The Economic Collapse of Zimbabwe and the Aftermath

In 1997 Zimbabwe came to another major turning point in its turbulent economic and political history. The country was very tense, food riots had broken out and six people were shot by the security forces with live ammunition, veterans of the liberation war were agitating for reparations and threatening action. The State responded with a Z$3,5 billion (US$1 billion) payment to 60 000 veterans and suddenly our relative stability in economic terms was shattered. The local currency crashed to 12:1 against the US dollar and a long drawn out economic collapse began. 

This first step was followed in 1998 when the Government committed itself to aid Kabila in his fight in the Congo, dispatching 11 000 troops and heavy fighting equipment to the Congo at a cost of over US$1 million per day. Then, when the ruling Party was nearly defeated by the MDC in the elections in 2000, the State began the systematic destruction of the commercial farming sector in order to neutralize their political influence.

They completely underestimated the impact of these measures seeing only the potential for short term gains and easy plunder. Given the nature of the Zimbabwe economy, the action taken against some 4000 white commercial farmers had far reaching economic implications. Other sectors of the economy dependent on commercial agriculture began to contract and the attack on property rights and the rule of law undermined investor confidence. 

As a direct result Zimbabwe began a dramatic and extended slide into chaos and collapse. Over the next decade the GDP declined from nearly $9 billion in 1997 to US$4,7 billion in 2008. Exports fell by two thirds and income per capita, despite a massive reduction in population due to migration and abnormal deaths, fell to nearly US$1 per day, one of the lowest in the world. 

All social indicators followed suit - by 2008 nearly 70 per cent of the population was living on food aid supplied by the major donor States led by the USA, maternal mortality rose to the highest in the world, child mortality rose in tandem. Life expectancy, at over 60 years before Independence in 1980, fell to 34/37 years. By 2008 all State controlled schools, Universities and Colleges as well as nearly all State clinics and hospitals, were virtually dysfunctional and closed. Education standards - once the pride of the Nation, disintegrated and literacy rates for the young fell dramatically. 

From 1980 to 1997 the budget deficit had ranged about 9 per cent and was well above what could be sustained. Public debt at US$700 million in 1980 rose to over US$10 billion. Spurred by the expanding quasi fiscal activities of the Reserve Bank who thought they could print money ad nauseam, rose to completely unsustainable levels and inflation soared to reach 250 million per cent in 2008, prices doubling every few hours. All savings and bank balances were wiped out, a billion Zimbabwe dollars would not buy a loaf of bread. 

Populations faced with such chaotic conditions and totally delinquent governments have always taken steps to protect themselves. Zimbabweans were no different. They had been there before when the Rhodesian government had declared independence in 1965 and suddenly everyone had to look after themselves and business had to "make a plan". Survival was the priority for everyone and that is just what happened. How else do people survive such a holocaust? 

The result was that people stopped using the banks, stopped using the local currency except when it suited them. They stopped paying their taxes and declaring their incomes, they went underground in economic terms. Gold sales fell to very low levels at just 900 kilograms in 2008 when just ten years before we had been the 6th largest producer in the world.

Breaking the law became the norm rather than the exception and eventually, despite the fact that the State continued to hold sway over the country and on paper controlled almost all aspects of life, in reality they controlled very little and in February 2009 the State declared bankruptcy and abandoned all pretext that it was in charge and simply let go. They adopted the US currency as the main means of exchange and after 100 years of exchange and import controls they adopted a market system that was the most free in the world. 

The immediate response by the population and the economic system was absolutely astonishing. In days, after a decade of shortages and fuel rationing, fuel was in free supply, in weeks the prices declined to world market levels and have stayed there. In weeks supermarket shelves and wholesalers were full to bursting with every possible product. You could buy anything you needed or wanted when just a short time before we had been forced to buy bread and other basics in neighboring countries. 

The response in the public sphere was no less astonishing - in 2008 total tax revenues had been less than US$300 million. These trebled in 2009, then doubled again in 2010, in 2010 State revenues exceeded US$2,7 billion and this year we expect revenues to exceed US$4 billion. Just as dramatic, exports rose from US$1,3 billion in 2008 to US$5 billion in 2012.

Imports soared to US$8,3 billion in the same year. What was going on, where did all this economic activity come from? The IMF and the World Bank struggled to make sense of the data and in my own view failed dismally. Craig Richardson of the USA tried in a broad sheet titled "Why is the Zimbabwe Economy Growing so Fast". He talked of IMF inflows as one possible explanation - there have been no such inflows and global assistance to Zimbabwe has, if anything declined in the past four years as the humanitarian crisis has receded. 

No, the reason is quite simple, Zimbabweans came out of the rubble of their personal lives and shook off the dust of decades of controls and started doing in public what they had been doing for years in private. Gold production soared after the State lifted a monopoly on buying the stuff and producers were able to get a world market price on the street and in public.

Cash foreign exchange - for many years a criminal offence - simply appeared from everywhere, no borrowings were needed to pay for imports or local services. The huge import deficit of over US$3 billion was a third of the IMF estimate of formal sector GDP - an impossibly high figure. 

My own view is that economists have yet again failed to recognise the size of the informal sector in countries like Zimbabwe. They fail to appreciate its sophistication and reach. It also fails to recognise the magnitude of unrecorded economic activity - foreign trade and the magnitude of activities such as the Marange diamond discovery and small scale gold mining. We understand that more cash changes hands outside the banking sector than transacts within the banks. People here no longer trust the Banks and formal financial sector institutions. 

My own estimate of the real GDP in Zimbabwe is double the official estimates; there is simply no other explanation of either the size of real tax collections or imports. These are all cash transactions that have their roots in the real economy as against the formal economy. Just imagine what this country could do if it had a half decent government that would accept that it is a facilitator and not a player. Just imagine what we could do if we could force all enterprise to behave in a totally transparent and accountable manner? That is the stark choice facing all Zimbabweans in the upcoming elections. 

Eddie Cross is MDC MP for Bulawayo South. This article first appeared on his website www.eddiecross.africanherd.com

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