The Economy of Zimbabwe
Elisa Beltran
Betsy Buse
Kim Chase
ZIMBABWE
Population: 12.5 million
Life expectancy: 43 years (men), 44 years
(women)
Main exports: Tobacco, cotton, agricultural
products, gold, minerals
GNI per capita: US $340
WHAT HAPPENED?
History
•1800s
•British colonization of Zimbabwe and neighboring areas;
known as “Southern Rhodesia”
•1930s
•Land Apportionment Act forces many blacks into wage
labor
•1950s
•Central African Federation
•1960s
•Federation breaks up
•Independence declared under white minority rule
History
• 1970s
•Civil War against white rule
•Peace agreement and new constitution formed,
guaranteeing minority rights
•1980s
•Robert Mugabe wins election, named prime minister
•April 18, 1980 – Independence as “Republic of
Zimbabwe”
•Opposing political parties merge; ending of violence in
the south
•Mugabe becomes “executive president”
History
• 1990s
•Mugabe reelected as president in 1990 & 1996
•Harare Declaration
•Lavish spending and costly campaigns
•2000
•Land seizure ordered for all white farmers
•With drought, led to drastic food shortages
Mugabe
•Great leader when Zimbabwe
struggled for independence– what
happened?
•Mind stuck on “anti-rebellion”
Summary of Causes
•War
•Government spending
•Hyperinflation due to money printing
•Lack of stable industry
What is happening
in Zimbabwe now?
Current Economy
PROBLEMS INCLUDE:
•unsustainable fiscal deficit
•an overvalued official exchange rate
• hyperinflation
• empty store shelves
Current Economy
Fiscal Deficit:
•As of 2008, the government’s revenues were
$153,700, and their expenditures were
$179,300
Exchange Rate:
•Zimbabwean dollar was the official currency of
Zimbabwe between 1980 and 12 April 2009
•Least valued currency in the world
•Currency was effectively abandoned on 12
April 2009
Current Economy
Hyperinflation
•89.7 sextillion percent as of November 14, 2008
•Still-growing crisis
•94 percent unemployment rate as of 2009
Empty Store Shelves
•Government threatened to take over
manufacturers and retailers who failed to cut
prices by half, and store shelves were left empty
Current Political Situation
•President: Robert Mugabe
•Prime Minister: Morgan Tsavangirai
• Government Instability
Volatile and violent political environment
caused by strong opposition between
political parties, Zanu-PF and MDC
Present Life in Zimbabwe
• Devastation
• People are going hungry as food sources
continue to diminish
• Too dangerous for opposition
• Most of those who speak out against the
government are arrested, beaten, and some
even killed.
What is next for
Zimbabwe?
Others’ Solutions
•Prime Minister Morgan Tsavangirai
•The Obama Administration
•The African Union
•Economics Professor Steve H. Hanke of
Johns Hopkins University
Solution 1:
First Thought
•Start over completely from scratch
•Forceful removal of the current
government
•Potential issues?
Solution 2:
Second Thought
•No quick fix
•Multiple steps needed
Step 1: Investment in
Tourism
•Multiple Sites
•Harare
•Mountain Ranges
•Ruins
•Victoria Falls
•Benefits
Step 2: Redistribution of
Currency
•Old currency
•100 Trillion Zimbabwe dollars
= $300 USD
•First reassurance of recovery
fail.
•Old currency
•First reassurance of recovery
Step 3: Temporary Enactment of
a Monetary Policy Stand Still
•Reserve Bank policies = major
cause of crisis
•Cut Mugabe out of these policies
•Administration controls fiscal
•Reserve Bank controls monetary
•Halt until definitely separated
Money Market, constant
s
M
Step 4: Enactment of
Expansionary Fiscal Policies
•Need to increase low GDP
•By increasing government spending (G),
you increase aggregate output (Y)
•How?
•On What?
Effect of G increase
Step 4 Continued
•Interaction between goods and
money markets
•Partial Crowding Out Effect
Money Market
Goods Market
Crowding Out Effect
Effect on P when Y increases
Fiscal policies should be
extremely effective at the
current low level of output
without a large price level
increase.
Step 5: Implementation of
Policies to Fight Inflation
•When minor change in output causes
high increases in price level
•Reserve Bank needs to be ready to act
Short Term Only?
Step 6: Long Range
Growth Policies
•Only way to impact aggregate output in
the long run
•Technological Progress
•Invest in universities and education
•Labor Force
•Above actions = return of those who
once emigrated
Effect of Long Range
Growth Policies
Discussion
• Snags
– Government cooperation
– Lack of resources
– Country willing to loan
• Long term effort
Summary
• Something Must Be Done
• Many Possible Solutions
• Our Plan = Macro 101
Sources
•http://www.zimbabwetourism.co.zw
•http://www.nytimes.com/2009/06/12/world/africa/12zimbabwe.html?_r=1
•http://online.wsj.com/article/SB124964586093614173.html
•http://www.polity.org.za/article/a-stitch-out-of-time-africas-solution-to-thezimbabwean-crisis-2009-02-02
•http://www.cato.org/pub_display.php?pub_id=9553
•http://www.iexplore.com/dmap/Zimbabwe/Where+to+Go
•http://news.bbc.co.uk/2/hi/africa/country_profiles/1831470.stm
•http://news.bbc.co.uk/2/hi/africa/country_profiles/1064589.stm
•https://www.cia.gov/library/publications/the-world-factbook/geos/zi.html
Questions