The Economy of Zimbabwe

1. The Economy of Zimbabwe Past, Present, and Future Elisa Beltran Betsy Buse Kim Chase

3. 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

4. WHAT HAPPENED?

5. 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

6. 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”

8. 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

9. Mugabe • Great leader when Zimbabwe struggled for independence– what happened? • Mind stuck on “anti-rebellion”

11. Summary of Causes • War • Government spending • Hyperinflation due to money printing • Lack of stable industry

12. What is happening in Zimbabwe now?

13. CurrentEconomy PROBLEMS INCLUDE: • unsustainable fiscal deficit • an overvalued official exchange rate • hyperinflation • empty store shelves

14. CurrentEconomy • 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

16. CurrentEconomy • 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

17. CurrentPoliticalSituation • 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

18. 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.

19. What is next for Zimbabwe?

20. Others’Solutions • Prime Minister Morgan Tsavangirai • The Obama Administration • The African Union • Economics Professor Steve H. Hanke of Johns Hopkins University

21. Solution 1: First Thought • Start over completely from scratch • Forceful removal of the current government • Potential issues?

22. Solution2: SecondThought • No quick fix • Multiple steps needed

23. Step 1: Investment in Tourism • Multiple Sites • Harare • Mountain Ranges • Ruins • Victoria Falls • Benefits

29. Step 2: Redistribution of Currency • Old currency • 100 Trillion Zimbabwe dollars • = $300 USD • First reassurance of recovery

30. fail. • Old currency • First reassurance of recovery

31. 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

32. Money Market, constant Ms

33. 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?

34. Effect of G increase

35. Step 4 Continued • Interaction between goods and • money markets • Partial Crowding Out Effect

36. Money Market

37. Goods Market Crowding Out Effect

38. 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.

39. 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

40. Short Term Only?

41. 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

42. Effect of Long Range Growth Policies

43. Discussion • Snags • Government cooperation • Lack of resources • Country willing to loan • Long term effort

44. Summary • Something Must Be Done • Many Possible Solutions • Our Plan = Macro 101

45. Sources • http://www.zimbabwetourism.co.zw • http://www.nytimes.com/2009/06/12/world/africa/12zimbabwe.html?_r=1 • http://online.wsj.com/article/SB124964586093614173.html • http://www.polity.org.za/article/a-stitch-out-of-time-africas-solution-to-the-zimbabwean-crisis-2009-02-02 • http://www.cato.org/pub_display.php?pub_id=9553 • http://www.iexplore.com/dmap/Zimbabwe/Where+to+Go • http://news.bbc.co.uk/2/hi/africa/country_profiles/1831470.stm • http://news.bbc.co.uk/2/hi/africa/country_profiles/1064589.stm • https://www.cia.gov/library/publications/the-world-factbook/geos/zi.html

46. Questions