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Economic Analysis of the Zimbabwe Economy: 1997 to 2003

The Zimbabwe economy reached a peak in 1997 when GDP rose to Z$25 billion (1990 dollars) and exports exceeded US$3,4 billion. Employment was just over 1,4 million. Since then there has been accelerating declines in GDP, now estimated to be Z$15,5 billion in constant 1990 dollars (a 38 per cent decline in 6 years). Exports have fallen to about 60 per cent of 1997 levels (US$1,4 billion) and formal sector employment is down to 900 000 or less.

Exchange rates over the same period of time have fallen from 12 : 1 in 1997 to 6000 : 1 today. This has given rise to a rapid increase in inflation, which rose from about 50 per cent in 1999 to well over 500 per cent per annum by October 2003. Inflation is still accelerating and is expected to reach over 1000 per cent by the year-end. Official inflation figures do not track this situation reliably because of adherence to the use of "official prices" which do not reflect prices in the market place.

On the social front conditions are no better, HIV/Aids infection rates now exceed 33 per cent for all adults and life expectancy has fallen from 59 years in 1990 to 33 years in 2003. This is associated with very high levels of child mortality and maternal mortality as well as rising infection rates of tuberculosis, malaria and water borne diseases. School enrollment, once estimated to be close to 95 per cent in primary schools has fallen and less than one third of all girls of school going age are now in school. Literacy and numeracy, once the highest in the sub region, are declining.

All sectors of the economy have suffered - although the record here is uneven. Worst affected is commercial agriculture, once responsible for 60 per cent of all food supplies and over half of all exports. Production levels are now estimated to be barely 15 per cent of those, which prevailed in 1997. In the next 6 months, until the 2003/04 harvest comes in, the country will be almost 100 per cent import dependent for basic foods. In a situation where the State no longer has the resources to import food, this places an enormous burden on donor States co-ordinated by the World Food Program and the UNDP. The least affected sector is platinum where special agreements protect both the revenue flows on existing investments and are encouraging major new investment.

National debt has grown exponentially - at independence in 1980, national debt obligations were estimated as US$700 million. Today external debt is about US$5,4 billion and has not been serviced for three years. Arrears in payments to all external creditors stand at about US$2 billion. Domestic debt is even larger - official treasury debt now exceeds Z$600 billion (US$7,3 billion at official exchange rates) and parastatal debt is estimated to be of a similar magnitude. With a national GDP of only US$6 billion, these debt levels are well beyond the capacity of the country. Only a policy designed to restrict interest rates on official debt enables the country to operate with a deficit on its State budget of less than a third of GDP.

Exchange rate management is irrational and based on the view held by Mugabe that the countries problems are external in origin and that "no country has ever gone bankrupt on the basis of its borrowings". The official exchange rate remains 55 to 1, while the rate used for most official transactions is 824 to 1. The exchange rate mechanism remains the principle means for both the looting of state assets and the externalisation of funds in favour of the ruling elite.
The Outlook
The 2004 budget is due to be presented on the 20th November. No major shifts
in policy are expected despite claims that a "recovery program" is being implemented. Exchange rate policies will remain as they are and interest rates are also not expected to rise significantly above their present level (in the private sector rates are about 130 per cent per annum, in the public sector, somewhat lower).

As a result we can expect borrowings to again make up the majority of State income for the year (in 2003 up to 70 per cent of all state expenditure was funded by borrowings). It has become more and more difficult for the parastatals to operate under the burden of their huge debts and this will inhibit their activities in the year.

Unless there is a dramatic turn in political events leading to a normalization of relations with the rest of the world, there seems little reason to expect any sort of recovery in 2004. The decline in the GDP in 2003 is expected to reach 15 per cent (up from 12.8% in 2002) and may stabilise a bit - nevertheless it seems likely that the GDP will continue to decline in 2004. Inflation will remain at high levels and the downwards spiral in all social indicators can be expected to continue - may even accelerate.

One of the most significant social consequences of this economic and social collapse in Zimbabwe since 1997, is in the field of human flight. It is now estimated that up to 4,5 million Zimbabweans has left the country since 1997. This represents 30 per cent of the total population and close to half the adult population. Most have moved to South Africa where up to half of the populations in squatter camps are now estimated to be Zimbabwean in origin. Mozambique and Botswana bear a similar burden. Embassies are engaged in a desperate effort to halt the flow by imposing restrictions on visa's but this is hardly slowing the tide.

In Zimbabwe, it means that ironically, less than half the remaining population remains in the rural areas and the problem of land pressure - the reason in the first place given for the farm invasions in 2000, has now fallen away. In fact population projections made on the assumption that the HIV epidemic will continue at present levels suggest that there will be a real shortage of people to farm the available land areas that are available. This will inhibit future farm output and greater attention may have to be paid to less labour intensive methods in agriculture.

In the immediate future, a shortage of all agricultural inputs plus the high cost of all such inputs is inhibiting cropping in all areas. The people occupying commercial farms illegally know full well that they have no security of tenure and this is inhibiting activity and encouraging looting of farm assets. Farm output is therefore predicted to fall even further this summer - whatever happens to the weather.