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The Event that Caused the Economic Crisis in Zimbabwe

By       Message Grant McIntire       (Page 1 of 1 pages)     Permalink

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Zimbabwe was one of the richest and most developed countries on the African continent before the turn of the 21st century.  Zimbabwe was uncharacteristically economically developed for a sub-Saharan country, in fact the most developed only behind South Africa.   How did this once model African economy became a near failed state? The event that set off this decade long crisis was a mismanaged policy by President Robert Mugabe. Mugabe acted very radically in the early 80's when he implemented a policy of land reforms. In August of 2007, a BBC article summarized the situation perfectly when they said "The seizure of white farms was [what] opened and thus began the long slide into today's economic crisis". The political-economic landscape has been defined by competing ownership of resources.

Rhodesia was a British colony and then became a de-facto European governed country in the mid 60's. After years of conflict and civil war, power was transferred to the native Africans, and a legitimate state Zimbabwe was created. One of the first policy actions was made by prime minister (later president) Mugabe was to re-distribute land. In Zimbabwe, the white minority, constituting 5 % of the population owned 80% of the lands, while the majority native Africans were left to scrape a living on the remaining, mostly un-arable, overcrowded common lands.  These plans to re-distribute lands fell through when buyouts ceased after it was found out land was being handed to those close to Mugabe. Soon thereafter, land was simple seized by Mugabe's government. Much of the colonial history as well as the post-colonial issue of maintaining political reign but not having economic empowerment was the issue that has led to Zimbabwe having such a horrendous economy today. It is understood then that the controversial policy took form due to the deep roots of and hatred of Zimbabwe's colonial history.

This economic dilemma has been years in the making. Throughout the colonial history of Zimbabwe, and through the80's and 90's, Zimbabwe has experienced large scale agricultural exports and relative economic success, once second only behind South Africa. But with these land reforms being implemented, much of the marginalized people began to live off of the once managed natural resources that were the main exports and source of income for Zimbabwe. The demand for these resources only grew since the 1980's. The commercial farming sector had been one of the main sources of Zimbabwe's economic wealth, making it a net exporter and employing over 400,000 workers. The move from this to the mismanagement and decentralization of the farming sector has led to the overall economic chaos. Because of the land reform policy, Zimbabwe has had to become an importer of food, now received as aid due to its inability to receive loans because of its arrears on past loans and failure to implement new policy. The fiscal mismanagement, of which an infrastructure for sound financial management was never created, has led to an unsustainable fiscal deficit, hyperinflation, and an extremely overvalued official exchange rate. 

The country that had once provided much of the grain to the world has barely any food to put on the shelves in the supermarket.  Also, Zimbabwe's involvement in the civil war in the Democratic Republic of the Congo drained much of the monetary reserves that Zimbabwe had at the turn of the 21st century. The national bank of Zimbabwe continues to print money to fund the deficit.  In 1998, the inflation rate was 32 percent, a very high number for any country. In 2008, the annual inflation rate was 11.2 million percentage points, practically costing more to print the money than the money is worth.  The GDP growth rate of 2008 was -12.6 percent, more than doubling from the year before. Per Capita GDP remains one of the lowest, at U.S. $200, and an unemployment rate of 80 percent. All of these factors make Zimbabwe one of the most impoverished countries in the world. There is no room to invest in infrastructure or financial institutions. Zimbabwe has over 5 billion dollars in external debt and imports over 2 billion dollars of commodities, while only having a little over 6 million dollars in actual revenue. 1 U.S. Dollar is worth 30,000 Zimbabwe Dollars in 2008, more than doubling in since the previous year. The numbers are astounding to say the least. The land control policy has become one of the most controversial issues, and is seen to be the event that caused the horrific downturn of Zimbabwe's economy.

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The economic crisis at hand is not that is one that is easily solved. Zimbabwe is constantly on the verge of collapse, which could cause an unnecessary security issue for the international community. Riots and violence engulf the country into a literal mania, going past the emotions and into actual actions. It is one of the worst case scenarios possible. Foreign aid is hard to give as it is certain to end up in the wrong hands. But with current political reform it may be possible to invest into an intelligible financial system and in infrastructure where resources can be used as they were in the past and foreign investment can increase.  Also, the IMF and World Bank, and other foreign lenders will be likely to lend money if the new economic infrastructure would be established as planned. All of this would hopefully lead Zimbabwe out of spiraling deficit and unbelievable hyper-inflation. Otherwise, a serious human rights violation would be the only other means that a foreign power would be forced to enter the region, which would hopefully not be the case.

 

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The Event that Caused the Economic Crisis in Zimbabwe

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