Zimbabwe Economy and International Relations - Essay Example

Zimbabwe Economy The economic situation of Zimbabwe has been under the spotlight for the past 10 years following the land reform exercise that gained momentum in 2000. The exercise precipitated in dramatic shifts in the country’s political, economic, social and cultural landscapes. With an average inflation rate of more than 165 000%, (The Financial Gazette 16 April 2008), the economic and political situation has become a heated debate nationally, regionally and internationally to the extent that certain economic reforms should be implemented so as to turn around the country’s potential in economic growth. In February 2000, the government’s draft constitution was rejected by the majority of voters representing the first electoral challenge to the hegemonic and increasingly authoritarian rule of President Robert Mugabe and his ruling nationalist Zimbabwe African National Union Patriotic Front Zanu(PF) party’s twenty year rule (Amanda & Raftopoulos 2003:10). This culminated into a wave of war veteran-led farm invasions that saw many white commercial farmers losing their farms in the violence that ensued. Thus, Zimbabwe’s economy mainly being agro based, the farm invasions precipitated the deepening economic decline which resulted in the disintegration of commercial farming. This also led to the decline in tourism as a result of the country’s negative publicity, major losses in foreign currency earnings, a fall in Gross Domestic Product (GDP) of 24 per cent and a significant rise in arrears of Zimbabwe’s foreign debt of US$3.4, the withdrawal of Western Aid and substantial loss of foreign investment, widespread business losses, drastic fall of the Zimbabwean dollar, crippling fuel shortages and a severe national shortage of food threatening to affect Zimbabwe’s estimated population of 13 million.( Amanda & Raftopoulos 2003). Regardless of the negative publicity, Zimbabwe still maintains embassies in many countries across the world and more than sixty-six countries are represented in Harare, Zimbabwe’s capital city. It is also a member of various regional and international groupings such as the African Development Bank, The World Trade Organization, Southern African Development Community (SADC), Common Market for Eastern and Southern Africa (COMESA), African Caribbean and Pacific Countries (ACP), Group of 77 (G-77), Group of 15 (G-15), Non aligned Movement (NAM), African Union (AU) and the World Federation of Trade Unions (US State Department 2008). On the economic front, Zimbabwe is an active member of COMESA which binds together free independent sovereign African states which have agreed to co-operate in exploiting their natural and human resources for the common good of all their people. In attaining that goal, COMESA recognises that peace, security and stability are basic factors in providing investment, development, trade and regional economic integration and its agenda is to deepen and broaden the integration process among member States through the adoption of more comprehensive trade liberation measures such as the complete elimination of tariff and non-tariff barriers to trade and elimination of customs duties (Comesa 2007). Currently, Zimbabwe is ineligible to access funds from the International monetary fund since its suspension in 2001 following the economic upheavals resulting from the land invasions. In a Press Release of 25 September 2001 entitled ‘IMF Declares Zimbabwe Ineligible To Use IMF Resources’ the Executive Board of the International Monetary Fund (IMF) reviewed Zimbabwe's overdue financial obligations to the IMF, and declared the country ineligible to use the general resources of the IMF, and removed Zimbabwe from the list of countries eligible to borrow resources under the Poverty Reduction and Growth Facility (PRGF). Zimbabwe first incurred arrears to the IMF in mid-February 2001, and at end-August 2001 its overdue obligations totaled SDR 41.3 million (about US$53 million), including SDR 18.9 million (about US$24 million) to the IMF's General Department, and SDR 22.3 million (about US$29 million) to the PRGF Trust. The declaration of ineligibility to use the general resources of the IMF is one of the remedial measures taken to encourage members to settle overdue financial obligations to the IMF. Zimbabwe’s relations with especially western countries including America, Britain and other European countries are strained following the human rights violations records after the government embarked on its chaotic land reform programme. This also saw the country cutting its ties with the Commonwealth. Shortly after the March 2002 presidential election, the Commonwealth suspended Zimbabwe from leadership councils for one year after the Commonwealth's election observer team found the conduct of the election was seriously flawed. After this suspension was upheld in December 2003, Mugabe withdrew Zimbabwe from the Commonwealth (US Department of State, 2004). However, other West European countries till have ties with Zimbabwe. The Scandinavian countries share certain philosophical ideologies with the country and have provided much assistance, such as France, Canada, and the Federal Republic of Germany. It can also be noted that similar historical ties have led to the establishment of relations with Asian countries with the government's "look east" policy which has led to closer diplomatic relations especially with Malaysia and China (The Herald February 2008). Zimbabwe is currently under severe economic crisis and the liberalist approach which encourages free trade would be most appropriate in improving its economic growth. Many researchers have asserted the Zimbabwean crisis to be a result of bad governance (Amanda, 2003). For instance the government introduced price controls as a way of arresting a hyper inflationary environment. In July 2007, the government ordered the retailers to reduce their prices by half (The Herald July 28 20007). However, the result was the disappearance of virtually every basic commodity from the shelves. In this regard controlling the price on retailers is not a lasting solution but the government must ensure the provision of affordable and constant supply of raw materials. The government control of prices has resulted in the emergence of the parallel market commonly referred to as ‘black Market’. Free trade is the best solution to counter such economic ills in a country already overburdened by shortages of almost every basic commodity. The government should also desist from fixing foreign currency exchange rate but should float it in response to the demand and supply factors. The government recently passed into law the Indeginisation Act 2008, which seeks to compel multinational companies to cede 51 per cent of the shareholding to local indigenous people. However, this creates uncertainty in investor confidence resulting in potential investors shunning the country due to fear of unfavourable laws on property rights. As recommended by the Director of IMF, African Department, Mr. Abdoulaye Bio-Tchane, (IMF Press Release, 17 November 2004), ‘a comprehensive policy package comprising rapid macro stabilization, substantive structural reforms, and a strengthening of governance to lay the basis for a significant improvement in investor confidence is needed to restore the country’s economic growth potential.’ The country should also make concerted efforts in rebuilding relations with other official international creditors, which over time will also lead to the external financing needed to ensure sustainable economic growth. This is based on the notion that no country can be able to fully realise its potential while in isolation from the international community. This should be done through significant increase in payments of arrears to the Fund so as to enable Zimbabwe to access the much needed funds from IMF to achieve economic recovery. In other words, efforts to adopt and implement a comprehensive economic recovery program can be achieved with the assistance of other international agencies. Historically, Zimbabwe's closest links have been with the U.K. However, in the past seven years, this relationship has been strained. The Zimbabwean government has demonized Britain in the press, blaming the country for Zimbabwe's problems and also claiming that Britain reneged on promises made at Lancaster House to provide money for land reform (UN African Affairs Department 2007). It is important at this juncture for Zimbabwe to improve its bilateral relations especially with powerful states such as Britain and United States as a way of attracting investors from these nations. Since 2000, the United States has taken a leading role in condemning the Zimbabwean Government's increasing assault on human rights and the rule of law, and has joined much of the world community in calling for the Government of Zimbabwe to embrace a peaceful democratic evolution. In 2002 and 2003, the United States imposed targeted measures on the Government of Zimbabwe, including financial and visa sanctions against selected individuals, a ban on transfers of defense items and services, and a suspension of non-humanitarian government-to-government assistance. However, the United States continues as a leading provider of humanitarian assistance to the people of Zimbabwe, providing about $400 million in humanitarian assistance from 2002-2007, most of which was food aid (US State Department 2008). In this case there is need to improve relations with US as a way of promoting trade between the two countries. In conclusion, it can be noted that Zimbabwe is currently under a serious economic crisis. The country should mend its relations with the international community to achieve its developmental goals since it is very difficult for any country to survive in isolation especially in the global world economy. Bibliography 1. Amanda Hammar et al, (2003), Zimbabwe’s Unfinished Business: Rethinking Land, State and the Nation in the context of Crisis, Weaver Press, Zimbabwe. 2 .International Monetary Fund, (Press Release-25 September 2001), Washington, USA. http://www.imf.org/external/np/sec/pr/2001/pr0140htm 3. COMESA http://www.comesa.int/ 4. US department of State, Bureau of African Affairs, February 2008 http://www.state.gov/r/pa/ei/bgu/5479 5. The Sunday Times http://www.thesundaytimes.co.za 6. The Financial Gazette http://www.fingaz.co.zw 7. The Herald http://www.theherald.co.zw Read More