Zimbabwe Economic Growth and Development - Case Study Example

Zimbabwe Economic Growth and Development Name: University Name: Course Name: Date: Executive Summary Prior to 1990, Zimbabwe’s economy experienced periods of weak and strong economic development. The country’s GDP growth rates averaged 5 per cent annually during 1960-80, reflecting strong policies that promoted investment in agriculture and manufacturing. Since 1980, the country’s economy has been mixed, reflecting bad weather conditions and policy lapses that affected agricultural industry. In 1980-90 period, the country recorded a strong post-independence growth performance with GDP or around 5.6 per cent, high than most developing countries. Since 1990, government controls, poor policy environment, droughts and measures that were used to address social inequalities via the provision of social services at the expense of country’s production, combined cause to have a poor economic growth. Contents 1.0 Introduction pg.4 2.0 Zimbabwe’s Employment pg.5 3.0 Zimbabwe: GDP per capita pg.6 4.0 Human Development Index pg.7 4.1 The Gender Inequality Index (GII) pg.9 4.2 Multidimensional Poverty Index (MPI) pg9 5.0 Conclusion pg.10 6.0 Recommendation pg.10 7.0 References pg.12 1. Introduction After independence in 1980, Zimbabwe inherited a dual economy that was characterized by well developed modern sector and a largely poor rural sector that provided livelihood to approximately 80 per cent of the nation’s population (Green, Reginald and Xavier, 1986). In order to address this anomaly, poverty reduction became a priority to the Zimbabwean government in the first decade of independence. The country’s real GDP growth averaged 3-5 per cent per year recording a record high of 8 per cent in 1990. Government spending was towards expansion of rural infrastructure, increased social sector expenditure and redressing economic and social inequalities through the land re-settlement program (Steenkamp and Rodney, 2006). The various reforms that were initiated, in particular adoption of multi-currency such as South African rand and US dollar as its official currencies and the cash budget system, adopted by the Zimbabwe’s government in March 2009 has helped the country to restore macro-economic stability and support an emerging economic recovery (Ravallion, 2010). In response to the more liberalized and stable economic environment under the STERP (Short-Term Emergency Recovery Program), Zimbabwe’s real GDP grew by 5.7 per cent in 2009 and have been estimated to have risen by about 8 per cent in 2010 (United Nations Development Programme, 2010). In recent years, confidence in the country’s business environment has been growing, as the country’s economy has undergone a period of change in recent years. 2.0 Zimbabwe’s Employment Employment statistics in the country are a contentious topic. Newspaper reports- both in international and local publications- from time-to-time have routinely claimed that the rate of unemployment in the country stands at 80 per cent and this is accompanied by “rampant informality” (Ravallion, 2010). In contrast, the CSO (Central Statistical Office) reported unemployment figure of 9.4 percent for the year 2004. The report also indicated that less than 14 percent of the population is employed in the informal sector. Since 1980s, Zimbabwe’s formal sector has shown a declined, with a growth of 2.7 per cent between 1981 and 1990, 0.24 per cent between 1990 and 1996, and a decline of 0.17 per cent between 1998-2002. Two-thirds of country’s workforce are below the age of 25 years, while the concentration of unemployment of 40.7 per cent is between the ages of 20-24 years (United Nations Development Programme, 2010). The unemployment scenario in the Zimbabwe has been worsened by the fact that the country’s formal economy only absorbs 20,000-30,000 from the 250,000-300, 000 high school-leavers annually. Unemployment in Zimbabwe has been linked to structural problems, frictional and cyclical phenomena in the economy. Structural problems is due distortions and deficiencies in the economy i.e. the rate of absorption is lower than the increase in labor forces (United Nations Development Programme, 2010). Cyclical problems is due to economic decline, and Frictional problems is due to changes in the operation of companies as they adjust to changing conditions that have been brought about by unstable economy. Figure 1: Percentage of employment in the formal sector as compared to other countries. When the job-based concept is used to measure unemployment, the country falls into the middle of the range and, with 50.7 percent (Ravallion, 2010), shows a share of formal employment that is similar to those found in Venezuela, Panama and Brazil. By comparison, South Africa has higher share of formal employment. This is because South Africa has a large formal sector. 3.0 Zimbabwe: GDP per capita Zimbabwe’s per capita income has grown in the range of 2 per cent to 4 per cent per annum from 1980 to 1990. In the following years per capita income sharply declined. This downturn incidentally coincided with the adoption of ESAP in 1991. Although it was a home-grown, this measure involved familiar elements of adjustment program that was sponsored by the Briton hood institutions and trade liberalization (United Nations Development Programme, 2010), the deregulation of the domestic economy and reductions in public spending (Matibe, 2008). Slump in GDP has been partly contributed by severe drought of 1991/1992 after which the recovery was reported to be very slow, and in 1998, per capita income was roughly the same as in 1991 (Matibe, 2008). Zimbabwe’s poor growth rate also reflects a low rate of domestic or foreign investment. The domestic investment averaged about 17 per cent of GDP during 1980-1990 and 18 per cent during 1990-2000 respectively. In 2000-2006, the gross domestic investment fell drastically to about 3 per cent (United Nations Development Programme, 2010). While the country’s investment rate in recent years is below average for low income sub-Saharan Africa of about 19 per cent of GDP. The level of investment in the country have been inadequate in maintaining the existing stock of capital. GDP per Capita - Zimbabwe Compared to Continent Since the mid-90’s, the country’s infrastructure has been deteriorating at a very fast phase (Matibe, 2008). Poor management of the country’s economy and political turmoil has contributed to economic hardships. In addition, the government chaotic land reform program, imposition of unrealistic price controls and exchange rates and interference with the judicial system have caused a sharp drop in investor confidence (Bautista, and Marcelle, 2000). 4.0 Human Development Index Zimbabwe’s human development index (HDI) has sharply declined when it is compared to once poorer countries such as Ethiopia and Rwanda, whose economies have recovered from years of droughts and civil wars (Ravallion, 2010). The UN development program 2010 report has recently placed the country’s HDI value at 0.140 down from 0.241 in 1980, effectively ranking the nation in the last position among countries where research has been conducted. According to UNDP observation, from 1980 to 2011, the country’s life expectancy has fallen by 12 years. The average Zimbabwean now live for no more than 50 years due to many factors such as collapse of welfare and health institutions and HIV/AIDS disease in the country (United Nations Development Programme, 2010). In addition, the country’s GNI per capita income decreased by 35 per cent during the same period (Matibe, 2008). An ordinary citizen at the moment earns 506.89 dollars per year just over 26 dollars more than a citizen from Haiti (Goderis and Vasso, 2006). The country’s economic meltdown was a disaster that was waiting to happen. In the 2010 country’s ‘Millennium Development Goals Status Report’ indicated that the country’s fall in GDP growth was as result of recurrent droughts that was coupled with the government’s bad fiscal discipline. Between 1991 and 1995 the growth rate was averaging 1.5 per cent per annum (United Nations Development Programme, 2010). This was as a result of the onset of land reform program that was initiated by the government and the decline in the output of commercial farming that further contributed to decline in GDP from 0.0 per cent in 1997 to -7.4 per cent in 2001 and subsequently -10.4 per cent in 2004. Zimbabwe’s economy largely depends on the agricultural outputs which earned the country foreign currency through exports. Once seen as the ‘bread basket’ of Eastern and Southern Africa the country is unable to produce enough food to feed the people. as a result, those people living below poverty line stood at 72 per cent this situation has continued up to know. HDI - Countries with low human development 4.1 The Gender Inequality Index (GII) The Gender Inequality Index (GII) represents gender-based inequalities in 3 dimensions- empowerment, reproductive health, and economic activity. The country has a Gender Inequality Index value of 0.544, the country, ranked in position 116 out of 148 countries globally, in 2012 (Steenkamp and Rodney, 2006). In Zimbabwe, 17.9 per cent of MP’s are women, while 48.8 per cent of women have secondary education or college degree as compared to 62 per cent of their male counterparts (Thabethe, 2009). In addition, for every 100,000 births, approximately 570 women are reported to loss their lives as a result of pregnancy related causes; and the adolescent fertility rate is pegged at 53.4 births per 1000 live births (Ravallion, 2010). The number of female who are participating in the labour market is 38 per cent compared to 89.4 per cent for men (Durevall and Daniel, 2001). In comparison to Kenya and Lesotho are ranked 130 and 113 respectively on Gender Inequality Index. The reasons for gender inequality in Zimbabwe is that most women do not exercise their rights that the country’s law guarantee them, among other factors due to its administration, ignorance of the law, cumbersome court procedures, economic hardships that make it difficult for women to pursue their legal rights, customary laws and fear of women breaking values that are related to family (Matibe, 2008). 4.2 Multidimensional Poverty Index (MPI) Multidimensional Poverty Index (MPI) is used to identify multiple deprivations in a household in health, education and standard of living. The health and education are based on 2 dimensions while the standard of living is based on 2 indicators. Multidimensional Poverty Index is used to distinguish between the non-poor and poor household. In Zimbabwe, 40.1 per cent of the population lived in MPI while an additional 26.2 per cent were at a danger to MPI. The country’s MPI value, which is the share of the population that is multi-dimensionally poor adjusted by the intensity of the deprivations, was 0.172. Lesotho and Kenya had MPI values of 0.156 and 0.229 respectively. The economic crisis that have in the past affected the country has prevented substantial capital investment, and new firms have been slowly been emerging (Thabethe, 2009). In addition, agricultural production have been in the past suffered due to weak support services from the government, fertilizer and fuel, lack of credit and acute shortages of vital inputs such as planting seeds. Persistent drought has also made it harder for people to raise their productivity (United Nations Development Programme, 2010). Food insecurity in the country has continued to worsen both for rural and urban populations (Steenkamp and Rodney, 2006). At the moment, the country is a net importer of food and now many thousands and thousands of Zimbabwean are now dependent on food aid. “Yet the strained relationship between Zimbabwe and large parts of the international community has also restricted donor engagement in the country” (Thabethe, 2009). 5.0 Conclusion Economic policies that were initiated by Zimbabwe’s government have not resulted in improved economic and social welfare for the general population. Consequently, the country’s economic and social decline has resulted in widespread political disaffection and discontent with the present regime. As political tensions have reached a political impasse, there are concerns that Zimbabwe’s economy is on the brink of total collapse. The country today is enclave in great wealth in a sea of poverty. The country has not been able to develop over the years because of government policies that don’t favor investments into the country. 6.0 Recommendation Zimbabwe’s economic crisis was due to years of poor economic performance and growth. As a way forward, the possible strategies should be implemented by the government in order to achieve vision 2030: Resolve the political crisis that currently affects the country (Steenkamp and Rodney, 2006). Policies should be implemented in order to bring back market confidence in all sectors of the country’s economy (Davies and Jorn, 2007). The government should address the macroeconomic stability through bringing the country’s inflation to its lowest level, including dealing in foreign exchange parallel market (Davies and Jorn, 2007). Lastly, the current education system is characterized with high content and accords little value to entrepreneurial spirits (Steenkamp and Rodney, 2006). This has been a factor in development of creativity at both societal and individual levels. Therefore, the country should modify its educational system in order to achieve a redirection of stimulations to synchronize with employment opportunities and economic needs (Steenkamp and Rodney, 2006).   7.0 References Bautista, Romeo, and Marcelle Thomas. 2000, Trade and Agricultural Policy Reforms in Zimbabwe: A CGE Analysis. In Third Conference on Global Economic Analysis. Melbourne, Australia. Davies, Rob, and Jorn Rattso. 2007, Growth, Distribution, and Environment: Macroeconomic Issues in Zimbabwe. World Development 24 (2):395-405. Durevall, Dirk, and Daniel B Ndlela. 2001, Macroeconomic Policies and the Manufacturing Sector. In Macroeconomic and Structural Adjustment Policies in Zimbabwe, edited by C. Mumbengegwi. London: Macmillan and Palgrave. Goderis, Benedikt, and Vasso P Iannidou. 2006,. Do High Interest Rates Defend Currencies During Speculative Attacks? New Evidence CSAE WPS/2006 - 11. Green, Reginald Herbold, and Xavier Kadhani. 1986, Zimbabwe: Transition to economic crises 1981-1983: Retrospect and Prospect. World Development 14 (8):1059 – 1083. IMF 2004, Zimbabwe: 2004 Article IV Consultation. In IMF Country Report No. 04/297. Washington D.C: International Monetary Fund. Mabika, Sydney E. 2001. Monetary Policy Framework in Zimbabwe. In International Conference on Monetary Policy Frameworks in Africa. The South African Reserve Bank, Johannesburg. Matibe, P. (2008-07-17). "The Zimbabwe Situation". The Zimbabwe Situation. Retrieved 2010-05-30. Ravallion, Martin (2010), "Your new composite index has arrived: Please handle with care", VoxEU.org, 14 October. Steenkamp, P. J and Rodney, D. (2006). Public Management in a Borderless Economy. p. 664. Thabethe, S 2009, Southern African Development Community Gender Protocol Baseline Study: Zimbabwe, available at http://www.genderlinks.org.za/article/sadc-gender-protocol- barometer-baseline-study-zimbabwe-2009-10-16, accessed 11 January 2011.p.25. United Nations Development Programme 2010, Human Development Report: The Real Wealth of Nations, New York: Palgrave Macmillan for the UNDP. Read More