Economic Condition Of Zimbabwe

ANTINOMICS A Case Presentation on the Economic Condition of Zimbabwe Presented By Praxis Business School Noshin Mamsa Harish Dalwaipattan November 2008

Overview 

The case background

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Zimbabwe – The Nation

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Current situation

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Reasons for the condition

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Hyperinflation

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Measures to control the situation

Case Background 

Article in BBC News on 7th September 2001

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Unemployment at 50%, Inflation at 70%

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Economy expected to shrink by 10%

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Country in political turmoil, elections expected next year

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Unrest among coalition Veteran Military Association as well as general populace

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Country facing acute food, fuel and forex shortage

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Foreign trade at an all time low

Zimbabwe – The Nation 

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The bread basket of Africa

Major exports revenues from tobacco, cotton, agricultural products, gold and minerals Rhodesia - Ruled by minority whites from 1965 to 1980 Zimbabwe - Ruled by President Mugabe led ZANU – PF from 1980 to date

ZANU PF – ZIMBABWE AFRICAN NATIONAL UNION – PATRIOTIC FRONT

Current Situation – Year 2008 

Worst economic condition ever faced by any nation

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Inflation at 89.7 Sextillion % ( 89.7* 1021) [1]

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Unemployment at 85% [2]

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Agricultural and Industrial Production at an almost stand still

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Almost a third of the population has fled the nation

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Majority survive on grain handouts

[1] New Hyperinflation Index (HHIZ) Puts Zimbabwe Inflation at 89.7 Sextillion Percent - Steve H. Hanke, Professor of Applied Economics , The Johns Hopkins University and Senior Fellow , The Cato Institute, 14 November 2008 [2] Negotiating Zimbabwe's Transition, Africa Briefing N°51– Crisisgroup report , 21 May 2008

Reasons for the Condition 

Political Turmoil

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Land redistribution reforms gone wrong

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Inefficient use of monetary tools

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Rampant corruption

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Loss of Confidence

How it all happened? 

Land Reforms

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Fragmentation of land

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Commercial farming to community farming

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Loss of agricultural productivity

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Scarcity of food

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Loss in export revenue, thus forex

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Scarcity of oil

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Repayment of the IMF Loan

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Increase of money supply

How it all happened? 

Participation in DRC war

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Increased scarcity of food and oil

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Escalation of cost of production

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Price control for more than 50% of the products

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No incentive for production

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Thus, capital deccumulation

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Shutdown of industries

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Loss of confidence

How it all happened? 

Escalation of unemployment

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Rampant black marketing

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Prices soar higher

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Further increased money supply

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Result – HYPER INFLATION

Loss of confidence

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r

LM 

r1 r2

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IS 1 IS 2 Y2

Y1

Change in investors’ animal spirit Pessimism regarding the future of economy Pessimism validated by fall in income

Recommendation 

Replace the central bank

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Official Dollarization

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Currency initially backed by reserve

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To be converted to gold standard in a specific number of years Constitute an economic advisory board consisting of members from SADC, and donor parties

Focus on agriculture and infrastructure SADC – SOUTH AFRICAN DEVELOPMENT COMMUNITY

Questions Please..