to fiscal expenditure and just create jobs and operations which will not be sustained like other commissions such as the Price Control Commission which has become redundant and irrelevant whose mandate could well be done by Zimbabwe National Statistics Agency (formerly known as Central Statistics Office) and still draining resources from the treasury without bringing in any value. Further without fully implementing the provisions of the Global Political Agreement and other outstanding issues for the removal of the sanctions and provision of support by the international donor community the MTP may find itself in the same state as STERP I and STERP II. In the next section, the study deals with domestic and external legislations which has affected the economy. 1.7 Domestic and external legislations affecting economy In this section we will discuss the Indigenisation and Economic Empowerment Act and sanctions. The study begins by discussing below Indigenisation and Economic Empowerment Act. 1.7.1 Indigenisation and Economic Empowerment Act (Chapter 14:33) According to Indigenisation and Economic Empowerment Act (Chapter 14:33) it seeks to provide for support measures for the economic empowerment of indigenous Zimbabweans. The objectives are intralia, the following: at least 51% of the shares of every public company or any other private company or business shall be owned by indigenous Zimbabweans; no unbundling of business or demerger of two or more businesses shall, if the value of any business arising from the unbundling or demerger or restructured entity unless indigenous Zimbabweans are representative and the 51% is represented by indigenous Zimbabweans; no merger or restructuring of the shareholding of two or more related or associated business or acquisition by a person of controlling interest in a business, if the value of a business is beyond threshold ; no projected or proposed investment in reserved sector of the economy available for investment by local or external investors is reserved for indigenous Zimbabweans are in control; all central government purchases shall endeavour procured according to Procurement Act (Chapter 22:14) for which indigenous Zimbabweans do not have controlling interest any subcontracting to businesses in which indigenous Zimbabwean



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have a controlling interest. The Act defines ‘indigenous Zimbabwean’ as any person who, before the 18th April, 1980, was disadvantaged by unfair discrimination on reasons or grounds of that person’s race , and any descendant of such an individual and extends to any company, association, syndicate or partnership of which indigenous Zimbabweans are the majority or have controlling interest. The Act has been criticised that it may lead to empowerment of the few elite who have already benefited from other programmes. It does not ensure empowerment of the poor people but clears opportunities of already rich Zimbabweans to become richer at the expense of majority of the population. Zimbabwe is currently looking for investment especially FDI and this Act is seen as a stumbling block to foreign investment in Zimbabwe. The country has been negatively affected by the land reform programme and this Act is coming at a time when the country critically needs capital. It also forces businesses to join into partnership with incompatible businesses or individuals with no entrepreneurship skills or with no adequate capital. One sector that may be negatively affected is the mining sector which is capital intensive and require high degree of technical knowledge and for it to be opened up to an individual who may not have resources required to maintain a mine may eventually lead to collapse of the sector. The agriculture sector collapsed and production declined due to less activity on farms which some of farms remain idle or underutilised. On face value the Act seems to have good intentions but it is common knowledge that not every Zimbabwean is an entrepreneur and for that matter has resources to invest. This leaves a few elite indigenous Zimbabweans who are already rich and could have competed without this Act or the government could have restricted to awarding its tenders giving preference to companies where indigenous has a controlling interest. As there are so many destinations of investment, Zimbabwe may not be attractive with this Act and obviously investment will go to those countries with investor friendly policies’ It could have been better to wait and see the results of indigenisation which has taken place on the farms. While the agriculture sector is struggling, indigenisation is being extended to other sectors and may lead to those sectors collapsing too. The Act is further not clear where the indigenous Zimbabweans will get capital to acquire 51% shareholding if it is not a few who may have access to capital. If it will just benefit a few individuals or businesses growing bigger then the majority of the Zimbabweans will be better off without the Act through preservation of jobs which have been already lost on farms. The Act assumes Zimbabwe is the most attractive country that investors would not care who they partner with or the country has a complete monopoly on investment. The truth is that there are many countries including developed countries that have put in place liberal policies to attract foreign investment and Zimbabwe will have to compete with them. At the end, it is the investor who decides where to go after determining where investment has potential of yielding higher returns and the investment is safe from any form of expropriation. Part of the drying up investment in Zimbabwe is the lack of confidence by investors in the local economy due to land reform that has scared them to invest and risk losing their capital. A lot needs to be done to restore investor confidence and Indigenisation and Economic Empowerment Act does not help in that regard. The Act has a potential to lead to massive divesture and capital flight and that can also lead many sectors collapsing or going through a cycle that has taken place on the farms and does not encourage investor confidence. The next discussion will focus on external legislation, sanctions. 1.7.2 Sanctions The rejection of the draft Constitution in 2000 was seen by MDC, its supporters and civic organisation as defeat of ZANU (PF). However, it gave an opportunity to ZANU (PF) to examine its political programmes. When war veterans (who almost all of them were ZANU PF supporters) began to invade commercial farms owned by white Zimbabweans, ZANU



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(PF) accepted these invasions as their own political programme. This was a way of regaining the support lost in the Constitutional referendum. The international community (USA, European Union, United Kingdom, etc) were unhappy with the government and ZANU (PF) for not stopping the land invasion. In order to demonstrate their displeasure, they imposed travel ban of top ZANU (PF) and government leadership (Timbe, 2007:124-125). The Government of George Busch (Jr) crafted the Zimbabwe Democracy and Economic Recovery Act (ZIDERA) in 2001. The Zimbabwe Democracy and Economic Recovery Act of 2001 (Public Law 107-99) states that it is the policy of the United States of America to assist the people of Zimbabwe in their quest of peaceful struggle, democratic change, attainment of wider and equitable economic growth and restoration of respect of law. The Act mandates the Secretary of the Treasury to direct the United States Directors in multilateral banks and financial institutions to deny any credit and financial relief to Zimbabwe. The country can only get credit or relief if the US President recommends to Congress that: it has restored rule of law; free and fair elections; equitable, legal and open reform; and security forces are under the control of any elected civilian. The United States of America has now introduced the Zimbabwe Transition and Economic Recovery Act of 2010. The Act authorizes the US President to provide technical assistance to some ministries of the transitional government not controlled by ZANU (PF) and to the Parliament of Zimbabwe for economic, political and securing sectoral reforms. This Act seeks to amend the Zimbabwe Democracy and Economic Recovery Act of 2001. ZANU (PF) has described the new Act as worse than its predecessor as it is viewed as aiming at dividing the inclusive government on partisan basis. According the position paper of the European Union, the EU is not imposing economic or trade sanctions against Zimbabwe. The measures introduced by the EU in response to lack of respect of rule of law and human right abuse by Zimbabwe are: freezing of personal assets belonging to senior members of the government and others; travel ban on the same in any EU country; and embargo on sale of arms. The paper says non of those measures affect or are meant to affect the ordinary Zimbabwean population. It further says that the suspension or re-orientation of some financial and development cooperation programmes by the EU with the Government of Zimbabwe is due to failure by Zimbabwe to fulfil the provisions of those bilateral agreements not sanctions. The papers further says for the past two years, the EU has spent about US$330 million in humanitarian support to the people of Zimbabwe. There is great controversy regarding the sanctions. The government has blamed the United States of America, the United Kingdom, the European Union and other governments ‘illegal sanctions’ to have caused the meltdown of the economy and failure to attain Millennium Development Goals (MDGs). On the other hand, the international community has blamed the government ill conceived policies to have caused the meltdown of the economy. Analysing these ‘sanctions’, one can conclude they are not full blown sanctions Rhodesia faced. The sanctions which were imposed on Rhodesia by the United Nations were far reaching than those some governments have imposed on the Zimbabwe government. The UNDP (2008b:7) points out that the Rhodesian economy performed well despite the sanctions through import substitution strategy and recorded high growth rates. It is ironic that the period when Rhodesia faced severe economic isolation and intensified war could record high growth rates yet Zimbabwe faced mild sanctions and otherwise no war would meltdown. Although, there is evidence that Rhodesia used sanction busting techniques with the assistance of South Africa, it was able to withstand them (Starnberger Institute, 1989:54). There is no point why Zimbabwe couldn’t have used sanction busting techniques used by Rhodesia especially the fact they have not been imposed by the United Nations. There is no explanation on the part of the government why these sanctions imposed by a few countries and are partial would have



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so devastating effects to cause total collapse of the economy. It is also clear that the 203 plus people targeted by the sanctions most of them represent the elite who have benefited by various government programmes of indigenisation and control the economy out side the economy owned by white Zimbabweans and trans national companies hence the impact is substantial but not total. By barring them and freezing their assets is equivalent of trade embargo on their companies. Theory says constrained maximum is less than unconstrained optimization. Hence Zimbabwe would be much better if there were no sanctions of any sort. Based on the above analysis, the Zimbabwean economy is constrained by sanctions. Further analysis reveal that those who imposed those sanctions knew that the Zimbabwean black owned economy is dominated by a few elite black Zimbabwean and if they were targeted the result would be substantial damage to the economy. Those who downplay the sanctions need to know that the western governments could not have imposed them if they had no effect. On the other hand there is a lot of exaggeration of everything to have been caused by sanctions even though the particular thing has no direct or remote connection to the foreign sector. It is also cheap politics to draw a line that the sanctions are only targeted to the elite and do not affect ordinary Zimbabweans when practically the community is one and is bound to affect ordinary people for example an ordinary Zimbabwean may be supported by this elite person targeted by sanctions who because of the sanctions may not continue to assist then that ordinary Zimbabwean is bound to be affected by the sanctions. Society is connected in many ways and there is no accurate theory to separate them. Only a meaningful study can apportion the degree of responsibility of sanctions on one hand and ill conceived policies by the government on the other. However, it is very clear that both caused the meltdown of the economy which began by ill conceived policies followed by sanctions then another set of ill conceived policies in response to sanctions then another unclear objectives of the sanctions (amendments of sanctions bills) that may require another set of ill conceived policies to counter them. The sanctions were expected to have eased with the establishment of the government of national unity(GNU). Unfortunately sanctions have remained in place despite a political agreement in the country. The final item is summary and conclusions. 1.8 Conclusions and recommendations The economy still remains fragile. The current recovery may not be sustained in the long term without meaningful and deeper reforms being undertaken to sustain GDP and other crucial indicators. There is a need of appropriate policies to encourage FDI. FDI through transnational companies bring in improved technology, superior management and have the ability to alter terms of trade in favour of the host country. They have also the ability to create large employment levels with a single investment. Zimbabwe needs such investment to clear the backlog of unemployed and those who are in other countries to return. Capacity utilisation although improved needs to improve further. Production still remains low. In the absence of significant exports the country will continue to experience liquidity problem. The pressure to export is genuine as earnings from exports are now part of domestic currency which circulate in the absence of a national currency. The monetary policy has almost disappeared with the inability of the Reserve Bank of Zimbabwe to perform basic roles such as lender of last resort. Although the use of multi-currency has brought stability, Zimbabwe needs to look beyond transitional phase. The government should seriously consider the IMF recommendation of adopting the South African rand as its currency. It is difficult to manipulate the USA dollar to make exports competitive. However, within the rand zone it is possible to manipulate it in order to encourage exports and Zimbabwe will be part of the rand zone. It will have an input in the decision affecting the rand. Currently Zimbabwe has no input in the monetary policy of the currencies it is currently using and this is not good. . With KPCS approval, Zimbabwe’s benefits can increase if it uses the right exchange rate. The



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government should not just dismiss the IMF recommendation. Instead the government can institute a study of its own to assess benefits which can accrue to the country by adopting the rand. The rand will further act as a transition to any future plans of the return of the Zimbabwe dollar. The central bank needs a meaningful transition of learning how to manage a currency if it will be successful in future to re-launch one. The current indefinite leave on monetary policy will reduce skills in the central bank making it difficult to be competent in managing the return of the domestic currency although studies where dollaralisation has been adopted most of such countries never returned to their domestic currencies. The Indigenisation and Economic Empowerment Act, may threaten new investment and recovery if analysed together with the land reform programme. There is a need to first evaluate the land reform and focus on the return of production or increase of production on the farms before embarking on further indigenisation in other sectors. .The big problem that the government faces is unemployment. There is no model or empirical evidence in literature where all citizens of a particular country became owners of the means of production which is normally reserved for owners of capital. Countries which have prospered have done so by creating job opportunities. The immediate problem of high school and college graduates is to get their first job upon completion of their studies not to own a factory. Later in life after they have accumulated savings their paradigm can shift to run and own a factory. The models which reduce unemployment levels exist and the government should explore them so it can create jobs. The only people who will benefit most under the indigenisation are the elite who already have money and need no job. Otherwise the rest of the Zimbabweans their realistic goal is to secure a job that provides them security. There is no doubt that sanctions have had effect on the economy. An economy with such constraints cannot freely grow. It can only have constrained growth. There is a need of engagement in serious dialogue between countries and multilateral organisations which have imposed sanctions and the government to find a common ground and have the sanctions removed. Not all problems facing Zimbabwe emanate from sanctions. There are other problems emanating from poor economic policies, fiscal indiscipline and others which negatively impacted on the economy and their impact had nothing to do with sanctions or added to the effects of the sanctions. It is also not true to draw a line that the sanctions are meant for the elite and do not hurt the poor when Zimbabwean society is based on extended families such that if the elite cannot go to Europe to make business deals they will not be able to make money and may not help their relatives. Further the elite affected by the sanctions control significant businesses for the sanctions to have significant impact on the economy. In the first place there would be no need of sanctions if their impact is zero. It is concluded that the meltdown of the economy was caused by poor policies, sanctions and other factors, their degree of contribution to economic meltdown can only be determined by appropriate study. References CONFEDERATION OF ZIMBABWE INDUSTRIES (CZI). 2005. State of manufacturing

report. CONFEDERATION OF ZIMBABWE INDUSTRIES (CZI). 2009. State of manufacturing

report. GOVERNMENT OF ZIMBABWE. 2004. Industrial policy 2004-2010. GOVERNMENT OF ZIMBABWE. 2009b. Short term emergency recovery

programme(STERP)I Harare: Printflow



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GOVERNMENT OF ZIMBABWE. 2009c. Short term emergency recovery programme(STERP)II: Three year macroeconomic policy and budget framework 2010-2012. Harare: Printflow.413p.

GOVERNMENT OF ZIMBABWE. 2010. Medium term plan (MTP) 2010-2015. Harare: Printflow. 303p

INDEX MUNDI http://www.indexmundi.com/g/g.aspx?v=748c=z18d=en Date of access 27/7/2010.

INDIGENISATION AND ECONOMIC EMPOWERMENT ACT (CHAPTER 14:33) INSTITUTE OF DEVELOPMENT STUDIES. 2005. Zimbabwe human development report.

Harare: University of Zimbabwe. 231p. IMF Executive board statement of 2010. KAGORO, B. 2005. Constitution reform as social movement: A critical narrative of the

Constitution making debate in Zimbabwe, 1997-2000: In Zimbabwe injustice and political reconciliation. RAFTOPOULOS, B. & SAVAGE, T. Eds. Harare: University of Zimbabwe.296p.

MID YEAR FISCAL POLICY REVIEW STATEMENT, 2004. MID YEAR FISCAL POLICY REVIEW STATEMENT, 14 July 2010. MID YEAR MONETARY POLICY REVIEW STATEMENT, 29th July 2010. MINISTRY OF CONSTITUTIONAL & PARLIAMENTARY AFFAIRS. 2008. Global

Political Agreement, signed 15th September MZUMARA, M., MUPOTOLA, M., MASIIWA, M., MURANDA, Z. & MUTENGWA, C.

2007. Needs assessment of trade and trade related assistance for Zimbabwe. European Commission. 138p.

PARSON, R.W.K. 2007. The economic and political construction of Zimbabwe: Presidential address to the Biennial Conference. Johannesburg. Sept.

STARNBERGER INSTITUTE. 1989. The impact of sanctions against South Africa. Harare: Nehanda Publishers.65p.

TIMBE, A.M. 2007. Democracy in emergent states: Case study of Zimbabwe and development countries. Harare: s.n. 311p

TOURISM TREND & STATISTICS 2009 UNDP. 2008. Comprehensive economic recovery in Zimbabwe: A discussion document ZIMBABWE DEMOCRACY AND ECONOMIC RECOVERY ACT (ZIDERA) OF 2001

(PUBLIC LAW 107-99)



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