On November 22, in his maiden address at the ZANU-PF headquarters, Zimbabwean President Emerson Mnangagwa spelt out a vision of economic growth and jobs. Although it was brought to power by the clout of the military, the promise of economic prosperity is key to the legitimacy of the new administration. This article looks at the economic history of Zimbabwe and whether the incoming president might deliver on his words.
Zimbabwe’s economic history
Zimbabwe became independent in 1980 and its new leaders adopted state-socialist policies intended to reduce poverty. At the time of its independence, Zimbabwe was amongst the top four most industrialised countries in Sub-Saharan Africa.
The policies of the 1980s saw an improvement in social welfare indicators spurred by government interventions and support for smallholder farmers. For instance, there was significant investment in healthcare, especially for the poor, increasing from 2% of GDP in 1980 to 3% by 1990.
The Rhodesian government of the 1970s had adopted polices of import substitution and protectionism to counter the effect of sanctions imposed on the country by the international community. Further to this, Rhodesian law prohibited black workers from owning businesses or land.
As a result of these factors, Zimbabwe enjoyed a strong manufacturing and industrial sector relative to other African countries which enabled it to be self-sufficient in many respects. Zimbabwe’s GDP per capita grew at a modest rate of 2% from the period 1980 to 1990.
Thanks to a continuation of pre-independence policies, coupled with an infusion of social policies such as free education, affordable health care and food subsidies, most Zimbabweans enjoyed high standards of living despite modest economic growth.
Structural adjustment programme
In 1990, the government implemented an economic structural adjustment programme (ESAP) aimed at deregulating the domestic economy (prices, employment and wages), reducing the government debt and further reducing trade restrictions.
The overarching effect of the ESAP, which was formulated in collaboration with the International Monetary Fund (IMF) and World Bank, was a shift from government intervention towards economic policies shaped by the market.
However, after the ESAP was put into place, there followed five years of economic turmoil, characterised by a sharp rise in food prices, deteriorating health services and rising unemployment. These problems were exarcerbated by a debilitating drought in 1992.
1996 brought renewed hope to the country as GDP per capita grew by 8%, however this proved to be transient as the government embarked on a costly exercise to placate increasingly agitated ex-combatants from the independence war.
By November 1997, the economic crisis had reached a tipping point resulting in the Zimbabwean Dollar losing up to 75% against major currencies. The economic crisis of the 1990s climaxed with food riots which were forcefully crushed by President Robert Mugabe’s regime in 1998.
The land question had been a contentious issue at the time of Zimbabwe’s independence in 1980, with specific provisions in the Lancaster House agreement providing protection for white-owned farms for up to 10 years after independence.
In 2000, after sustained pressure from the ex-combatants, the government embarked on a “fast track” resettlement programme with the aim of acquiring over 3,000 farms for redistribution. This land reform programme was undertaken in haste and in most cases disregarded legal procedure.
Consequently, the country’s commercial farming sector, which contributed immensely to Zimbabwe’s national income, was crippled. The Centre for Public Impact argued that the reform programme did not achieve its intended objectives but rather resulted in violence and further economic deterioration.
In June 2006, salvation appeared to have arrived for the struggling economy in the form of a diamond discovery in Chiadzwa, Mutare District. This discovery triggered an influx of migration from various parts of the country.
But they were to be disappointed. Academic Richard Saunders described the Chiadzwa diamond rush as:
“A new case of ‘blood diamonds’, in which state security forces secretly oversaw the extraction and criminal smuggling of rough diamonds – in the process, violently displacing local communities, informal miners and legal title-holders, and depriving the national treasury of significant new revenues and foreign exchange earnings.”
Owing to the poor management of diamonds by the government of Zimbabwe, few benefits were seen by society at large; indeed inflation rose astronomically between 2006 and 2008.
The Reserve Bank of Zimbabwe resorted to printing increasing amounts of money from 2004 in order to continue the subsidisation of failing farms and war veterans, as well as to finance its expenditure at large.
These quasi-fiscal activities were estimated to have reached 75% of GDP in 2006, and resulted in losses which were financed by creating more new money. This increased money supply culminated with an official inflation rate of 1,594% by January 2007. Inflation, as measured by the Zimbabwe Central Statistical Office, had reached 2,600% by July 2008.
In January 2009 the Reserve Bank of Zimbabwe issued Z$100 trillion dollar note, the largest denomination in the history of money. The hyperinflation eventually resulted in the abandonment of the Zimbabwean Dollar in favour of multiple foreign currencies, mainly the US dollar and the South African Rand.
Both under the Government of National Unity and Mugabe’s rule, the economy continued to deteriorate. Emerson Mnangagwa is taking over a structurally weak economy characterised by rampant unemployment and a weak formal sector. To turn around the fortunes of the nation, the new president will need to institute radical reforms to the economy.
Moving away from the growth model
Economists such as Joseph Stiglitz have highlighted the weaknesses of measures such as GDP growth on the health of an economy. In 2012, like many countries in Africa, Zimbabwe registered extraordinary GDP per capita growth of 11%, despite little improvements in welfare for its citizens.
Perhaps it is time that the new leadership stopped venerating GDP growth and prioritised the wellbeing of Zimbabweans. This entails focusing on the provision of social services such as quality universal education and healthcare, both of which were missing from the president’s inagural speech.
Inward looking and inclusive prosperity
Amongst the key policy pronouncements by the incoming president was the need to attract foreign direct investment (FDI). While this is important, Zimbabwean authorities should take note of the problems that FDI can bring, especially in a country with minimal absorptive capacity for foreign technologies.
Whilst FDI can result in the creation of jobs, it has also been likened to ‘neo-colonialism’, particularly in the case of Chinese resource extraction – China accounts for 27.8% of Zimbabwe’s total exports and invested more than $600m in Zimbabwe in 2013.
Given this background, the Zimbabwean authorities might be better served by stimulating domestic enterprises and assisting smallholder farms, providing a boon to Zimbabwe’s majority rural populace.
Activities in the country’s natural resources sector, such as mining, need to be subject to higher levels of transparency. Tax reform would go a long way to ensuring that multinational enterprises in the country’s extractive industries pay a higher proportion of taxes and contribute positively towards economic development.
Lessons of history
Zimbabwe’s economic history since independence makes for bleak reading. The task ahead of Mnangagwa is huge if he really does intend to deliver on his maiden speech.
Bolstering Zimbabwe’s once mighty agricultural sector, and making sure that the benefits accrued from extracting the country’s natural resources are enjoyed by all Zimbabweans, would seem to be priorities. And whilst economic growth and job creation figures are important, Mnangagwa might well bear in mind that it is an improvement in the welfare of Zimbabwean citizens that will be the key to his reelection.