Economics of Development Essay

A) Pick a country or industry in developing world and write in detail about economic history, conditions and problems

My essay will be written on the economy of Zimbabwe and how the current economic crisis compares to the one which was one of Africa’s strongest. The current state of its economy is best described as being in turmoil mostly due to the dictatorship of its President, Robert Mugabe. I will be discussing how Zimbabwe experienced a successful economy since their independence in 1980 and how the economy has changed to its present state.

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Zimbabwe is located in Southern Africa, between South Africa and Zambia with a population of roughly 13 million. The capital is Harare where most of the country’s trading and main businesses operate. Zimbabwe was initially the British colony of Southern Rhodesia from the late 1800s until 1965, when its white settlers declared it the state of Rhodesia. Before the arrival of the settlers in the late 19th century, the country’s main practice was mixed farming. Its other agriculture industries were gold mining and trade. The arrival of the British led to the growth of the commercial farming sector. By the 1930s, the main product of agriculture was tobacco.

Gold mining was successful, but after 1945 the development of a large mining and industrial sector was increasing, due to Southern Rhodesia benefiting from large-scale investment. A wide range of mining businesses began thus, exploiting the country’s minerals; chrome, asbestos and copper deposits. This led to the development of an industrial sector producing consumer goods. When the British settlers declared independence in 1965, the international community imposed economic sanctions on Rhodesia. This resulted in diversification of industrial production, such as consumer goods, as local producers wanted to avoid the sanctions by meeting the demands of domestic and regional markets.

In 1979 the majority of the country’s population, who were black, won independence for the country, naming it Zimbabwe. Therefore, this lifted the economic sanctions and allowed Zimbabwe to enjoy a rapid economic recovery resulting in real growth for 1980-1981 surpassing 20%. But due to low foreign demand for its mineral exports and the arrival of a number of droughts, it badly affected the growth rate by falling during 1982-1984. However, due to the sanctions being abolished Zimbabwe enjoyed trading in domestic and regional markets. In 1984, Zimbabwe exported 11% of its goods, mostly tobacco and cotton to South Africa, 12% to the regional market and 77% to industrial countries/other markets (Page, 1990).

The Zimbabwean economy recovered strongly due to a 30% jump in agricultural production in 1985 once the droughts gradually decreased. Only for the country to experience another slump the year after, which resulted in a zero percent growth rate and eventually read minus 3% in 1987 due largely to its foreign exchange crisis and drought which severely affected its agriculture. The country’s GDP increased on average by 4% during 1980 to 1990. Within this period Zimbabwe had one of Africa’s strongest economies with its closest competition being South Africa. The country could also boast a life expectancy of over 60 which was high for an African country and a GDP that was steadily increasing.

In 1999 Robert Mugabe’s regime, the ZANU-PF, began a frenzied land reform program which resulted in the seizing of white-owned farms, which was to be redistributed to landless black Zimbabweans. The land reform program in Zimbabwe began after the signing of the Lancaster House Agreement in 1979 (Page, 1990). The Agreement was designed to equally allocate land between the blacks and the whites, who ruled Zimbabwe before their independence.

Due to the land reform most white farmers emigrated, resulting in agricultural production to nosedive due to un-harvested farming and crops. This destroyed the majority of commercial farming such as corn, the largest food crop and tobacco and cotton, the largest export crops. This severely affected Zimbabwe’s economy as their largest exports were no longer available for foreign buyers. Zimbabwe heavily relied on foreign investment especially as they were the largest exporter of tobacco in the world after America. To add to this, thousands of Zimbabwe’s skilled workers left the country, meaning the country’s workforce weakened and effectively output decreasing therefore, negatively affecting the economy.

Source: http://www.flickr.com/photos/davidcoltart/1559125720/

The graph shows Zimbabwe’s annual GDP, it shows how the droughts affected the economy in the couple of years they were present. It also shows how dramatically GDP changed when the land reform program was implemented, and tells us that Mugabe didn’t plan his program well, as the new black farmers lacked the knowledge and skills to acquire their new positions. As discussed previously the loss of experienced skilled workers can have a huge affect on output and thus, GDP is suffered.

The land reforms also caused inflation to increase at an alarming rate which further deepened the economy’s state. This meant that Robert Mugabe’s continuation of unpredictable price levels and exchange rates resulted in a sharp decline in overseas investment therefore, weakening domestic businesses. An increase in inflation severely affected the population as national income was already low and an increase in prices made it harder for families to buy simple necessities such as food and clothing. From 2000-2004 inflation rates averaged more than 100% every year. Inflation in the later years worsened, causing hyperinflation.

Hyperinflation is very high rates of inflation which can cause major economic problems and political instability (Sloman, 2004). To get a clearer picture the government reported an annual inflation rate from April 2006 to March 2007 there was an increase of 1,500%. It has been calculated that from April 2006 to April 2007, prices in Zimbabwe has increased 36 times. Due to hyperinflation there were persistent shortages of foreign exchange, fuel, and food. This caused further problems of malnutrition and increased the risk of disease and illness due to the lack and price of food. This may have contributed in Zimbabwe now having one of Africa’s highest levels of HIV/Aids and lowest life expectancy age, 34.

Source: http://photos16.flickr.com/21916497_acac0517b8.jpg

The graph indicates that after 2001 hyperinflation occurred, due to the land reform program as it was implemented the year before. The government rose prices in 2001 by a vast amount as they most likely wanted to recover their losses in the first year of the fall in GDP. We can see from both graphs there is correlation as in 2002 both variables decrease and then sharply increase in the year after. Therefore, we can conclude that the land reform program is mostly responsible for the rapidly declining GDP rate.

Another factor that has crippled the Zimbabwean economy is the 1998-2002 war with the Democratic Republic of the Congo as Mugabe took hundreds of millions of dollars from the economy. An estimate of 11,000 Zimbabwean troops fought against forces in the Congo. During this time Zimbabwe was already dealing with its worst economic crisis in its history due to land reforms and out of control inflation rates. President Mugabe was heavily criticised by the watching world for accomplishing his best interests of taking over boarder controls from Congo instead of improving the economic turmoil that he created. It was estimated that 200 million dollars was spent on a war that Zimbabwe ending up losing. This inevitably increased inflation further and worsened conditions of the people of Zimbabwe.

Zimbabwe has a number of difficult economic problems as it struggles with an untenable fiscal deficit, ever increasing inflation and an overvalued exchange rate. Zimbabwe has been told support from the International Monetary Fund has been put on hold due to ZANU’s arrears on past loans. For Zimbabwe’s economic state to improve in any way they have to get to the root of the problem, President Mugabe and his government. Mugabe shouldn’t let his personal interests’ conflict with the reality of his economy as his plans such as the land reform program clearly has no positive outcomes. The land reform program has badly affected commercial farming due its chaos and violence. From the evidence shown the Zimbabwean government should halt the land reform program if they want GDP to recover and turn around the economy.

Therefore, the government has to realise without their main export, agriculture, they will not receive the funds from foreign investment to inject into the economy. Also due to Mugabe’s current political views and reputation Zimbabwe will find it difficult to receive support from other nations therefore, Mugabe has to improve his relations for future assistance. Most importantly the country has to grasp some kind of control on its inflation rate, as a continued increase would make the population poorer and further decrease its life expectancy. Although it is possible for its economy to be improved by changing the factors discussed, Zimbabwe is still a long way from what use to be one of Africa’s leading economies.

Bibliography

Page, S (1990) Trade, Finance and Developing Countries. Hertfordshire: Harvester Wheatsheaf

Sloman, J. and Sutcliffe, M. (2004) Economics for Business. 3rd Edition, Essex: Pearson Education

http://goafrica.about.com/library/bl.mapfacts.zimbabwe.htm

[Accessed 02 December 2007]

https://www.cia.gov/library/publications/the-world-factbook/geos/zi.html

[Accessed 02 December 2007]

http://encarta.msn.com/encyclopedia_761575825_1/Zimbabwe.html

[Accessed 05 December 2007]

http://news.bbc.co.uk/1/hi/world/africa/country_profiles/1064589.stm

[Accessed 03 December 2007]

http://en.wikipedia.org/wiki/Economy_of_Zimbabwe

[Accessed 05 December 2007]

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