Thirty-seven years ago, Robert Mugabe inherited a well-diversified economy with the potential to become one of the most successful countries in sub-Saharan Africa. Today, Zimbabwe is the most difficult case in the region, with real per capita incomes down 15% since 1980.
“The economy is in very bad shape,” said Welsh businessman and prominent opposition politician Ncube, who said the economic crisis and the government’s difficulty in paying soldiers and civil servants were making part of the context of last week’s military coup. “Even though I have $10,000 in the bank, my bank can only give me $20 a day. The cash shortage is severe.
Queues to withdraw precious dollars from ATMs hours after the army intervened last week were just the latest example of a need for hard currency, reflecting crushing economic difficulties that date back decades. years.
In 2009, Zimbabwe was forced to abandon its currency – which had soared into a hyperinflation hell – and adopt the dollar as its primary medium of exchange. Forced dollarization stabilized the economy and led to an initial 40% rebound in incomes, although incomes have since stabilized. Without local currency, the money supply has become entirely dependent on dollar inflows, effectively depriving the authorities of monetary policy control.
In a desperate measure to introduce cash, the government introduced “bond bonds” in 2016. These were nominally backed by hard currencies but their value quickly deteriorated. The money supply jumped 36% last year and banknotes plunged 80% on the parallel market, threatening even higher inflation.
At annualized rates, inflation is over 14% and the budget deficit is 12% of gross domestic product. Despite export subsidies of $175 million, the trade deficit exceeds 10% of GDP. At some point, the new administration – whatever form it takes – will likely have to reintroduce a local currency, with potentially painful consequences.
Although in the early days after independence the Mugabe government was nominally committed to Marxism-Leninism, it never gave the concept more than one vote. However, he created a plethora of public companies, almost all of which are now bankrupt. The government has compounded its problems by repelling foreign investors and borrowing heavily, in part to expand social services, especially education.
In the early 1990s, following the collapse of the Soviet empire, a reluctant Mugabe was dragged by the World Bank and Western donors into an ill-conceived and mismanaged structural adjustment program. Its designers believed that the liberalization of markets and finance, as well as the reform of the civil service and public enterprises, would stimulate economic growth, with the manufacturing sector as the leading sector.
However, many of the public sector reforms were stillborn and deindustrialization rather accelerated. Industrial production now accounts for less than 10% of GDP, down from a peak of 25% in the early 1990s.
Non-agricultural employment at around 850,000 is unchanged from the late 1980s, while industrial employment has fallen from over 200,000 to 90,000. Today, the public sector excluding the military—mainly teachers, health workers, and civil servants—accounts for more than 40 percent of formal employment.
Far from stimulating the economy as promised by donors and multilateral institutions, market reforms have deepened the economic crisis, forcing Mr Mugabe into ever more desperate measures. These included unbudgeted payments to veterans, compounded by Zimbabwe’s military incursion into the Democratic Republic of the Congo in 1998 in support of the Kabila dynasty. Together they helped precipitate the slide into the monetary collapse and hyperinflation of the early 2000s.
War veterans were at the forefront of the chaotic land redistribution policy launched in 2000 ahead of elections in which many analysts insist Morgan Tsvangirai’s reformist Movement for Democratic Change won the vote but lost count.
Land reform accelerated economic decline exponentially, with real GDP plunging by 45% in the decade to 2009. Agricultural production collapsed and in 2008 production volumes were two-thirds lower than their record levels of 2000. Although there was a subsequent recovery, production is still down by at least a quarter even after a bumper harvest last year.
Nonetheless, Tendai Biti, who served as finance minister from 2009 to 2013, said the economy could recover quickly if it could attract foreign investment and reintegrate into the international economy. “Look how we bounced back in the national unity government,” he said, referring to the recovery from hyperinflation after 2009. “We can build an economy of $100 billion less of 15 years and have a growth rate of 7% per year. .
Emmerson Mnangagwa, the sacked vice president who is Mr Mugabe’s most likely successor, has been working behind the scenes to support the aborted Lima process, through which the government had hoped to settle long-standing debt arrears, opening the door to way to new multilateral funds and, potentially, more foreign investment.
The military that took power last week has tried to portray itself as pro-business. In a press release last week, the Zimbabwe Defense Force, which now rules the country, highlighted what it said was the support of the business community and said it wanted to create “a peaceful Zimbabwe , united, investor-friendly and prosperous”.
For this, the country will need some kind of international rescue plan and to attract new flows of investors. “You cannot make a dent in this economy,” Mr Ncube said, “without international support.”
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