Zimbabwe: African ‘Toothless’ Tiger On The Zambezi

Since the end of its civil war in 1980, Zimbabwe and its people have struggled to maintain a strong and financially stable nation. Nicknamed the “toothless tiger” of Africa, Zimbabwe has relied heavily on its rich mineral resources and rich agricultural heritage in its efforts to develop a strong economy. However, rampant government corruption and economic mismanagement has stunted the country’s growth and left many in poverty.

The period of 1998 to 2008 was especially traumatic for Zimbabwe, as their economy experienced a significant contraction, with GDP growth dropping to -0.8%. This period of deep financial malaise was caused by high inflation and a lack of investment due to a deteriorating public sector, which had been heavily burdened by expensive government spending.

Despite a brief period of growth in the 2010-13 period with 10% annual increases in GDP, the economy has been largely stagnant since 2014 due to a range of factors such as decreased mineral prices, falling diamond revenue, infrastructure issues, and an overall poor investment climate. The country faces an extremely high level of public and external debt, as well as extremely high government wage costs, which have all weighed heavily on the country’s economic growth.

The country is not without potential, however. Zimbabwe has world-class reserves of platinum, which could provide a much-needed boost to their economy. Improvements in technological and regulatory standards would also provide an environment more conducive to investment.

Despite having the potential to become a truly successful economy, the mismanagement of government funds and an overall lack of progress have prevented Zimbabwe from being a truly prosperous nation. Until Zimbabwe experiences a significant shift in its economic policies, the future looks to remain bleak for the “toothless tiger” of Africa.

The Reserve Bank of Zimbabwe and Printing Money to Fund Deficits

For nearly a decade, from 2000-2009, the Reserve Bank of Zimbabwe, or RBZ, routinely printed money to fund the budget deficit in the country. This, coupled with tight foreign exchange regulations, created a situation of hyperinflation that had a crippling effect on the economy of Zimbabwe.

The hyperinflation in Zimbabwe was initially supported by policies that allowed underwriting of budget deficits by monetizing government debt, sale of foreign exchange, and maintaining an unrealistically high exchange rate for the Zimbabwe dollar. As a result, there was an explosion in the money supply, which led to spiralling inflation. According to economic documents from the period, the rate of inflation hit an all-time high in 2008, reaching an astonishing annual rate of 79.6 billion percent.

Hyperinflation had a very significant impact on the lives of ordinary citizens in Zimbabwe, causing a dramatic increase in prices for basic goods such as food, clothing and fuel. Many businesses were forced to close, as their prices were no longer competitive due to large increases in labour costs caused by the inflation.

The multi-currency basket was adopted by the government in 2009 and this managed to bring the rate of inflation to under 10% per year, a marked improvement compared to the 79.6 billion percent seen three years earlier.

However, the effects of hyperinflation were still felt in other ways. Zimbabwe’s gross domestic product contracted annually by over 10% from 2000 to 2008, and when combined with the increasing unemployment rate, this resulted in a poverty rate of 85.6%.

In January 2015, in an effort to attract foreign investment and boost the economy, the RBZ announced the acceptance of several foreign currencies, including the Chinese renminbi, the Indian rupee, the Australian dollar and Japanese yen, as legal tender in Zimbabwe. Transactions were predominantly carried out in US dollars and South African rand up until 2016 when the devaluation and instability of the rand rearbed to the near-exclusive use of the US dollar.

In November 2016, the government of Zimbabwe began releasing bond notes, a parallel currency which can only be used within the country. The government has claimed that the bond notes will have a one-to-one exchange ratio with the US dollar, in an effort to ease cash shortages. However, by the end of 2016, bond notes were trading at a discount of up to 10% in the parallel market. This has caused prices for goods and services to increase, as people are now hesitant to accept bond notes at full value.

International Borrowings

Zimbabwe faces immense economic challenges, but the country has in recent years undertaken several measures to re-engage with international financial institutions. In 2014, the government entered a second Staff Monitored Program (SMP) with the International Monetary Fund (IMF) in an attempt to address outstanding payments and move forward. Despite the optimism of some, Zimbabwe has been unable to gain new financing from any IMF mechanisms due to the government’s lack of disclosure about how it would pay off more than $1.7 billion in arrears owed to the World Bank and African Development Bank.

The Zimbabwean authorities have taken steps to revive their international re-engagement by making token payments to external creditors. Though this may represent progress of some kind, it falls far short of a sustainable solution. While the IMF may have granted waivers to enable Zimbabwe to receive its initial loan disbursement, these waivers are likely contingent on larger measures of fiscal and structural reform taken by the Zimbabwean government. Without such an agreement, sustained recovery remains an uphill battle.

One of the biggest hurdles to rebuilding Zimbabwe rests in the lack of clarity surrounding the government’s Indigenisation and Economic Empowerment Act, which is aimed at diversifying ownership of businesses through 51 percent Zimbabwean ownership. It is the fear of this law that has forced businesses, both foreign and domestic, to withhold their investments in the country due to its uncertain implications. Additionally, both foreign and domestic investors are hindered by the lack of land tenure and titling, as well as the inability to repatriate any dividends to investors from overseas.

At the moment, it remains to be seen what kind of commitments the Zimbabwean Government will make as part of their international re-engagement efforts. While some progress has been made with token payments, the government must implement significant fiscal and structural reforms in order to receive the financial help it needs to improve the country’s economic standing. Until there is clarity concerning land tenure, titling, and repatriation of dividends, Zimbabwe’s international re-engagement efforts are likely to remain halting and inconclusive.

China’s Debt Trap

China’s “debt trap” or “debt diplomacy” has risen to prominence due to its involvement in developing countries and infrastructure projects specifically in Africa. It has become a major concern for African countries in particular, given that Chinese loans are known to come with a high interest rate and potentially oppressive terms. As a result, these loans have been met with skepticism and have been seen as a way for China to take control over African debt and assets.

One of the most famous cases of “debt trap” is the case of Zimbabwe. The country has been facing economic difficulties over the past decade, and has an alarming trade deficit with China in the amount of $189 million for the first two quarters of 2007. This trade deficit is a major problem, as it means that Zimbabwe is unable to pay back its loans from China, leading to mounting debt.

China’s involvement with Zimbabwe has raised suspicion of its power and influence in the nation, as well as its alleged “debt trap”. China has denied these claims, saying that it is only lending money to Zimbabwe in order to help alleviate their economic situation. While this may be true in some cases, the Chinese government has used “debt diplomacy” in order to further their own interests, acquiring strategic assets and resources in return for loans.

This creates an issue as, while the loans may provide immediate economic relief, they may also be a way for China to exert influence on the African nation in the future. In the case of Zimbabwe, the nation has to be careful not to sink too deeply into debt, as it may have to trade away vital assets in order to pay off its loans. This has raised alarm among the citizens of Zimbabwe, and concern amongst international groups, who worry about the implications of Chinese debt and the power that it may give the nation.

In conclusion, “debt trap” is a major concern for African nations, particularly Zimbabwe, as it can give China a greater strategy position in the nation’s economic and national affairs. Though China has denied these claims, it could potentially be strategically utilizing debt in order to acquire assets and resources.

Hyperinflation: A Major Issue for Zimbabwe

Hyperinflation is a major issue in Zimbabwe, according to the latest economic freedom index. At a rate of 557.2% for March 2022, the cost of living continues to climb. Hyperinflation has been an ongoing issue in the country since the early 2000s and it is continuing to have a detrimental impact on its economy and citizens. The world average of CPI is realized at 837.5% in July 2020. The current rate is dangerously high and has continued to hold the economy hostage.

Hyperinflation is a monetary phenomenon defined by an extreme and unprecedented increase in prices over a very short period of time. It occurs when a government’s central bank prints too much money towards its economy without balancing it with sufficient amounts of goods and services. As a result, the supply of money far surpasses the levels of goods and services, which can lead to high levels of inflation. In Zimbabwe, the situation is compounded by the high levels of taxation imposed by the government, in addition to the alarming unemployment rate.

The effects of hyperinflation stretch far beyond merely raising the cost of living. It can also lead to a decrease in the value of money in circulation, wiping out the savings of entire generations by devaluing the Zimbabwean dollar. It can lead to reduced wages that are below the poverty line, due to the fast pace of the rise in prices. Further, the high rate of inflation causes investors to lose confidence in the Zimbabwean currency, leading to even less investment in the Zimbabwean economy.

The causes of hyperinflation in Zimbabwe are complicated. In this case, the primary cause is the monetary policies of the government. The country has an over-the-counter market that is poorly regulated and monitored, allowing for currency speculation and abuse. The government has attempted to address the issue by introducing currency restrictions, such as forcing businesses to accept payments in their local currency. While this has stabilized the rate of inflation somewhat, it has also had a negative impact on businesses as they struggle to manage their finances in a volatile environment.

Economic Outlook

As the International Monetary Fund (IMF) and other international lending institutions like the World Bank recently concluded their virtual spring meeting in Washington, they brought attention to the challenges facing the global economy. During their analysis of data, they announced a significant cut back to the global growth outlook, especially among distressed economies such as that of Zimbabwe.

The IMF is currently pondering the risks posed by inflation with regards to financial stability. They are particularly concerned about Zimbabwe due to the country’s spiraling inflation and heavy dollarization in their banking system. In response to this, the IMF’s executive board of directors released a statement, encouraging the Zimbabwean authorities to progress towards monetary reform in order to create a track record of secure policies if they wish to remain a major emerging market.

However, Zimbabwe is in a very difficult position due to the many shocks it has faced over the past two years, such as Cyclone Idai, an extreme drought and the ongoing global pandemic. All of these have caused severe disruption to the country’s economy and its prospects for growth. The IMF notes that if Zimbabwe manages to cooperate in set up a Staff Monitored Program, then this could help them to establish a record of sound policies with the Washington-based lender. This could, in turn, give impetus to the Zimbabwean authorities’ re-engagement efforts.

The IMF’s executive board of directors have made it clear that the global economic challenges facing Zimbabwe and similar distressed economies cannot be solved in isolation. In some cases, it will also require reform of the infrastructure, governance, and regulatory frameworks that are in place. Nevertheless, it is evident that Zimbabwe must continue to reform its macroeconomic framework and stance on international cooperation if it reignite its growth path. Meanwhile, the IMF and World Bank must continue to offer support and guidance to help this struggling nation to manage its difficult economic situation.

The future of the Zimbabwean Economy is uncertain, largely due to the spiralling costs of commodities and raw materials. This situation is an indirect result of Russia’s war in the Ukraine, and for many countries, including Zimbabwe, it is uncertain how such a conflict will affect the cost of trade and production.

The impact on the Zimbabwean Economy is two-fold; first, it will be difficult to take advantage of increased prices of commodities due to the scarcity of mines in the country. According to the World Gold Council, Zimbabwe currently produces 40.9 metric tons of gold yearly- a figure which, while sufficient to rank 23rd among the world’s leading gold producers, pales in comparison to the 368.3 metric tons produced by China, who rank 1st. This means that there is very little room to capitalize upon the current boom in commodity prices.

The second issue is that the Zimbabwean gold sector is filled with several compromises. In a centralized gold-buying scheme proposed by the Zimbabwean government, producers are greatly underpaid for their products. This encourages illegal smuggling and further erodes industrial mining profits- leading to further mine closures. Unfortunatley, the situation has been further bleakened by a sharp increase in violence towards miners since 2020.

Overall, the future of the Zimbabwean Economy does not look promising. It appears as if the current commodities boom will have little positive impact, and a lack of gold mines and underpayment of workers could lead to further issues. It is hoped that the Zimbabwean government can find a way to create a more stable and equitable economy, or else the consequences of this conflict will continue to be felt in the future.

Tourism in Zimbabwe

The tourism industry in Zimbabwe has endured a vigorous decline in recent years. This is a far cry from the situation in the late 90s and early 2000s when Zimbabwe had boasted a healthy tourism climate with record numbers of visitors pouring in from abroad. Nonetheless, even with increasing investment in the sector, travel to Zimbabwe has taken a major downward turn.

One of the primary reasons for this downturn is the withdrawal of major airlines from Zimbabwe in the 2000-2007 period due to conflict in the country. The impact of this is evidenced in the lack of convenient and timely travel access for potential tourists to the country.

Another factor influencing the decrease in tourism has been the strained security that has historically plagued the region. Instability can be seen as both an obstruction to wanting to visit the region and an economic impediment as it prevents economic investment in the sector.

Nevertheless, exciting prospects emerged in 2017. The government of Emmerson Mnangagwa launched in a major effort to reinvigorate the tourism sector by investing heavily in the sector and taking steps to promote the various attractions that Zimbabwe has to offer. It is hoped that this will eventually lead to a notable increase in tourist inflows.

Zimbabwe boasts many unique attractions, especially the majestic Victoria Falls on the Zambezi, which straddles the border of Zimbabwe and Zambia. This destination has been a major draw for travelers from all over the world, however, inadequate infrastructure and security have hindered prospective visitors from making the trip.

In addition to these standalone obstacles, the country is also burdened with consistent power outages and an unstable currency. Further, the mining industry faces a shortfall of $10 billion in the coming five years, thus increasing the challenges that Zimbabwe must face in seeking to boost the tourism industry.

It is, however, worth noting that the country is blessed with plentiful mineral resources and the potential for this to bolster the economy cannot be overstated. It stands to reason that if the challenges enumerated here were addressed, the prospects of a renewed tourism sector in Zimbabwe would become increasingly viable.

Mining in Zimbabwe

The Zimbabwe mining industry has grown significantly over the past few years, with recent projections predicting it to generate an estimated revenue of $5.5 billion by the year 2022. However, it appears there are several headwinds that may impede favorable revenue expectations. According to comments made in the Chamber of Mines’ commodity outlook report, faces several key risks that could block progress over the next several years.

One key risk relates to the country’s foreign exchange allocations, which does not appear to provide sufficient funds for mining operations and expansions projects. As a result, mining companies are unable to access the necessary resources to fulfill ambitions to expand their operations and make additional money. This problem is not only hindering the prospects of the entire mining industry, it’s also creating a volatile environment which investors may be wary of entering into.

Further difficulties have arisen form recent developments within foreign-exchange rules in Zimbabwe. It was announced last year that exporters would now have to transfer 40% of their foreign-currency earnings to the central bank, rather than the original 30%. This increase has been accompanied by concerns of overdependence on foreign currency which many speculate will have serious repercussions on the country’s economic development.

The Chamber of Mines has highlighted these issues in its latest report as potential risks to the growth of the country’s mining industry. As such, it’s evident that the government will need to take steps to ensure foreign-exchange rules are made more lenient and that foreign-exchange regulations are well architected to stimulate growth in the sector. Additionally, the government needs to find efficient ways to inject capital into the industry to aid the operations and expansion projects of mining companies.

All in all, the Zimbabwe mining industry is facing multiple headwinds that could potentially wreak havoc on the sector and impede its projected 2022 generation of $5.5 billion in income. If the aforementioned issues aren’t addressed, it’s highly unlikely that the country will reach its desired earnings expectations. In order to ensure the sector is able to meet its forecast, the government must take steps to ensure regulations are favorable and the industry is provided with appropriate funds.

In conclusion, despite its challenges, Zimbabwe is a country with a lot of potential. Its unique location and natural resources make it a prime destination for tourism and investment. With a little bit of help, Zimbabwe can become the African tiger it is meant to be.

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