Economy

By regional and even African standards, Zimbabwe has one of the most diversified economies on the African continent. The country has a vast array of valuable minerals, commercially viable land and a literacy rate of between 80 and 90 percent. Given its vast mineral base, good agricultural climate, attractive tourist sites and highly educated population, Zimbabwe has the potential to become one of Africa’s most developed countries. The economy’s four main sectors are mining, manufacturing, agriculture and tourism. Of the four sectors, mining, tourism and agriculture (mostly tobacco and beef exports) traditionally constituted the main foreign currency earners. The manufacturing sector is highly dependent on the performance of these three sectors. In recent years, remittances from the Diaspora have become an important and alternative source of much-needed foreign currency for the country.

After experimenting with International Monetary Fund (IMF) and World Bank-funded structural adjustment programmes in the 1990s, the government of Zimbabwe opted for a more regulated as opposed to a market-oriented economy. For example, price controls were introduced since the late 1990s on a wide range of basic products including food (maize, bread), fuel, medicines, soap, electrical appliances, yarn, window frames, building sand, agricultural machinery, fertilizers and school textbooks (Mlambo, 1997).

The change in economic policy direction was caused by the failure of structural adjustment in the 1990s and the widening political differences over economic policy between the government on the one hand, and multilateral financial institutions on the other. The current state of abeyance with multilateral financial institutions, lack of external support, and a decline in exports have in recent years led to a rapidly shrinking economy characterized by soaring inflation and shortages of foreign exchange, fuel and other basic food commodities[JSH1] . The last nine years have seen capacity in the economy’s manufacturing, tourism, commercial agriculture and mining sectors experience sharp declines. This in turn has had a detrimental effect on the country’s foreign currency reserves. Some observers point to the negative impact of Zimbabwe`s involvement from 1998 to 2002 in the war in the Democratic Republic of the Congo as one of the major causes of the current economic crisis. One of the most obvious results of the above scenario has been Zimbabwe’s battle with hyperinflation, which spiralled to record highs by 2008. Inflation rose from an annual rate of 32% in 1998 to a peak of 2,200.2% in March/April 2007, and by August 2008 inflation had reached an internationally unprecedented 231 million percent, after which government halted official estimates. Since the move by the government to sanction the use of foreign currency, effectively scrapping the Zimbabwe dollar, inflation rates have fallen dramatically.

Current international economic relations

Zimbabwe is a member of multilateral financial institutions such as the World Bank and the IMF. Historically, its main trading partners and export markets have been the European Union (EU) and South Africa. However, following sharp differences with the EU over political violence, allegations of human rights violations and economic policy direction, the traditional economic relations were largely severed[JSH2] . This has forced the Minerals Marketing Corporation of Zimbabwe (MMCZ), the country’s the sole buyer and seller of minerals (except gold and platinum) to look east for alternative markets (Zimbabwe Standard, 23 May 2007). On the other hand, the signing of the "Zimbabwe Democracy and Economic Recovery Act of 2001" (ZIDERA) by President Bush in 2001 effectively ordered the IMF and multilateral development banks – including the International Bank for Reconstruction and Development, the International Development Association, the International Finance Corporation, the Inter-American Development Bank, the Asian Development Bank, the Inter-American Investment Corporation, the African Development Bank, the African Development Fund, the European Bank for Reconstruction and Development, and the Multilateral Investment Guaranty Agency – to “oppose and vote against any extension by the respective institution of any loan, credit, or guarantee to the government of Zimbabwe,” and to vote against any reduction or cancellation of "indebtedness owed by the government of Zimbabwe." (White House Statement by President Bush, 21 December 2001). In practice, ZIDERA has blocked virtually all multilateral financial institutions, including African banks that could potentially lend money to Zimbabwe. Also as a result of ZIDERA, the IMF has on numerous occasions even threatened to expel Zimbabwe from its membership.

The almost complete cut in economic relations between the EU and Zimbabwe has led Zimbabwe to adopt a ‘look-East’ policy, with a focus on a resurgent China. Thus, the new policy involves deepening existing historical ties with ever-closer economic, military and political ties with the People`s Republic of China. Other important external economic partners under the new policy include Malaysia, Thailand, India, Iran, Pakistan and Russia, among others. Zimbabwe has also sought to build stronger economic ties with countries in southern groupings such as ACP, NAM and G-77 + China. In South America, Zimbabwe has been trying to forge stronger economic relations with Cuba, Brazil and Venezuela. Already, very strong political ties exist between Cuba and Zimbabwe, which has seen the latter benefiting at the level of teacher training and exchange of medical expertise. On the African continent, Zimbabwe has carefully maintained close economic relations with SADC countries. While South Africa remains the country’s main trading partner, Zimbabwe has signed bilateral trade arrangements with other countries in SADC (Joubert, 2004). The economic relationship between Zimbabwe and the rest of SADC is inseparable because most trade routes to the sub-region pass through Zimbabwe, and the latter is the second largest economy outside South Africa.