Economy Zimbabwe Situation: A Review of Recent Developments with Focus on News, Research, and Data
Economy Zimbabwe Situation: Sixty percent of Zimbabwe’s gross domestic product in 2017 came from the tertiary sector. With a score of 60.6%, Zimbabwe’s informal economy is the second largest in the world.
Exports get a big boost from agriculture and mining. From 2009 to 2013, Economy Zimbabwe expanded at an annualized rate of 12%, making it one of the world’s fastest-growing economies. After a period of negative growth from 1998 to 2008, it began to rebound, only to decelerate to a growth of 0.7% in 2016.
Price and exchange rate volatility, misallocation of productive resources, a lack of investment, and insufficient structural reform all remain obstacles to Economy Zimbabwe’s progress.
Increased production costs, diminished incentives for investment in boosting productivity, and a rise in informality have resulted from high inflation, numerous exchange rates, unsustainable debt levels, and inefficient regulation of state expenditure.
The fall in trade integration and the stagnation of FDI have hampered the transmission of new technology and the financing of economic modernization.
The country’s development potential is constrained by its unsustainable debt levels and long-standing debts to international financial institutions (IFIs). The government expects the national debt to be 76% of GDP in 2022.
More than 70 percent of the debt is overdue, limiting the country’s ability to get the concessional financing it needs to boost investment in areas that generate economic growth.
In response, the government has created a debt relief and restructuring plan and restarted symbolic payments to international financial institutions and the Paris Club.
Increased susceptibility in both urban and rural regions may be traced back to factors such as macroeconomic instability, reliance on low-productivity agriculture, the failure to create high-productivity employment, and periodic shocks like droughts and the pandemic. In addition, Zimbabwe’s social support programs have limited coverage and may benefit from better targeting.
The State of the Economy Today
In 2000, the Economy Zimbabwe government intended to implement land redistribution legislation to restore commercial farms held by whites that had been acquired via colonialism.
As a result, the labor-intensive, highly efficient management of the former landowners was lost, and the new tenants, who consisted mostly of indigenous inhabitants and numerous senior members of the governing ZANU-PF administration, had little interest in farming.
Gains were realized quickly by selling property or machinery. Export declines were so great that consumer confidence took a hit because of the current agrarian industry’s inexperience.
As a result of a precipitous decline in agricultural output, many rural residents are now reduced to engaging in subsistence farming on the formerly uncultivated territory. In contrast to usual export commodities like tobacco and coffee, production of basic staples like maize has rebounded.
Furthermore, Economy Zimbabwe has experienced hyperinflation for the 30th time in history.
The government spends almost a third of the GDP. Corporations owned by the state get generous subsidies. Companies face substantial costs from taxes, tariffs, and governmental regulation. It takes a lot of time and money to launch or shut down a company.
Employment decisions, including hiring and firing, take time because of labor market rules. Unemployment reached a staggering 94% by 2008.
According to a study published in 2014 by the Africa Progress Panel, Economy Zimbabwe’s current pace of growth means that the nation would need 190 years to double its per capita GDP, making it the slowest developing country in Africa.
Concerns that the Economy Zimbabwe situation in Zimbabwe could worsen have been exacerbated by a number of factors, including the unpredictability of the indigenization programmer (compulsory acquisition), the lack of a free press, the possibility of abandoning the US dollar as the official currency, and the political instability caused by the collapse of the government of national unity with the MDC and the internal power struggles within ZANU-PF.
As the finance minister put it in September 2016, “low levels of output and the associated trade imbalance, minimal foreign direct investment, and lack of access to international credit owing to massive arrears” were major contributors to the economy’s dismal performance.
The World Bank Group ranked Zimbabwe at position 140 on its “ease of doing business” index, out of a possible 190 countries. They scored well for both loan accessibility (85th) and protection of minority investors (99th) (ranked 95).
Facilities and means
Zimbabwe’s domestic transportation and electrical power networks are sufficient, although they have not been maintained for years. The main urban and industrial areas are connected by poorly paved highways, and the National Railways of Zimbabwe manages the rail lines that connect the country to the rest of the central African railroad network.
It is the responsibility of the Zimbabwe Electricity Supply Authority to ensure that the nation has access to reliable and safe electrical power. The Kariba Dam (shared ownership with Zambia) and the massive Hwange Thermal Power Station (in operation since 1983 and located next to the Hwange coal resource) are two of Zimbabwe’s largest power-producing facilities.
However, the overall generating capacity is not sufficient to match the demand, resulting in intermittent outages. Unfortunately, because of its age and lack of upkeep, the Hwange station is unable to function at its maximum capacity.
In 2006, Economy Zimbabwe imported 40 percent of its power, including 100 megawatts from the Democratic Republic of the Congo, 200 megawatts from Mozambique, up to 450 megawatts from South Africa, and 300 megawatts from Zambia due to deteriorating infrastructure and a lack of spare parts for generators and coal mining.
While the country’s highest demand was 2,500MW in May 2010, the country’s generating capacity was only around 940MW. Commonplace is the use of portable or stationary small-scale power generators.
Commercial farms grow cash crops like cotton, tobacco, coffee, peanuts, and fruit, while subsistence farms grow maize and wheat for human use.
Before the contentious land redistribution scheme started in 2000, the vast majority of commercial farms were owned by the white minority. Mugabe said the forced expropriation of white farmers’ land and subsequent redistribution to black settlers was necessary to address historical injustices stemming from colonialism.
As a result, the new proprietors were unable to get bank loans since they lacked essential security in the form of property titles. The small farmers also lacked expertise in agriculture on a large scale.
As a result of the transfer of land, most of Zimbabwe’s land has lain fallow, and the country’s agricultural output has dropped dramatically. Zimbabwe’s agricultural output fell by 51% between 2000 and 2007, according to a 2008 estimate from the University of Zimbabwe. Zimbabwe’s largest export crop, tobacco, had a 79 percent drop in production between 2000 and 2008.
Manufacturing in the Mining Industry
Zimbabwe, like many other nations in southern Africa, has an abundance of natural resources. Recent years have also seen the discovery of large diamond resources. Also present, but in lower quantities, are copper, chromium, and nickel deposits. Researchers believe the Marange diamond deposits, which were found in 2006, are among the world’s wealthiest.
The government of Zimbabwe passed legislation in March 2011 requiring local ownership of mining corporations, which led to a decline in the share values of businesses operating mines in Zimbabwe.
According to reports by non-governmental organizations (NGOs), corruption is rampant in Zimbabwe’s diamond industry. For example, in November 2012, a report by NGO Reap What You Sow revealed a significant lack of transparency regarding diamond revenues and claimed that Zimbabwe’s elite are benefiting from the country’s diamonds.
This came after former South African President Thabo Mbeki issued a warning a few days before, saying that Zimbabwe needs to prevent its “predatory elite” from conspiring with mining firms for personal gain.
Meanwhile, the Associated Press claimed that Mugabe’s inner circle and other associated gem traders and criminals had benefited by at least $2 billion worth of diamonds taken from Zimbabwe’s eastern diamond resources the same month.
Zimbabwe made $1.8 billion in exports from its mining industry in January 2013.
Metallon Corporation became the top gold miner in Zimbabwe in October 2014. Mzi Khumalo, as chairman, oversees the operations of the organization.
The nation ranked third in global platinum production in 2019, and sixth in lithium production. This nation mined 23.9 metric tons of gold in 2017.
Agriculture was hampered by poor weather and volatile prices in 2022, which had a chilling effect on economic activity. GDP growth is expected to decelerate to 3.4% in 2022 from 5.8% in 2021.
With commodity prices at all-time high and COVID-19 regulations loosened, the mining, trading, and tourist industries all saw increased activity. After expanding by double digits in 2021, agricultural output dropped the following year due to inadequate precipitation.
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Consumption and investment have been stymied by rising inflation, a falling local currency, and increased interest rates. Zimbabwe’s external current account has been in surplus because of strong remittance inflows and greater gold exports.
The Central Bank increased interest rates (from 80% to 200%), liberalized the foreign exchange market more, and released gold coins as a store of value in an effort to curb inflation. Through these efforts, the parallel market has been stabilized, and the premium there has been reduced to around 35% as of September 2022.
A Look at the Economy
The average rate of inflation is predicted to be 213% in 2022, and it is expected to stay in the triple digits into 2023. A stronger agricultural season, lower inflation, and less stringent pandemic regulations should all contribute to real GDP growth of 3.6% in both 2023 and 2024.
Once precipitation rates return to normal and fertilizer costs decrease, agricultural output is expected to increase once again. There are significant risks to the downside, as shown by the global GDP slowdown, fluctuating commodity prices, climate change, and the government’s capacity to rein in inflation and FX market distortions during an election cycle. Elections are scheduled for 2023.
Key fiscal risks include wage pressures and calls for increased spending on agriculture. A moderate improvement in the poverty rate is anticipated over the next few years, but continued vulnerability to climate shocks and inflationary pressure means that many people will still be living on the edge.
Economic shocks, such as inflation and supply-chain disruptions, and shocks to agricultural output due to a changing and more unpredictable climate will continue to put a strain on household budgets.