The Economy of Zimbabwe Past, Present, and Future 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 M s

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 zimbabwean-crisis

Questions