Zimbabwe · · 2007-07-26country’s history, politics, infrastructure and economy. ... 36 Construction ... 39 The external sector 39 Trade in goods 40 Invisibles and …

Country Profile 2005

ZimbabweThis Country Profile is a reference work, analysing thecountry's history, politics, infrastructure and economy. It isrevised and updated annually. The Economist IntelligenceUnit's Country Reports analyse current trends and provide atwo-year forecast.

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Comparative economic indicators, 2004

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Sources: Economist Intelligence Unit estimates; national sources.

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Zimbabwe 1

© The Economist Intelligence Unit Limited 2005 www.eiu.com Country Profile 2005

Contents

Zimbabwe

3 Basic data

4 Politics4 Political background5 Recent political developments9 Constitution, institutions and administration10 Political forces13 International relations and defence

17 Resources and infrastructure17 Population18 Education19 Health19 Natural resources and the environment20 Transport, communications and the Internet22 Energy provision

23 The economy23 Economic structure23 Economic policy27 Economic performance29 Regional trends

29 Economic sectors29 Agriculture33 Mining and semi-processing35 Manufacturing36 Construction36 Financial services38 Other services

39 The external sector39 Trade in goods40 Invisibles and the current account40 Capital flows and foreign debt42 Foreign reserves and the exchange rate

44 Regional overview44 Membership of organisations

51 Appendices51 Sources of information52 Reference tables52 Population53 Transport statistics53 National energy statistics53 Budget expenditure

2 Zimbabwe


54 Money supply54 Gross domestic product54 Gross national product by expenditure55 Gross domestic product by sector55 Employment and earnings55 Prices and interest rates56 Crop sales56 Livestock slaughtering and milk production56 Mineral production57 Manufacturing production57 Construction statistics57 Stock-exchange indicators57 Foreign visitors58 Foreign trade58 Main trading partners59 Balance of payments, IMF data59 Balance of payments, national data60 External debt, World Bank series60 Net official development assistance (ODA)61 Foreign reserves61 Exchange rates

Zimbabwe 3


Zimbabwe

Basic data

390,580 sq km

12.9ma (2002, World Bank Development Indicators)

Population in !000, 2002 (independent estimates)

Harare (capital) 1,444Bulawayo 676Chitungwizab 321Gweru 137Mutare 153Kwekwe 88Kadoma 72

Subtropical

Hottest months, October and November, 16-27°C; coldest months, June and July,7-21°C (average daily minimum and maximum); driest month, July, 1 mmaverage rainfall; wettest month, January, 196 mm average rainfall

English (official), Shona, Ndebele and local dialects

Metric system

Zimbabwe dollar (Z$) = 100 cents. The official exchange rate in 2004 wasZ$824:US$1. However, this is for only a limited range of governmenttransactions. Since January 2004 an auction rate has been introduced forexporters. The rate at the end of February 2004 was Z$5,600:US$1. In 2004 theparallel rate averaged around Z$6,600:US$1

2 hours ahead of GMT

January 1st (New Year!s Day), March 25th (Good Friday), March 28th (EasterMonday), April 18th (Independence Day), May 1st (Workers! Day), May 25th(Africa Day), August 11th (Heroes! Day), August 12th (Defence Forces! NationalDay), December 22nd (Unity Day), December 25th and 26th (Christmas Day andBoxing Day). Many firms close for one to two weeks over the Christmas andNew Year period

a Estimates of Zimbabwe!s population vary considerably depending on howthe impact of AIDS is accounted for. Government estimates tend to be at thetop end of the range, at 13.1m for mid-1999. The most recent census was in 2002;preliminary results show a population of 11.6m"about 2m below earlierprojections. b Harare!s former township.

Land area

Population

Main towns

Climate

Weather in Harare(altitude 1,472 metres)

Languages

Measures

Currency

Time

Public holidays in 2005

4 Zimbabwe


Politics

Although a de jure democracy, Zimbabwe has been ruled by one party"theZimbabwe African National Union-Patriotic Front (ZANU-PF), led by thepresident, Robert Mugabe"since the start of majority rule in 1980. The countryhas experienced considerable instability since 2000. The steady decline ofliving standards in the late 1990s led to general discontent and violent riots andgalvanised the main trade union federation, the Zimbabwe Congress of TradeUnions (ZCTU), into forming a political party, the Movement for DemocraticChange (MDC). The MDC, currently led by Morgan Tsvangirai, won 57 seats inthe 2000 parliamentary election. However, the party has faced a huge politicalchallenge as the government has made a concerted effort to undermine itsparliamentary representatives. In March 2002 Mr Mugabe was re-elected to afifth term of office in a controversial presidential election that was stronglycriticised by some international observers, notably the US and the EU. Arecurring theme in Zimbabwe!s political history has been the ownership ofland and its redistribution. It was announced in early 2004 that the nextparliamentary election would be held in March 2005. The next presidentialelection is due by March 2008.

Political background

The Shona, the largest ethnic group in Zimbabwe, settled in the country over1,000 years ago. They were primarily agriculturists. The Ndebele, the othermain ethnic group (related to the Zulus), established a kingdom in theBulawayo area. The Shona majority and the Ndebele minority are Zimbabwe!smain ethnic groups and coexist in an often uneasy relationship due to theirdiffering backgrounds and cultural heritage. Europeans arrived in 1890 as partof the "pioneer column", a movement organised by Cecil Rhodes in search ofmineral wealth. With the failure of mining exploration, they began to take overlarge tracts of land for farming, an issue that remains contentious today. Thecountry became known as Southern Rhodesia, its politics being dominated bythe white minority. In 1953 Southern Rhodesia merged with Northern Rhodesia(now Zambia) and Nyasaland (Malawi) in the Central African Federation, withSalisbury (Harare) as the capital. Following the granting of independence toMalawi and Zambia, the federation collapsed in 1963. Southern Rhodesiasubsequently changed its name to Rhodesia and, under the premiership of IanSmith, made a unilateral declaration of independence (UDI) from the UK in1965. White minority rule continued until the end of the 1970s.

The main challenge to white rule came from increasingly militant organisationsrepresenting the disenfranchised African majority. The Zimbabwe AfricanPeople!s Union (ZAPU) primarily represented the Ndebele; the ZimbabweAfrican National Union (ZANU), led by Robert Mugabe, became the focus ofthe Shona majority!s aspirations. Limited guerrilla activity began in 1966, butZANU!s military campaign in the north-east in 1972 marked the beginning of anincreasingly successful challenge to the regime. Although there was littlemilitary co-ordination between the two organisations, ZAPU and ZANU formed

Pre-independence

Zimbabwe 5


a political alliance, the Patriotic Front (PF), in 1976, presenting a united front insubsequent negotiations for full independence.

In 1979 the British government convened a conference at Lancaster House inLondon in which all sides made concessions. An interim British administrationtook over in 1980 to supervise "free and fair" elections, and Mr Mugabe!sZANU-PF gained power in February 1980. Mr Mugabe and his ZANU-PF haveruled the country ever since, winning parliamentary majorities in 1985, 1990,1995 and in a contentious election in 2000.

Recent political developments

A steady decline in living standards throughout the 1990s led to growingdissatisfaction with the government and galvanised civic groups and thecountry!s trade union movement; the country was rocked by a series ofnationwide strikes in the late 1990s. Buoyed by this success, sections of theunion movement eventually formed an opposition political party, theMovement for Democratic Change (MDC), in September 1999. It led a successfulcampaign against Mr Mugabe!s proposed amendment of the constitution(which included some controversial clauses on land reform), culminating in a"no" vote in a national referendum on the issue in February 2000 that waswidely perceived as a vote of no confidence in the government.

Stung by this rejection of his proposed reforms, Mr Mugabe set out to retainpolitical power. He delayed the parliamentary election until June 2000 (it wasinitially scheduled for April) and unleashed a campaign of violent intimidationagainst the MDC and its supporters. He also reignited the land issue for electoralpurposes"the policy appealed directly to voters in rural areas, where ZANU-PFsupport was strongest. Despite the intimidation and violence in the run-up tothe election, the vote proceeded relatively peacefully (although specific incidentsof violence, intimidation and vote rigging led the MDC to challenge the resultsin 35 constituences). ZANU-PF won 62 out of the 120 contested seats; the MDCwon 57, its vote being concentrated in the main urban areas and the south of thecountry. The 30 seats that go to presidential appointees overwhelmingly votewith ZANU-PF and bolster ZANU-PF!s narrow elected majority. The result of theelection was a milestone in the development of democracy in Zimbabwe: forthe first time since independence ZANU-PF faced real political opposition.Subsequently, however, the MDC has found that, because of the ZANU-PFmajority in parliament, the considerable political powers vested in the presidentand the financial and logistical advantages enjoyed by the ruling party, there islittle that it can do to influence day-to-day politics.

Concerned about the strength of the opposition, Mr Mugabe embarked on astrategy for securing re-election in March 2002. The centrepiece of this was acontinuance of the campaign of violent land reform, now officially referred toas the "third chimurenga", or revolution"the first was against settlers in 1896 andthe second the war for independence in the 1970s. The strategy had otherelements.

Rising opposition

The 2000 parliamentaryelection is controversial

A presidential election is heldin March 2002

6 Zimbabwe


• Increased intimidation of any form of opposition to the government. Thisincluded intimidation of the press and judiciary, and creating a climate of fear,particularly among opposition supporters. Campaigning by the MDC wasseverely restricted. The political repression was supported by the passage ofvarious pieces of legislation, notably the Public Order and Security Act, which,among other things, makes it an offence to denigrate the president. The act canbe used to break up innocuous public gatherings, and was used to preventpeople suspected of supporting the MDC from registering as voters. Even whenvoters were able to start the registration process, it proved so complicated thatmany MDC supporters simply gave up.

• Disenfranchising urban voters, by reducing the number of urban pollingstations and increasing the bureaucracy associated with voting. The aim of thiswas to ensure a low turnout among urban voters, who the governmentassumed would overwhelmingly vote for the MDC.

• Providing 664 additional polling stations in rural areas, while reducing thenumber of international and local independent electoral observers andmonitors, with the aim of boosting the pro-Mugabe rural vote.

The election was declared satisfactory by some observers, particularly fromneighbouring African states, but the conduct and outcome of the poll wasdisputed by the MDC, the EU and the US government, among others. The mostimportant international criticism came from the parliamentary forum of theSouthern African Development Community (SADC) and the Commonwealth.The conduct of the election was also challenged by the MDC in the courts,although their case had achieved little success by early 2005.

Presidential election, Mar 2002Votes % of vote

Robert Mugabe (ZANU-PF) 1,685,212 53.8

Morgan Tsvangirai (MDC) 1,258,401 40.2Others 187,300 a 6.0Total 3,130,913 b 100.0

a Three other candidates contested the election: Shakespeare Maya for the National Alliance forGood Governance, and two independents, Wilson Kumbula and Paul Siwela. b The total electoratewas 5,647,812.

Source: Zimbabwe Electoral Commission.

Lacking democratic legitimacy, and internationally isolated, the government hasclamped down further on all forms of opposition since the presidentialelection, and is now regarded as one of the most repressive governments inSub-Saharan Africa. Central to its strategy has been its efforts to neutralise theMDC as a political force. The government has arrested various members ofparliament"often on trivial charges"and has intimidated candidates in by-elections, many of which have been won by ZANU-PF as a result ofintimidation of the voters and vote rigging. The government has also chargedsome members of the party leadership with treason. On March 20th 2002 itformally charged Mr Tsvangirai and two other leading members of the MDCwith treason, based on the evidence of a videotape that allegedly incriminateshim in a plot to kill Mr Mugabe. In October 2004 Mr Tsvangirai was acquittedof high treason on the grounds that the state prosecution had not proved

Zimbabwe 7


"beyond reasonable doubt" that Mr Tsvangirai was guilty. The acquittalsurprised many observers in Zimbabwe, given the high level of politicalinterference in the country!s judicial system. However, it appears that a politicaldecision was made to accept the acquittal rather than face any domestic unrestor international outrage that a guilty verdict may have generated.

The trial and the ongoing arrests and intimidation of other leading members ofthe MDC have strained the morale and finances of the party. Mr Tsvangirai stillfaces a second treason charge, although the evidence is even more flimsy thanfor the first. The MDC has also faced the full force of an oppressive governmentin various by-elections and local elections, with candidates and votersintimidated both while campaigning and during the vote. This resulted in sixby-election losses during 2004, including in the MDC!s strongholds, reducingthe size of its representation in parliament. In addition, given the new lawsagainst the holding of public meetings, coupled with the strength of the policeand army, the MDC has experienced almost daily harassment and struggled toorganise mass protest against the government. These measures have had thecumulative effect of weakening the organisation, with divisions arising overwhat strategy the MDC should take to effectively oppose the government. By2004 the party appeared to be in disarray, with no effective strategy on how toturn the country around. One particular problem is that the party!s supporterson the ground are increasingly fearful of standing up for the opposition in theface of ongoing state-sponsored violence to which they have no means ofresponding. Critics argue that the MDC needs to become more proactive inhighlighting the government!s violations of accepted international electoralprinciples, but instead appears to be relying on SADC to drive this agenda.

Although the international community, led by the South Africa president,Thabo Mbeki, has tried to organise talks between the government and theMDC to resolve the current political crisis, these efforts had made no progressby early 2005. With a parliamentary election provisionally scheduled forMarch 31st 2005, SADC spearheaded efforts to ensure that all members complywith a new set of election guidelines, in the hope that this would prompt somegenuine political reform in Zimbabwe. Mr Mugabe was well aware of the pres-sure likely to be exerted on him and, in an attempt to undermine the initiative,proposed his own set of electoral reforms before the summit, including:

• a new Zimbabwe electoral commission, which will theoretically beindependent;

• proposals to conduct polling on one day;

• the use of transparent voting boxes;

• the counting of ballot papers at the voting stations; and

• an increase in the number of polling stations.

A parliamentary election isscheduled for March 2005

8 Zimbabwe


SADC!s new chairman, the Mauritian prime minister, Paul Bérenger, warned atthe regional meeting that changes to the mechanism and conduct of the pollmight not go far enough and that other issues were also important, such asfreedom of movement, assembly, association, expression and campaigning, aswell as access to the media. More specific electoral regulations by SADC thatZimbabwe may struggle with include demands for non-discrimination in voterregistration, an updated and accessible voter roll and provision of apoliticalstaff at polling stations. However, the Mugabe government is likely only to paylip service to the SADC guidelines, while ensuring that it maintains strictcontrol over all aspects of the electoral process. In November two bills werepushed through parliament that at first glance appear to be in line with theelectoral practices agreed by SADC, such as abolishing mobile polling stationsand reducing voting to one day only. However, the details of both bills revealnew repressive measures, as they also seek to establish an independentelectoral commission to oversee the administration of voting and a tribunal tosettle disputes, neither of which are expected to be truly independent, asMr Mugabe controls who will be appointed to them. Furthermore, the billsauthorise the government to appoint members of the Zimbabwe NationalArmy, the police and prison services, all of which are highly partisan agents, aselection officials.

Ahead of the March elections the MDC remains concerned that conditions donot exist for genuinely free and fair elections to be held. In particular, there isnot enough time to fully implement the SADC protocol before the poll, and thegovernment is adamantly opposed to any postponement of the election. Thenew electoral laws passed by the Zimbabwe parliament in November have notsatisfied the MDC, which remains concerned about ongoing state violenceagainst the party, the repressive power of the Public Order and Security Act(POSA) and the Access to Information and Protection of Privacy Act (AIPPA),the loss of by-elections in their strongholds under circumstances marked byviolence, intimidation, and evidence of gross manipulation of the voterregistration process and vote-rigging. However, by participating, the partywould at least be able to document the government!s violations of the SADCprotocol and retain a limited representation in parliament.

Recent events

2000

Proposed changes to the constitution by the president, Robert Mugabe, are rejected ina national referendum. Following a violent election campaign his party, theZimbabwe African National Union-Patriotic Front (ZANU-PF), wins 62 of the120 contested seats in a parliamentary election. As part of its campaign, thegovernment mobilises "veterans" from the war of independence in the 1970s(although it is obvious that many were too young to have fought in it) to occupywhite-owned commercial farms, resulting in several deaths.

The MDC is debating themerits of a boycott

Zimbabwe 9


2001

The government pushes ahead with its programme of acquiring white-ownedcommercial farms. The "war veterans" also become involved in the invasion ofvarious factories in Harare. The political climate deteriorates as the government seeksto suppress all forms of opposition, including the Movement for Democratic Change(MDC), the press and the judiciary.

2002

A presidential election is held in March and Mr Mugabe is declared the winner.Some international observers declare that the poll was not free and fair, althoughothers claim that it was. By August the government has completed its controversialprogramme of land reform, which is partly responsible for pushing the country intoa severe famine.

2003

The famine gets worse: an estimated 6.7m are at risk of starvation. There is evidencethat food aid is being used as a political weapon by the government to starveopponents of the regime. Efforts by the Commonwealth to try to broker talksbetween the government and the MDC collapse at the Commonwealth Heads ofGovernment Summit in Abuja, Nigeria, when Zimbabwe states that it will withdrawfrom the organisation.

2004

The World Food Programme increases its estimates of those in need of food aid inZimbabwe from 6.7m to 7.5m, or over half the population, but Mr Mugabe insists thatthe country is producing enough food and that international food aid will not berequested. The MDC leader, Morgan Tsvangirai, is acquitted of charges of treason.The government announces that a parliamentary election will be held inMarch 2005.

Constitution, institutions and administration

The constitution agreed at Lancaster House in 1979 provided for a Westminster-style republic, with a prime minister heading the executive and a president astitular head. In 1987 parliament revised the constitution, replacing the office ofprime minister with an executive presidency, providing for two vice-presidentsand abolishing the 20 parliamentary seats reserved for the white minority. In1989 the Senate (upper house) was abolished and the remaining House ofAssembly was enlarged to 150 seats (with 120 elected members and30 members appointed by the president). In 1990, in line with the LancasterHouse agreement, the government amended the constitution so that futurechanges would require a two-thirds majority in parliament instead of theprevious 100%.

Since UDI in 1965 the country!s constitution has been amended almost20 times, generally increasing the powers of the government and reducingindividual rights. This prompted a coalition of civil society groups, includingthe ZCTU, the churches and human rights groups, to form the NationalConstitutional Assembly (NCA) in January 1998 in order to press for a newconstitution. Mr Mugabe responded to this challenge by appointing a

The constitutional debate

10 Zimbabwe


400-member constitutional commission in March 1999 to investigate reforms tothe constitution. Although the commission consulted widely, the draftconstitution proved disappointing, as it seemed largely to reflect the opinionsof ZANU-PF members. As a result, its approval in a referendum inFebruary 2000 became the subject of a vote of confidence in the government,and the draft was rejected by 54.7% of the vote.

Despite the "no" vote in the referendum, the government decided to push onemore constitutional change through parliament before the parliamentaryelection, absolving the authorities of any obligation to pay compensation forthe expropriation of land if the former colonial power, the UK, did not pay. TheNCA continued to work on a new constitution during 2001 and produced afinal draft in February 2002. However, its attempts to organise demonstrationsto push for the change have been easily suppressed by the government.

There has been growing political pressure on judges in the last few years.Initially the government seemed simply to be intent on removing all whitejudges from the courts because of their perceived bias in favour of whitefarmers, which was slowing down the land reform programme. The first high-profile example of this pressure on the judiciary was when the Supreme Courtchief justice, Anthony Gubbay, was forced to retire in March 2001 afterreceiving numerous threats on his life. However, the pressure is now on alljudges who seem to be unwilling to follow the ZANU-PF line. In February 2004two judges left the bench, bringing to eight the number that have steppeddown from the High Court and the Supreme Court since 2001.

Political forces

At independence ZANU-PF!s ideology was initially Marxist-Leninist, and itsleaders"Mr Mugabe in particular"were committed to socialism. However, fromthe late 1980s, with the fall of communism in eastern Europe and the break-upof the Soviet Union, the president did allow a move towards market-orientedeconomic policies, although he has always been an extremely reluctant convert tomarket economics and multiparty democracy. As the political crisis in Zimbabwehas intensified in recent years, Mr Mugabe has reverted to more revolutionarylanguage, notably the need to complete the chimurenga (the revolution bywhich he came to power) through the redistribution of land. He has also calledfor the nationalisation of mines and industries at various times.

With the rapid collapse of the economy and the international isolation of theregime from 2001 onwards, there have been frequent reports of attempts withinZANU-PF to force Mr Mugabe to retire from office. There has also been a seriesof rumours about his health. However, by all accounts he remains remarkablyfit for an 80-year-old and has continued to play party factions off against eachother to bolster his own position. These rivalries have been particularly intense,as a vice-presidential post, which is seen as an important stepping-stone toacquiring the presidency, became vacant in September 2003 with the death ofSimon Muzenda. Although Mr Mugabe initially seemed content of allowcampaigning within the party for the post, he acted quickly when thisthreatened to get out of control in early 2004 by launching a high-profile anti-

Judicial independence iscompromised

ZANU-PF

Zimbabwe 11


corruption campaign. Several high-ranking party officials were jailed, and theformer finance minister, Chris Kuruneri, continues to face charges. In the run-upto the annual ZANU-PF congress in December 2004 Mr Mugabe moved toreassert his power over the party by manoeuvring Joyce Mujuru, the waterresources minister, into the vice-presidential post and retaining the other vice-president, Joseph Msika, thus sidelining the ambitions of EmmersonMnangagwa, who had long been considered his heir apparent. Neither vice-president is expected to challenge Mr Mugabe. Ms Mujuru will not be takenseriously as a candidate for the president because she is a woman, and, at 81,Mr Msika is in poor health.

The increased radicalisation of the party is evident in the decision announcedin November 2004 to increase the number of training camps for the notoriousyouth militia, known as the "Green Bombers", from six to ten. The militia isblamed for thousands of incidents of murder, torture, rape and brutalisationacross the country. Given that the youth militia was an important element inthe strategy to win the 2002 presidential election, the expansion of the campsprovides a strong indication that ZANU-PF is planning to increase its use for theforthcoming parliamentary elections in March 2005. Meanwhile, the warveterans, a strategic ally of ZANU-PF, who proved critical in ensuingMr Mugabe!s re-election in 2002, are seeing their power wane within the party.However, they will still be used to mobilise support for the party in theMarch 2005 election.

The MDC is the main opposition party. Although most of its support is in urbanareas, it is also popular in Matabeleland in the south and Manicaland in theeast. Despite its success in the 2000 parliamentary election the party has faceda huge political challenge, as the government has made a concerted effort toundermine its parliamentary representatives: many are facing harassment andhave been periodically arrested on spurious charges, and three senior leadersare being tried for treason. The MDC now holds only 51 seats in parliament,having lost a number of bitterly contested by-elections in the last few years.Unable to organise mass demonstrations against the government, as these willbe put down ruthlessly by the police and security forces, it has increasinglyaccepted that its main option is to enter direct negotiations to end the politicalcrisis. As a result it has worked on building its international profile. However,the leadership is aware that the ongoing pressure from ZANU-PF and thesecurity forces, coupled with its general inability to organise effective protest,could cause the party to fracture. There are also divisions within the party overwhether it should contest the March 2005 poll, which it expects will not be afair contest. In mid-2003 several more radical groups apparently emerged inZimbabwe, claiming that they would use military means to overthrow thegovernment, although little has been heard from them in 2004.

The MDC

12 Zimbabwe


Parliamentary election results1980 1985 1990 1995 2000a

Seats % Seats % Seats % Seats % Seats %Zimbabwe African National Union-Patriotic Front

(ZANU-PF) 57 63 63 77 116 81 117 81 62 49Movement for Democratic Change (MDC) � � � � � � � � 57 46

Zimbabwe African People's Union (ZAPU) 20 24 15 18 � � � � 0 0Conservative Alliance of Zimbabwe (CAZ)b 20 � 15 � � � � � � �

ZANU-Ndonga 0 2 1 1 1 1 2 7 1 1United African National Council (UANC) 3 8 0 2 0 0 0 0 � �

Zimbabwe Unity Movement (ZUM) � � � � 2 18c 0 0 � �Othersd 0 3 0 3 0 0 0 7 0 2Independents 0 � 1 � 0 0 1e 5 0 2

a The MDC is mounting a legal challenge to the results of the 2000 election in around 35 constituencies. b Originally Rhodesian Front, laterrenamed Republican Front. c Estimates range from 15% to 20%. d Includes minor parties: the Liberty Party, NDU, NPA, UP, ZUD, ZCP, ZIP and ZPP.e An independent candidate, Margaret Dongo, won a by-election in late 1995, after a successful appeal.

Sources: Press reports; Government of Zimbabwe.

Main political figures

Robert Mugabe

Robert Mugabe led the Zimbabwe African National Union-Patriotic Front (ZANU-PF)in the resistance war of the 1970s. First as prime minister and then as president, hehas led the country since independence in 1980. Faced with a new politicalopposition in 1999 he retained power in a controversial presidential election inMarch 2002. Since then he has used the power of incumbency and the resources ofthe state to suppress all forms of opposition to his regime as the economy hascollapsed. Despite ongoing concerns about his health and internationalcondemnation, he remains a wily political operator who will be hard to removefrom office.

Gideon Gono

Gideon Gono is the key driver of economic policy, with more power than mostcentral bank governors. He appears to have the ear of the president and to be able toconvince Mr Mugabe to make reforms that he has so far been fundamentallyopposed to. However, the security of his position is perilously linked to the fortunesof the economy.

Joyce Mujuru

Joyce Mujuru is the water resources minister and wife of Emmerson Mnangagwa!sbitter rival, Solomon Mujuru, a retired army commander who is very influentialwithin ZANU-PF. The Mujurus are part of a powerful faction of Mugabe loyalists,including Nicholas Goche, the minister of state security, David Parirenyatwa, theminister of health, David Karimanzira, ZANU-PF!s secretary for finance and thegovernor of Mashonaland East, and John Nkomo, ZANU-PF!s national partychairman.

Emmerson Mnangagwa

Emmerson Mnangagwa was until recently the prime contender to succeedMr Mugabe, but now appears to have been sidelined. Although he lost his seat in the

Zimbabwe 13


2000 election, he was elected to the powerful position of parliamentary speaker. Hehas a close relationship with the military, although this has been strained in 2004.

John Nkomo

John Nkomo is seen as a possible successor to Mr Mugabe. He is currently thenational chairman of ZANU-PF and commands considerable respect within theparty. He is noted for his personal charm and charisma.

Constantine Chiwenga

Appointed following the retirement of Lieutenant-General Vitalis Zvinavashe, thecommander-in-chief of the armed forces, Constantine Chiwenga, is a Mugabeloyalist, thus ensuring continuity in the leadership of the army and reinforcing theview that the army could be used effectively to suppress any domestic politicalunrest.

Morgan Tsvangirai

Morgan Tsvangirai is the former secretary-general of the Zimbabwe Congress ofTrade Unions (ZCTU) and is now the president of the main opposition party, theMovement for Democratic Change (MDC). Although he has no seat in parliamentand lost the presidential election to Mr Mugabe, he will remain the leader of theparty and its international figurehead.

Welshman Ncube

The secretary-general of the MDC and a rising star of the party, Welshman Ncube isa former professor of law at the University of Zimbabwe and has emerged as aprominent figure in the party!s legal challenges to the June 2000 election results.Although he is not yet ready to challenge Mr Tsvangirai, he undoubtedly has thepotential to be a future leader of the party.

International relations and defence

For many years the Zimbabwean president portrayed himself as the leader ofthe struggle against the apartheid regime in South Africa and a champion ofcauses such as the non-aligned movement. With the end of apartheid in SouthAfrica in the mid-1990s, the latter theme has become increasingly important, asMr Mugabe has sought to develop close links with other developing countries,notably Malaysia and Libya, on the basis of promoting increased south-southeconomic co-operation. These links have become more prominent as thecountry!s economic crisis has deepened, with a number of barter deals agreed,notably over fuel imports from Libya, although neither Libya nor Malaysia hasultimately proved willing to provide substantive financial or food aid.

Relations with South Africa initially improved after majority-rule elections in1994, but have become strained since then by a series of trade disputes and thedeepening political crisis in Zimbabwe. There have been personal differencesbetween Mr Mugabe and his South African counterparts, both the formerpresident, Nelson Mandela, and the current president, Thabo Mbeki. Mr Mbekihas, however, consistently refused to condemn the policies of the Zimbabweangovernment, even though there is evidence that the economic collapse in thecountry and the negative publicity has had an adverse impact on the South

Relations with South Africaare complex

14 Zimbabwe


African economy in terms of lost foreign investment and lower growth. Instead,the South African government has continued to insist that its policy of "quietdiplomacy" will eventually bring both sides to the negotiating table and resultin a long-term solution to the problem, preferably a government of nationalunity. It is often argued that this lack of willingness to take a decisive standreflects the close ties between many senior members of ZANU-PF and theruling African National Congress (ANC) in South Africa, as well as genuineunease towards the MDC. However, it also reflects a genuine point of view that"megaphone" diplomacy against Mr Mugabe is likely to prove more counter-productive than useful.

The situation is complicated by increasing criticism of Mr Mugabe!s regime bythe ANC!s alliance partners, the Congress of South African Trade Unions(COSATU) and the South African Communist Party (SACP). A COSATUdelegation visited Zimbabwe in October 2004 on a fact-finding mission andwas expelled by the Mugabe government, receiving a scathing attack fromMr Mbeki. Nonetheless, pressure appears to be growing on the ANC for a moreactive policy towards Zimbabwe; COSATU announced plans to send back itsdelegation to Zimbabwe, and a veteran anti-apartheid campaigner, DesmondTutu, made a highly publicised speech criticising Mr Mbeki!s diplomacy.

The US and the EU both imposed "smart sanctions" against leading members ofZANU-PF after the 2000 parliamentary election, which have since beenwidened. These currently cover around 90 members of the regime, limitingtheir ability to travel internationally and seeking to freeze any funds that theyhave in the EU and the US. The problem for the international community hasbeen that the sanctions have had little real impact. Mr Mugabe and leadingmembers of the government have still made high-profile visits to countries thathave not imposed sanctions, and Mr Mugabe has actually used the sanctions tohis benefit, arguing that he is being victimised by the former colonial powers,and has continued to divide the international community in its efforts to dealwith the regime. These divisions have been obvious in the Commonwealth,where a troika of leaders"the Australian prime minister, John Howard, thepresident of Nigeria, Olusegun Obasanjo, and Mr Mbeki of South Africa"havemade no progress in their attempt to facilitate a political solution in Zimbabweand have often seemed to be at loggerheads with each other. The commitmentwithin Africa to deal firmly with Mr Mugabe and his government has beenlimited. The African Commission for Human and People!s Rights presented areport strongly condemning human rights abuses in Zimbabwe to the AfricanUnion (AU) in July 2004, but the Zimbabwean government managed to delaydebate on it, arguing that it had not been given adequate time to prepare aresponse. It is, however, a positive development that the AU commission isprepared to give a hard-hitting condemnation of Mr Mugabe!s rule.

With attempts by the international community to bring political reform inZimbabwe largely a failure, SADC is now spearheading efforts towards politicalreform through a new set of guidelines for holding free and fair electionsagreed at a summit in Mauritius in August 2004. Indeed, any end toZimbabwe!s ongoing political crisis now looks increasingly likely to hinge upon

SADC drives electoral reforms

The international communityhas had little impact

Zimbabwe 15


the response of regional leaders to the conduct of the March 2005 parlia-mentary election. The extent to which SADC will be able to use the newelection charter in order to influence events in Zimbabwe is unclear, butMr Mugabe and his government will have to work hard to convince SADCelection observers that the charter is not being breached in a number offundamental areas. The onus will be on SADC as to whether to decide to glossover the glaring problems and accept partial conformity with the guidelines orto have the collective resolve to condemn the elections if necessary andsuspend Zimbabwe!s membership of the organisation. However, even a mildrebuke from his fellow regional leaders would be likely to represent thebeginning of a gradual increase in pressure for political reform in Zimbabwe.

The war in the Democratic Republic of Congo

In August 1998 the Zimbabwean president, Robert Mugabe, announced that troopswould be sent to the Democratic Republic of Congo (DRC) to support the embattledgovernment of Laurent Kabila against rebels backed by Uganda and Rwanda. MostZimbabweans were surprised by Mr Mugabe!s decision, as there was little history ofinteraction with the DRC. At the peak of the country!s involvement there were anestimated 15,000 Zimbabwean troops in the country. Peace talks brokered by SouthAfrica have led to the establishment of a transitional government and some sort ofpeace in the country now seems possible. As a result, the Zimbabwean governmenthas now withdrawn most of its troops, although both the military and otherinfluential members of the ruling Zimbabwe African National Union-Patriotic Frontare still hopeful of exploiting various economic opportunities in the country.

Zimbabwe!s involvement in the DRC has attracted ongoing controversy. Manyeconomists have argued that it has been an onerous financial burden onMr Mugabe!s government and the root cause of the country!s economic problemsowing to the ballooning fiscal deficit. There has also been considerable controversyover the involvement of Zimbabwe!s army in mining and logging concessions in thecountry, which have been extensively documented by the UN panel of experts onthe illegal exploitation of natural resources and other forms of wealth in the DRC.Mr Mugabe had hoped that his country!s intervention would ensure thatZimbabwean companies would be in a prime position to benefit from any peace inthe DRC ahead of their South African rivals. However, South African companies arelikely ultimately to benefit from any prolonged peace in the country for a number ofreasons: the failure of the intervention to secure a military victory for Mr Kabila;South Africa!s subsequent role in the peace talks; South Africa!s stronger relationshipwith Mr Kabila!s son, Joseph, the new president; and international criticism of therole of the Zimbabwean army in the country.

At independence the Zimbabwe National Army was created by merging120,000 troops from the Rhodesian army, the Zimbabwe African NationalLiberation Army and the Zimbabwe People!s Revolutionary Army. The armytook part in the ruthless suppression of the unrest in Matabeleland in the early1980s. Between 1985 and 1993 up to 12,000 Zimbabwean troops were postedalong the Beira Corridor in Mozambique to prevent sabotage by the SouthAfrican-backed Mozambique National Resistance (Renamo) movement. Thearmy also went to the DRC to support the government of Laurent Kabila in the

The military

16 Zimbabwe


late 1990s. Although there have been periodic rumours of planned militarycoups, particularly during the recent period of political unrest, the army hascontinued to maintain its traditional low political profile, with its leadershipsupportive of the government and many senior members leaving the army toforge political careers in ZANU-PF. Its leadership has also developed a range ofcommercial operations, notably during its involvement in the DRC.

Military forces, 2003Zimbabwe National Army 25,000Zimbabwe Air Force 4,000Total armed forces 29,000Police forces 21,800Defence spending (US$ m) 103.0

Source: International Institute for Strategic Studies, The Military Balance 2004/05.

Security risk in Zimbabwe

Armed conflict

The possibility of armed conflict occurring in Zimbabwe remains low. The security forces, notably the police, which havebecome a highly politicised body in recent years, have shown a high degree of loyalty to the president, Robert Mugabe,throughout the current political and economic crisis. To date they have swiftly put down protests with considerableruthlessness.

Unrest and demonstrations

The most likely form of conflict in Zimbabwe in the short term is nationwide unrest and public demonstrations aimed atforcing Mr Mugabe to hold new elections. However, the government has easily put down protests by a range of groupsincluding the National Constitutional Assembly (a coalition of civil society groups, churches and human rights groups) andthe opposition Movement for Democratic Change (MDC). If such demonstrations go ahead, they will be likely to start inurban areas, where the MDC has most support. Prospects for widespread social unrest will increase with no end to thecurrent economic decline in sight and as food shortages deepen, notably in urban areas. Another trigger could be thepotential collapse of the banking system. The Economist Intelligence Unit would expect the security forces initially tosuppress any demonstrations, helped by the Public Order and Security Act. However, if the demonstrations turned violentthere could be significant damage to property and looting in urban areas, risking severe retribution by the security forces.

Violent crime, kidnapping and extortion

Politically motivated crime is a significant problem in Zimbabwe, particularly in rural areas, where the so-called warveterans and the youth militia of the Zimbabwe African National Union-Patriotic Front (ZANU-PF) have been grantedvirtually a free rein in intimidating, and even attacking, those whom they consider to be supporters of the MDC. Given thatit is generally impossible to identify supporters of the MDC, other people have also been attacked, including tourists, withwhites often assumed automatically to support the opposition. The war veterans and youth militia are also engaged inextortion from mining companies and businessmen, and have threatened to invade their property and businesses, as theyhave on the commercial farms. Travel to the rural areas is not advisable, although Harare and major tourism sites such asVictoria Falls are relatively safe.

One of the main problems in recent years has been the emasculation of the police force, which is no longer seen as anunbiased enforcer of the law but as a body that supports the government, even in unlawful actions. Meanwhile, the courtshave become increasingly politicised, with more pro-ZANU-PF judges appointed. There is unlikely to be any improvementin this situation until the current political and economic crisis has run its course.

Zimbabwe 17


Resources and infrastructure

PopulationPopulationPopulation (2002; m) 12.89Population growth (%; annual av,2002-2015) 0.6Fertility rate (no. of children per woman; 2002) 3.7

Life expectancy (years; 2002) 39Urbanisation (%; 2002) 37.0

Projected population in 2015 (m) 16.4

Source: World Bank , World Development Indicators 2004.

Recent World Bank estimates put Zimbabwe!s population at 12.9m in 2002.However, preliminary estimates of the 2002 census put the figure at 11.6m"about 1.5m below earlier projections"reflecting a combination of the HIV/AIDSpandemic, emigration, and over-counting related to manipulation of theelectoral rolls. Nevertheless, the urban population was estimated at 37% of thetotal in 2002; it grew at over 5% per year in the 1980s and 1990s, much fasterthan the level of overall population growth, indicating continued ruralmigration. Harare!s population, including its Chitungwiza township, is nowapproaching 2m.

The population density is about 30 per sq km. The majority of Zimbabweansare Shona, with the Shona outnumbering the Ndebele by about four to one.The Ndebele live mainly in the south and west. The number of whites inZimbabwe has dropped from a peak of about 275,000 in the mid-1970s to anestimated 70,000"barely more than 0.5% of the population. The most widelyspoken language is Shona and its dialects, although English, which isuniversally spoken in towns, is the official language

HIV/AIDS has become a major threat to Zimbabwe, which is now one of theworst affected countries in the world. Owing to the economic and politicalcrisis, the government has made only half-hearted efforts to combat the spreadof the disease, and the country is now in an extremely precarious position withthe spread of the pandemic at a relatively advanced stage. According to theJoint UN Programme for HIV/AIDS (UNAIDS), the body co-ordinating the fightagainst the disease, about 2.3m people in Zimbabwe were living with AIDS atthe end of 2002, equivalent to some 33.7% of the adult population (aged 15-49).This compares with 15% in Malawi and 35.4% in Botswana. In 2001 there werean estimated 200,000 AIDS-related deaths, but this figure is likely to have risensharply owing to the impact of the famine in 2002-03. The holding of anational HIV/AIDS conference for the first time in June 2004 shows how slowthe country has been in dealing with the problem. At present, only 5,000Zimbabweans are taking anti-retroviral (ARV) drugs and the government isexpecting this to rise to 260,000 by the end of 2005. However, independenthealth experts say that this expectation is unrealistic. Although a state-ownedcompany is being set up to make cheaper ARVs, efforts to tackle the disease willbe limited by the collapse of the health systems and the reluctance of

Population estimates vary

Zimbabwe has a highHIV/AIDS infection rate

18 Zimbabwe


international groups to increase their involvement owing to excessivegovernment interference in their operations.

The expected impact of AIDSa

1998 2010With AIDS Without AIDS Difference With AIDS Without AIDS Difference

Population ('000) 11,044 12,644 1,600 11,953 16,353 4,400Population growth rate (%) 1.1 2.5 1.4 0.3 1.9 1.6Life expectancy at birth (years) 39.2 64.9 25.7 38.8 69.5 30.7

Crude death rateb 20.1 6.2 13.9 22.5 4.9 17.5Infant mortality ratec 61.8 35.9 25.9 53.7 24.0 29.7

Child mortality rated 123.4 50.5 72.9 115.6 31.8 83.8

a Based on two scenarios for each year, indicating the estimated effect of AIDS on various demographic indicators. b Per 1,000 of the population.c Under the age of one; per 1,000 live births. d Under the age of five, per 1,000 live births.

Source: US Bureau of the Census, World Population Profile, 1998.

Education

The newly independent government invested heavily in education inZimbabwe in the 1980s and, with the introduction of free primary schooleducation, by 1990 it was broadly agreed that Zimbabwe had achieveduniversal primary education. However, even though the country!s educationsystem is still widely regarded as among the best in southern Africa and thepopulation is one of the most well-educated in the region, the quality of theeducation system has come under serious threat recently. This mainly reflectsthe government!s budgetary crisis, the erosion of real incomes and thedeparture of the best teaching staff to employment both within the region andin the US and Europe (teachers have also been subject to intimidation by thecurrent regime, notably by spells of re-education). In addition, private schoolssuffer from political attacks by the government, which sees them as bastions ofwhite privilege (although the white student population is now highly limited).One such dispute did lead to them being temporarily shut down in 2004.According to the Ministry of Education, Sports and Culture, despite the intro-duction of fees at government schools, the net enrolment rate at primary schoolsrose from 82% in 1994 to 92.5% in 2000; according to World Bank data this figurehad fallen to 80% in 2001 and is 65% at present. Up-to-date data on secondaryschool enrolment rates are much harder to obtain, but the UN Educational,Scientific and Cultural Organisation (UNESCO) estimates that the 1999 enrolmentrate was 67% for males and 63% for females. However, with the rapid deteriorationof the economy in the last three years, drop-out rates have soared.

Despite the expansion of the school system following independence, access tohigher education in the 1980s was limited by strict entry criteria and lack ofplaces. As a result, the government expanded the number of universities fromjust one in 1990"the University of Zimbabwe (UZ) in Harare"to the currenteight full universities and three university colleges. The number of studentsrose from 9,000 in 1980 to 33,000 in 2000. Around 10,000 of these are at UZ.The government also increased the number of places in public technicalcolleges and established 25 vocational training centres around the country. Sincethe mid-1990s UZ has been affected by student protests over fees, which have

The population is welleducated

Higher education is morewidely available

Zimbabwe 19


risen rapidly. It has also been periodically closed following political unrest,most notably from June 1998 until January 1999, when students hadcampaigned for the resignation of the president, Robert Mugabe.

Health

The provision of health services improved greatly after independence, althoughservices remained skewed to urban areas. Zimbabwe was named the besthealth-service provider by the World Health Organisation (WHO) in 1985because of its efficient healthcare delivery system. However, the country!shealthcare system collapsed in the 1990s as the government starved the sectorof funds. Although the government still provides free healthcare to low-incomeearners, patients are required to pay for medication, the costs of which haverisen quickly in recent years. Much of the equipment in major hospitals isbroken or not operating owing to a lack of spare parts, and many drugs are notavailable now that the Ministry of Health and Child Welfare is required tomake payments in advance for most products. The service is also seriouslyundermanned: many doctors and nurses have sought employment abroad aswages have tumbled and conditions deteriorated. In 2000 the WHO ranked theoverall efficiency of Zimbabwe!s healthcare system as 157th out of the191 countries covered.

Comparative human development indicators, 2002Zimbabwe South Africa Zambia Botswana UK

HDI scorea 0.491 0.666 0.389 0.589 0.936

Real GDP per head (US$; in PPP terms) 2,400 10,070 840 8,170 26,150Life expectancy at birth (years) 33.9 48.8 32.7 41.4 78.1

Adult literacy rate (%; age 15 and above) 90.0 86.0 79.9 78.9 100.0% of population with access to: Adequate sanitation 62.0 87.0 78.0 66.0 100.0 Improved water sources 83.0 86.0 64.0 95.0 100.0 Essential drugs 50-79 80-94 50-79 80-94 95-100Population below poverty lineb (%; 1990-2001) 36.0 7.1 63.7 23.5 -

a The Human Development Index (HDI) has been developed by the UN Development Programme as a composite measure of human development,based on a range of factors rather than standard economic criteria. The highest score possible is 1. The average for Sub-Saharan Africa in 2003was 0.468, compared with a world average of 0.722. b US$1 per day.

Source: UN Development Programme, Human Development Report, 2004.

Natural resources and the environment

Although gold is probably the best known of the country!s mineral exports,mineral deposits in Zimbabwe are varied. With the exception of coal, platinumand chrome, pockets of other minerals tend to be small. Huge deposits of coal,substantial natural and plantation woodland and hydroelectric projects are allmajor contributors to energy supply. There are a large number of touristattractions, including the world-famous Victoria Falls, 26 national parks andgame reserves, and the Great Zimbabwe National Monument near Masvingo,from which the country takes its name.

20 Zimbabwe


Transport, communications and the Internet

Zimbabwe is a landlocked country with a well-developed road network, whichincludes 15,000 km of tarred roads. The closest access to the sea lies eastwards,through Mozambique, at the port of Beira, which is slowly regaining itsimportance after being sidelined during years of regional instability. Zimbabwehas a direct rail link with Zambia via Victoria Falls, which in theory continues tothe Tanzanian port of Dar es Salaam. In addition, there are two links withMozambique, to the ports of Beira and Maputo, and two links with SouthAfrica, one through Botswana and the other via Beitbridge. Another link isplanned between Beitbridge and Bulawayo. The National Railways ofZimbabwe was reformed with the aid of the World Bank in the mid-1990s inpreparation for privatisation, although given recent losses this is unlikely in theimmediate future.

The two state-controlled airlines, Air Zimbabwe (AZ) and a freight carrier,Affretair, are struggling on despite financial troubles brought about by poormanagement and the economic and political crisis. Affretair currently has noflyable planes, and in August 2001 the provisional liquidator, an internationalaccountancy firm, KPMG, auctioned off most of its other assets. AZ has sixplanes, of which two are grounded for lack of spare parts. Accounts are notavailable for recent years, but the airline lost an estimated US$20m in 2002 andwas temporarily suspended from the International Air Transport Association(IATA) in early 2004 owing to non-payment of its various obligations; thesewere subsequently paid off. There are periodic reports of plans to establish acommercial private airline. Apart from the regional airlines and AZ, the onlyinternational carrier currently flying from Europe to Harare is British Airways.There is a much wider range of regional flights.

The Posts and Telecommunications Corporation (PTC), through its TelOnecompany, has invested heavily in the digitalisation of Zimbabwe!scommunications network in recent years, using fibre-optic technology.However, owing to the economic crisis PTC has built up large debts to both itsSouth African and British counterparts, estimated at around Z$14bn (US$255m)at the end of 2000, and investment has waned in recent years while thewaiting list for connections has remained high. In 1994 PTC theoretically lost itsmonopoly rights, but a prolonged legal battle followed. Although some mobile-phone companies did set up networks, the legal wrangling was not ultimatelyconcluded until Econet won the right to establish a mobile-phone network,Econet Wireless Zimbabwe, in late 1997 and the Supreme Court nullified PTC!smonopoly in 2000. A South Africa firm, Allied Technologies (Altech), investedUS$70m in the company in 2004, which will help to fund some of Econet!sinternational ventures. In December 2002 the government granted a second 20-year licence for fixed-line telephones to Teleaccess. However, Teleaccess!sservice did not become operational and the licence has now been taken overby Jewel Bank. It is now unclear when Zimbabwe will have a second fixed-lineservice in operation.

Airlines

Telecommunications

Roads and rail

Zimbabwe 21


Zimbabwe!s press is dominated by Zimbabwe Newspapers, in which the statehas a controlling interest. The group, which has made substantial losses inrecent years, owns two dailies, The Herald and the Bulawayo Chronicle, andtheir sister papers, the Sunday Mail and Sunday News. A challenge to the state-owned dailies came in April 1999, when the Daily News was launched. Thissubsequently became the largest-selling independent newspaper. Otherindependent newspapers include the weeklies"the Financial Gazette (althoughin late 2002 this was bought by a businessman with close links to thegovernment), the Zimbabwe Independent and The Standard"which are critical ofthe government. The polarisation of views in the various papers has increasedmarkedly with the current political crisis. As a consequence, the governmenthas removed several editors from papers owned by Zimbabwe Newspapers, asthey were deemed insufficiently supportive of the government.

In recent years, the privately owned press, including the foreign media, hasfaced an increasing number of obstacles to operation, with some local journal-ists fleeing the country after intense intimidation and foreign correspondentshaving work permits withdrawn. The most manifest example of the attempt toshut the private press was the bombing of the offices of the Daily News in early2001. In 2002 the government passed the Access to Information and Protectionof Privacy Act, which led to the establishment of the Media and InformationCommission (MIC). No newspaper or journalist can operate legally withoutregistering with the commission, which can also withdraw registration at anytime. The Daily News waged a campaign against the legislation, arguing that theMIC had inappropriately refused its registration and should be reconstituted.However, the government has not accepted this line of argument, and used thepolice to close the paper down, although there have been a number of legalrulings by the courts that the police should leave its offices. Unable to operate,the owners of the Daily News announced in late February 2004 that theywould lay off 200 of their 250 staff. They have, however, set up a website thatcan be accessed from South Africa, which should allow the newspaper tocontinue publishing in a limited form. Ongoing harassment up to the 2005elections can be expected.

After efforts to launch a private radio station, Capital Radio, were stalled by theauthorities in April 2001, the government passed legislation to protect itsmonopoly on radio broadcasting. This is being challenged in court by CapitalRadio. Two independent stations, Voice of the People and ShortWave RadioAfrica, both broadcast in Zimbabwe on short wave from the Netherlands andthe UK respectively. The Harare offices of the Voice of the People were blownup in August 2002. Apart from these independent stations, the country!stelevision and radio stations are run by the state-owned ZimbabweBroadcasting Corporation. However, South African channels are also easy totune into and satellite television, also from South Africa, provides additionalnews sources.

According to data published by the International Telecommunication Union(ITU), Zimbabwe had an estimated 160,000 computers and 30,000 Internetusers at end-2000. Internet services are accessed through a number of

The press

Internet

Radio

22 Zimbabwe


providers, of which M-Web and Eco-web are generally considered the best. ByAfrican standards, Zimbabwe has a well-developed information technologysector, with a number of companies able to sell software skills to other Africancountries and internationally. Cyberplex Africa is widely viewed as thecountry!s leading Internet development firm.

Energy provision

The sole power-generating and distributing authority in Zimbabwe is theZimbabwe Electricity Supply Authority (ZESA), with a coal and hydro base mixand total production capacity of around 2,071 mw. Supply has failed to keep upwith demand in recent years and imports from neighbouring countries nowaccount for 45-50% of domestic supply. Since 1997 Zimbabwe has beenconnected to the Cahora Bassa dam in Mozambique and the wider southernAfrican grid via a link with South Africa. With the end of the conflict in theDemocratic Republic of Congo, Zimbabwe is also receiving power from thatcountry. A combination of the economic crisis, the poor management of ZESAand the country!s growing dependence on imports has led to a huge build-upin debt to both Hidroeléctrica de Cahora Bassa (HCB) and Eskom, the SouthAfrican electricity utility, since 1999. The total debt was estimated at US$51m atthe end of 2003, and continued to escalate during 2004 despite the onset ofmonthly debt repayments.

Unable to finance any investment in ZESA, the government, in April 2001,drafted the ZESA Commercialisation Act, which could pave the way for thesector!s break-up and sale. Although no timetable has been set, there has beenconstant speculation over potential buyers. However, any sale will becomplicated by the company!s large external debts and may only be possible ifit includes a sale of assets to either HCB or Eskom. In early 2004 thegovernment allowed ZESA to charge certain customers in foreign currency in adesperate effort to improve its ability to meet its external obligations.

All oil is imported. An oil pipeline from Beira in Mozambique to Mutarebecame operational in 1982 and was extended to Harare in 1993. Ethanol,produced since 1980 from sugarcane, is blended with petrol in a 15% proportionfor domestic sale. Zimbabwe has faced periodic fuel shortages since 1998, andthese grew steadily worse in 2001-03. The basic problem is that the increases inZimbabwe!s regulated fuel price are not sufficient to reflect the twin effects ofrising inflation and a falling exchange rate. The National Oil Corporation ofZimbabwe (Noczim) had a monopoly on importing fuel but had to payinternational prices. With Noczim mired in corruption scandals since 1999 andunable to obtain enough foreign exchange at the official rate, it built up largelosses, and as a result was unable to obtain oil supplies. Although domesticfuel prices were deregulated in late 2003 and petrol retailers can now importfuel, they face the problems of a lack of foreign exchange and full cost-recoveryprices that are out of the reach of many drivers. As a result, fuel supplies havecontinued to remain erratic, although they are better than in the last few years.

Oil is imported

Zimbabwe 23


The economy

Economic structureMain economic indicators, 2003a

Real GDP growth (%) -13.2Consumer price inflation (av; %) 384.7Current-account balance (US$ m) -367.0

Total external debt (year-end; US$ m) 4,084.0Exchange rate (av; Z$:US$) 727.9

a Economist Intelligence Unit estimates.

Sources: Economist Intelligence Unit; IMF, International Financial Statistics.

With its well-developed manufacturing sector, relatively diversified commercialfarms, productive peasant agriculture, varied mineral resources and tourismpotential, Zimbabwe still remains a more diversified economy than any of itsneighbours despite the current economic crisis. Agriculture and miningdetermine the general health of the economy, because of their impact onexport revenue and domestic consumption. Both were productive by Africanstandards and relatively competitive internationally, but by the end of 2003most were struggling to survive. The manufacturing sector remainsimportant, although its relative significance has declined over the years and itnow accounts for only around 18% of GDP. All sectors of the economy havecome under tremendous pressure in recent years, owing to the political andeconomic crisis that has engulfed the country. It is likely that some of thefactories and mines that have been temporarily closed and the farms that havebeen invaded will never restart operations.

Comparative economic indicators, 2003Zimbabwe a South Africa Botswana Zambia UK

GDP (US$ bn) 4.6 166 7.8 4.8 1,798.00

GDP per head (US$) 359 3,620 4,350 443 30,192Real GDP growth (%) -13.2 2.8 4 5.1 2.2

Consumer price inflation (av; %) 384.7 6.8 9.2 21.4 1.4Current-account balance (US$ bn) -0.4 -1.5 0.4 -0.4 -33

Current-account balance (% of GDP) -7.9 -0.9 5 -8.8 -1.9Merchandise exports fob (US$ m) 1.2 38.7 2.9 1.1 307Merchandise imports fob (US$ m) 1.6 35 2.2 1.4 384

External debt (US$ bn) 4.1 26.1 0.5 5.2 -Debt-service ratio, paid (%) 5.2 9.6 1.9 38.3 -

a Economist Intelligence Unit estimates.

Source: Economist Intelligence Unit.

Economic policy

Real GDP growth during the 1980s averaged a healthy 4% per year, despite thegovernment retaining many of the unilateral declaration of independence (UDI)controls on imports and foreign exchange. Under pressure to ease these, in 1990the government introduced a five-year enhanced structural adjustmentprogramme (ESAP) with the support of the IMF and the World Bank. The first

Structural adjustment inthe 1990s

24 Zimbabwe


phase of the ESAP began with the introduction of a trade liberalisationprogramme aimed at replacing most of the quantitative import controls withtariffs by 1995. However, a balance-of-payments crisis in 1991 prompted a severedepreciation of the currency. Zimbabwe was forced to agree to more stringentconditions and a more rapid timetable for the ESAP, although a drought in 1992dealt a further severe blow to plans for economic reform. Reforms resumedwhen the rains returned, and the currency was almost fully convertible byearly 1995. Another drought that year led to a contraction of the economy, andthe IMF suspended its support because of the rising budget deficit. With theend of the drought, confidence returned and GDP growth rebounded by 10.4%in 1996.

From mid-1997 to 1999 economic policy underwent a series of reversals. InApril 1998, in order to gain the support of the IMF, the government releaseddetails of the Zimbabwe programme for economic and social transformation(Zimprest), which outlined policy objectives for 1998-2000. The IMF dulyreleased a first tranche of US$53.2m in balance-of-payments support in June.However, with the Fund increasingly concerned about the government!scommitment to reform, compounded by uncertainties over the land issue andthe authorities! unwillingness to reveal the true cost of the militaryinvolvement in the Democratic Republic of Congo, funding was suspended inOctober 1999. Without the support of the IMF, the government unveiled a newstrategy in December 1999, the millennium economic recovery plan (MERP).This was never officially published or implemented. By 2000 the economy wasin crisis, driven by a soaring budget deficit and political violence. The exchangerate became overvalued and foreign-exchange shortages started to emerge.Parastatals and the government also started to build up large debt arrears.

Between 2000 and 2002 the government consistently stated that it wouldpublish a revised version of the MERP to help to ameliorate the rapidlydeepening crisis. The delay in the publication of the MERP reflected a battlewithin the ruling Zimbabwe African National Union-Patriotic Front (ZANU-PF)between the reformist finance minister, Simba Makoni, who had been broughtin to present a more favourable image of the government, and the president. Inparticular, the key issue that remained unresolved then, and arguably still doesseveral years later, is the president!s implacable opposition to a majordevaluation of the Zimbabwe dollar. Unable to have a real influence oneconomic policy, Mr Makoni resorted to highlighting the full extent of thecountry!s economic collapse, notably in budget speeches, until he was pushedout of the government in a minor reshuffle in August 2002. His replacement,Herbert Murerwa, widely considered a "yes man" for the president, thenmanaged to persuade the cabinet to introduce a new programme, the NationalEconomic Revival Programme (NERP), which was outlined in February 2003.This was based on a tripartite agreement between the government, businessleaders and organised labour to try to reduce inflation by agreeing to limitwage and price increases (the government separately announced wide-rangingprice controls). It also outlined ambitious (and unrealistic) plans to boost outputin a range of productive sectors in the economy. The plan was effectivelyabandoned by the end of 2003 with few of the main policies implemented.

Economic policy consists ofcrisis management

Troubled relations withthe IMF

Zimbabwe 25


The ongoing foreign-exchange crisis

Although the root cause of Zimbabwe!s current economic crisis has been the fiscal deficit, since 2002 the main problem hasbeen growing shortages of foreign exchange. Faced with an uncompetitive exchange rate, a deteriorating domesticeconomic environment and the collapse of gold and agricultural exports, total exports fell from over US$2bn in 2000 to anestimated US$1.3bn in 2003, and still remain relatively depressed. Meanwhile, the government has grown increasinglydesperate to capture foreign exchange to fund food and oil imports. With the president firmly opposed to devaluation, theReserve Bank of Zimbabwe (RBZ, the Reserve Bank) and the Ministry of Finance and Economic Development have usedvarious combinations of foreign-exchange controls and complicated multiple exchange-rate regimes to try to keep exportersin business while still allowing the government to capture a major share of the foreign exchange that they earn.

The first step in this direction was taken in the 2002 budget, when the government closed all foreign-exchange bureaux andintroduced new foreign-currency rules for exporters, which required them to surrender 50% of their foreign earnings to theRBZ. Under a new system introduced in January 2004 the requirement was reduced to 25%; this was later reduced to zerowhere funds are remitted within 30 days or 15% if funds are remitted between 31 and 90 days. The balance of the earningshas to be sold to a "controlled auction" (25% immediately and 50% after 21 days), where the RBZ retains the right to rejectbids if it believes that the money will not be used for essential purposes. Given that demand at the auctions is reported tobe four to six times supply, the exchange rate is in reality determined not by auction but by the RBZ, which controls theallocation. The net effect of the new exchange-rate mechanism is to allow a modest devaluation of the currency, whichreached Z$5,729:US$1 at the end of December 2004.

The governor of the Reserve Bank, Gideon Gono, also introduced support prices for gold and tobacco in April 2004. TheRBZ gold price of Z$71,000/g (US$17.4/g) was raised to Z$85,000/g in July and a price of Z$130,000/g is effective fromFebruary 2005. The tobacco price was set at Z$750/kg (18 US cents/kg) and raised to Z$2,000/kg from February 2005. Inaddition, Mr Gono announced that the government would offer a minimum exchange rate of Z$5,200:US$1 forZimbabweans living overseas who repatriated their remittances through officially licensed money transfer agencies. Thesystem, called "Homelink", would bring in US$408m per year if only 10% of the 3.4m Zimbabweans living abroad decidedto send US$100 a month. However, between May 2004 and January 2005 only US$54.8m of remittance had been receivedthrough officially licensed money transfer agencies.

The impact of Mr Gono!s multiple exchange-rate policy is visible in higher inflows of foreign exchange through officialchannels in 2004. It has also helped to fund substantial imports of food and keep the economy functioning. This is helpingto slow the economic decline of the last few years. In effect, what appears to be happening is that the economy hasreached a new, lower economic equilibrium, with the reduced foreign-exchange earnings now much more closely in linewith the reduced level of demand for foreign exchange. Worryingly, foreign-exchange reserves remain very low. Officiallyestimated at US$57m in 2004, these are equivalent to 0.3 months of imports.

With the sacking of Mr Makoni in 2002, the minister of finance has continuedvery much to take a backseat role in the development of economic policy. Thistrend was made more apparent from early 2004, with the appointment ofGideon Gono as the new governor of the Reserve Bank of Zimbabwe (hereplaced the long-time, but increasingly ineffective, governor, Leonard Tsumba).With Mr Gono widely seen as having the ear of the president, Robert Mugabe,it was only with his appointment that the limited foreign-exchange auction wasintroduced, representing a major compromise by Mr Mugabe over exchange-rate policy. Coupled with other ad hoc measures, this policy has helped to slowthe country!s economic decline and has boosted foreign-exchange flowsthrough official channels. Mr Gono also introduced a quarterly monetarypolicy statement in 2004, which has become the main source of information

26 Zimbabwe


about developments in the economy and channel through which neweconomic policy initiatives are announced.

The policy changes introduced by Mr Gono, as well as his strongerinternational image, have also allowed a partial restoration of relations withthe IMF. Relations between Zimbabwe and the Fund started to break down in2001 as Zimbabwe started to build up arrears with it. They broke downcompletely in June 2002, when the IMF adopted a declaration of non-co-operation with the government over its growing arrears. The impasse grewduring 2003, leading the IMF to suspend the country!s voting rights and inDecember to initiate compulsory withdrawal procedures. Aware, however, ofthe difficulty of getting enough support for expelling Zimbabwe, and with theappointment of Mr Gono, relations have been partially restored and Zimbabweis making some limited payments to the Fund (although not enough to pay offits arrears while the suspension procedures remain suspended), the Funddelayed the process of expelling Zimbabwe in July 2004.

Although the causes of Zimbabwe!s swift economic deterioration in recentyears are multiple, the root cause of the problem can probably be traced back tothe government!s rapidly expanding fiscal deficit in the late 1990s"according toofficial data, this stood at 22% of GDP in 2000. The government managed toreduce this in 2001-03 by pushing down interest rates on government Treasurybills and bonds so that they were negative in real terms: real interest rates ongovernment securities at the end of 2003 were around #500%. This sharplyreduced debt-service payments and, coupled with a suppression of the public-sector wage bill, saw the deficit fall to just 9.8% of GDP in 2001, 4.6% of GDP in2002 and an estimated 14% of GDP in 2003. However, the deficit as calculatedby official data in the last few years excludes high levels of expenditure byparastatals. The IMF estimates that if this expenditure were included in theofficial data it would push the deficit up to around 20% of GDP.

Since early 2001 the policy of highly negative real interest rates also had otherimplications, notably encouraging many banks to become involved inspeculative investments, particularly property and the stockmarket. Con-sequently, when in December 2003 Mr Gono drove up nominal interest ratesthrough increasing statutory reserve requirements and automatic liquiditysupport for banks, he caused a major liquidity crisis for several banks. The RBZresponded by resuming liquidity support to temporarily stem the crisis and byintroducing reforms to banking regulations, such as a requirement that banksobtain international credit ratings and new minimum capital requirements ofZ$10bn. A plan was also announced for seven banks under curatorship to bemerged into a new company, Zimbabwe Allied Banking Group (ZABG); onlythree banks had been included when the ZABG began operating inJanuary 2005. The problem with this is that it is trying to produce a new viablefinancial institution out of seven previously poorly managed and, in effect,bankrupt companies, which would otherwise have been closed. Thegovernment is likely to become the biggest shareholder, which could wellconstrain any real efforts to make it a financially competitive institution. Fearsof a banking collapse have caused a flight to quality, with the main

Policy reversal after bankingliquidity crisis

Fiscal problems are the maincause of economic decline

Relations with the IMF arepartially restored

Zimbabwe 27


beneficiaries being the foreign-owned banks. Meanwhile, domestic banks facea major financial hangover that could take years to work through the economy,as well as large-scale rationalisation of the sector. Monetary policy has alsoundermined the solvency of the country!s pension funds.

Even though the adjustments to policy introduced by the government arestarting to slow the economic decline, the precarious nature of the economy isstill clear from a range of other problems. For example, cash shortages andforeign-exchange shortages are still commonplace. There are obvious problemswith fiscal policy, the exchange rate, inflation and other structural weaknesses.Infrastructure is not being repaired and signs of decay are increasingly visible.Most companies are operating at a fraction of capacity, while workers struggle toget to work and find food. HIV/AIDS is also a major time-bomb waiting in thebackground. Much of the impact of current economic policies will only really bevisible in the long term. The real cost of the decay in the country!s infrastructureand lack of repairs will become clear only when funds for reconstruction areneeded and there is insufficient domestic capital to finance such rebuildingowing to loss of domestic saving. Zimbabwe will have to borrow significantsums externally in order to finance any major reconstruction effort.

Despite overwhelming evidence to the contrary, the government remainsoptimistic that a major turnaround is imminent, a view that dominateseconomic policy pronouncements ahead of the March 2005 parliamentaryelections. The government claims that its reform policies are starting to workand in particular that its land programme has succeeded, with record maizecrops being harvested. Mr Mugabe has denied that international food aid oradditional food imports are still needed. Surveys in late 2003 indicated thatfood harvests were improving in 2004, but there are still substantial variationsby region and growing shortages in the cities. Moreover, food is also becomingless affordable owing to high prices and the falling income levels ofhouseholds. The government!s exaggerated, or false, claims are not confined toagricultural production; it claimed that strong foreign exchange inflows wouldlead the Zimbabwe dollar to strengthen in 2004 (which has not happened).However, claims that it is on the threshold of defeating inflation, that its fiscalposition is improving and that some businesses are investing in expanding theiroutput do carry an element of truth, although these must be seen within thewider context of the collapse of the economy, which is now operating from asmaller base.

Economic performance

In the decade following independence, Zimbabwe!s economic growth was verystrong, although subject to substantial variations. However, in the 1990s theeconomy grew by an average of less than 2% a year. Negative growth of 0.2%was posted in 1995 owing to drought, but GDP then recovered, growing by10.4% in 1996. Since then it has been back on a downward trend, and declinedby 0.7% in 1999. Although more recent detailed GDP data have not yet beenpublished, official estimates show that real GDP declined by 4.9% in 2000 and

Economy has contractedsharply in recent years

The economy is in aprecarious state

Government increases positiveoutlook ahead of elections

28 Zimbabwe


a further 8.4% in 2001. The finance ministry estimated a decline of 13% in 2002,driven by the economic and political crisis. The IMF estimates that GDP hasfallen 30% over the five-year period ending in 2004.

Zimbabwean living standards improved in the 1980s, but then declinedsubstantially in the 1990s (especially in the second half of the decade), owing toa combination of the slowing growth rate and the high population growth rate.According to the most recent IMF Article IV report on Zimbabwe, thecumulative decline in real GDP per head between 1997 and 2000 stood at 23%as a result of the economic crisis. The sharp falls in economic growth in thepast few years have significantly increased levels of poverty, which, combinedwith growing food shortages and rising levels of HIV/AIDS, severely cloud thelong-term outlook for the economy and its ability to recover rapidly from thecurrent crisis.

The percentage of the total population formally employed dropped from 18% in1965 to under 10% in mid-2000. There have been major sectoral shifts inemployment since independence, with employment in services and educationexperiencing a particularly steep rise. Employment in the health and financialsectors has also increased markedly, whereas the number of people working inmanufacturing has declined. Agriculture is still the largest employer, accountingfor 25% of the workforce in 2001, compared with around 15% in manufacturing.

Real wages fell in the 1990s. Attempts were made in the 1980s to introducewage controls, but these were widely circumvented by private industry. Freecollective bargaining now appears to be the norm, although tight regulation ofthe right to strike has provoked workers to engage in "wildcat" actions. Since1997 the Zimbabwe Congress of Trade Unions (ZCTU) has gained prominence,organising successful strikes against new taxes and levies in 1997-98 andpushing through increases in government and minimum wages in 1998-2000.However, with escalating inflation rates, the real value of wages has beenquickly eroded, notably in the government sector.

Extensive price controls dating from the time of UDI in 1965 were abandonedin the early 1990s. Subsidies were also gradually reduced, although thederegulation of prices of maize, milk, beef and wheat in 1993-94 resulted in riotsin Harare. In 1993 a new composite inflation index was introduced. Thislowered official average inflation rates, but inflation nevertheless remainedhigh, averaging over 23% per year in 1994-98. Driven by the fiscal deficit, thefalling parallel exchange rate and rising food prices, inflation has acceleratedsteadily since 1999: it has risen from an average of 55.7% in 2000 to 74.5% in2001 and 134.5% in 2002. Inflation accelerated rapidly in 2003, peaking at 619.5%in November and averaging 384.7% for the year. Official statistics show thatinflation began trending downwards over 2004, reaching 132.7% in December.However, the accuracy of official figures is questionable, particularly theweighting given to the basket of goods that make up the consumer price index.There are problems relating to the frequency of collection of the price data andthe average price for many products in Zimbabwe is difficult to obtain, as theyare either simply not available or are only available in a limited number of

Inflation is out of control

Unemployment is high andwages are falling

Zimbabwe 29


shops at any one time. A new basket is planned to be introduced in 2005, butthis may be delayed.

Rather than tackle the causes of the rapid rise in inflation, the government hastried to resolve the problem through the reintroduction of price controls. InOctober 2001 these were introduced to cover a wide range of basiccommodities, including maize meal, wheat flour, bread, soap, margarine,chicken, pork, beef, fresh milk, salt, cooking oil, sugar and washing powder. InNovember 2002 the controls were extended to cover virtually every product,from newspapers and computers to seeds and agricultural equipment. Atvarious times the government has also threatened to enforce the controls morevigorously, as producers easily side-stepped them. However, the knowledge thatprice controls simply compound the problems caused to producers andimporters by high inflation and the lack of foreign exchange, raising costs to thepoint where the production and importation of certain items had becomeuneconomic at the fixed prices, has meant that the government has not takenup the threat seriously.

Regional trends

A substantial share of economic activity, particularly light industry, isconcentrated around Harare, which benefits from its position as Zimbabwe!scapital and is centrally located in the higher rainfall areas of northern andeastern Mashonaland. The Bulawayo area in southern Matabeleland is thecentre of most heavy industry, as well as servicing the railway network, severallarge mines and the cattle-ranching industry. In the Midlands, Kadoma,Kwekwe and Gweru are market centres with significant industry and on themain road and railway line between Bulawayo and Harare. The other twomain centres are Mutare, close to the eastern border and on the railway linebetween Harare and the port of Beira in Mozambique, and Masvingo in thesouth. Mutare is a centre for wood-processing and important specialisedagriculture, in particular the production of coffee and tea.

Economic sectors

Agriculture

Despite the disruption to the agricultural sector between 1999 and 2002,tobacco was still the country!s leading export, equivalent to between 20% and30% of merchandise exports by value until 2002. However, the rise of platinumexports and the collapse in tobacco production in 2003 changed the situation.Tobacco is sold at auction, with flue-cured tobacco (accounting for over 95% ofthe total) usually commanding a premium price on world markets. Between1990 and 2001 output of flue-cured tobacco was above pre-independencelevels, with sales peaking at 237m kg in 2000. Sales then fell back to 202m kg in2001, 167m kg in 2002, 80m kg in 2003 and 60m kg in as the impact of the landreform programme and coal shortages kicked in (coal is used as fuel to cure thetobacco). The government has ambitious plans to boost production from small-

Tobacco

30 Zimbabwe


scale farmers but in 2004 these came to little, as seeds and support did notmaterialise. Even if partially implemented in 2005, production will grow onlymodestly and is likely to remain under 100m kg.

The reduced number of international buyers will also depress demand andprices for the limited remaining growers. Tobacco export earnings varysubstantially from year to year, partly because of price fluctuations. Prices wererelatively low in 1997-99 but rallied in 2000-01. The official price in 2001 wasUS$2.68/kg, a significant increase on the price of US$1.69/kg in 2000. However,this figure is heavily distorted by foreign-exchange dealing to avoid using theofficial exchange rate and by heavy government subsidies. Prices have sincefallen back to average only US$2/kg in 2003 and remained at this level in 2004.

Until the onset of the current political and economic crisis, Zimbabwe wasgenerally self-sufficient in food, usually exporting significant quantities of meatand maize in addition to cash crops such as tobacco, cotton and sugar. Themain harvest period for most crops runs from April to September. Imports havebeen necessary in drought years such as 1992, when Zimbabwe lost 80% of itsmaize crop. Many commercial farms have small areas under irrigation, as dolarge estates on which citrus fruit, sugar and winter wheat are grown. Thehorticultural industry developed rapidly in the late 1990s to cover flowers,vegetables and spices, which are sold mainly to Europe and South Africa, andin late 1999 was the second-largest source of agricultural export earnings, aftertobacco. As a result of the ongoing land reform programme (see box: Themounting food crisis: 2001-04), since 2001 the production of all food and exportcrops in Zimbabwe has been sharply reduced.

Zimbabwe!s main agricultural products"grain, coffee, dairy products, cotton,beef and pork"are generally sold through marketing boards or directly toprivate buyers. Horticultural products are also sold privately. Marketing boardsand commissions are being managed commercially; some have had theirmonopolies removed and have been converted into government-owned orprivate companies. However, in response to the worsening food crisis, thegovernment reintroduced the monopoly powers of the Grain Marketing Boardin 2001.

The mounting food crisis: 2001-05

Although the government has continued to argue that the main cause of the growingfood crisis is the drought experienced across southern Africa in 2001-02, poorweather conditions were compounded by the ongoing land reform programme, theimpact of AIDS on the productivity of the rural population, the general economiccollapse, a lack of foreign exchange and poor management at the Grain MarketingBoard (GMB), which has been beset by corruption and mismanagement. There havealso been concerns that the GMB!s monopoly on importing maize has prevented theprivate sector from helping to alleviate the situation. The state of affairs has beenaggravated by the government!s continuing refusal to acknowledge the extent of theproblem.

Main products are soldthrough marketing boards

Zimbabwe is traditionally self-sufficient in food

Zimbabwe 31


As a result of these factors, the only way that Zimbabwe, once a regional exporter offood, has been able to feed its population since 2002 is with huge supplies of foodaid from the World Food Programme (WFP). The WFP started operations inZimbabwe in February 2002, initially targeting 4m people in 49 of the country!s57 districts. This figure had risen to 7.5m by March 2004, including 2.5m urbaninhabitants, and is unlikely to have reduced since. In November 2004 parliament!sportfolio committee found that the GMB had received only 388,000 tonnes of the1.8m tonnes of maize needed to meet domestic demand for the April 2004/March2005 season. Government plans to import 727,000 tonnes would still leave thecountry 700,000 tonnes short. International aid will not be able to make up theshortfall, as the WFP was told to wrap up its operations in 2004 and was preventedfrom carrying out any further assessments, which are necessary before pledgingcontributions.

Although the WFP!s efforts to date have prevented mass starvation, its work hasbeen controversial, with well-documented claims that the government has beenusing food aid as a political weapon to starve its opponents, notably by restrictingsupplies to Southern Matabeleland and other areas of strong support for theMovement for Democratic Change. In response to this, the WFP suspended food aidtemporarily during the Insiza by-election in October 2002. These allegationsresurfaced in November 2003, when a non-governmental organisation, HumanRights Watch, published a major report, Not Eligible�the Politicisation of Food Aid inZimbabwe. Another major problem is that, although it has a legal monopoly onimporting maize, the GMB has been selling it at subsidised prices to those wellconnected within the ruling Zimbabwe African National Union-Popular Front, whoare then exporting it to neighbouring countries for hard currency and at a muchhigher price. The distribution of food aid is likely to remain controversial until atleast after the March 2005 parliamentary election, and donors will becomeincreasingly reluctant to make pledges to further WFP appeals.

The land question has always been a central and controversial issue inZimbabwe owing to the highly skewed distribution of land. Until 2002 about30% of agricultural land was covered by some 4,500 commercial farms, whichwere mainly white-owned. Acute land pressure in the communal areas,brought about by high population growth rates, coupled with the need tocorrect a historical injustice, has made land redistribution a pressing issue.However, it has only been really raised as an issue for political reasons, notablythe president!s waning popularity since 1999. Although there was considerableharassment and violence against commercial farmers in 2000-01, thecontroversial fast-track land reform only really picked up pace in 2002. It hassince been wound down, although there have still been seizures of farms.

Based on performance to end-2004, the land reform programme can only bejudged as a failure. Agricultural production has collapsed, and where land hasbeen allocated to peasants the government has failed to provide inputs toallow them to sustain production on their new plots. Owing to poor rains,many have since abandoned their plots, and commercial farmers have notreturned, fearing intimidation and violence. The Ministry of Agriculture andRural Resettlement claimed that 300,000 farming households had beenreallocated, but the report of the Land Review Commission (or Utete

The government pushes aheadwith land reform

32 Zimbabwe


Committee), appointed by the president in May 2003 to examine the impact ofland reform, stated that only 127,192 small-scale farmers had been resettled bymid-2003 and 1,672 larger farms had been set up (to become new commercialfarmers). The government has also refused to allocate title deeds of theproperties to peasants, which means that they cannot borrow against the land,further undermining confidence. Another major source of controversy has beenthe allocation of many farms to people with close connections to the rulingZimbabwe African National Union-Patriotic Front (ZANU-PF) rather than tolandless peasants.

Structure of land ownership, 1995No.a Average size (ha)b % of output

Commercial farms (mainly white-owned) 4,700 3,000 80

Communal farms 800,000 20 18c

Resettlement areas 62,000 50 2

a Estimates. b Although average sizes vary widely, 10 ha constitutes a viable holding in arable areas;100 ha is adequate in drier regions. c The communal share tends to fall sharply in drought years.

Sources: Commercial Farmers' Union; Financial Gazette.

The phases of land reform

1980-97: land reform and resettlement

The first phase of land reform ran to 1990 and involved the settling of peopleselected by the central government on farms willingly sold by commercial farmers.In 1990 the government drew up a national land policy, and in 1992 it passedlegislation to allow compulsory purchases to meet redistribution targets. Althoughthe aim was to distribute 8.3m ha through four farm-settlement models, by 1997 only3.5m ha had been acquired.

September 1998-July 2000

In June 1998 the government prepared a new land-reform and resettlementprogramme. This set a target of acquiring 5m ha of land (with compensationfinanced by donors) to resettle 91,000 families, bringing the total resettled area to8.5m ha. Donors felt that the programme was neither gradual nor accountableenough and agreed only to support a pilot project. As a result, only limitedimplementation occurred, with 4,697 families resettled on 145,000 ha.

From July 2000: fast-track land reform

After two years of little progress with land reform, the government decided toaccelerate its existing plans. Increasing its radical rhetoric, the government proposedchanging the constitution to allow the authorities to appropriate land without fullcompensation. Although the new constitution was rejected in a referendum inFebruary 2000, the government pushed the changes related to land throughparliament separately. Throughout 2002 it pushed ahead with the compulsoryseizure of farms and by the end of 2003 the Commercial Farmers Union estimatedthat only around 600 commercial farms were operational; another 600 farmers visittheir farms occasionally if the security situation allows.

Zimbabwe 33


Mining and semi-processing

Mineral deposits are dispersed throughout the country, with the Great Dyke,which runs over hundreds of kilometres from the north-east to the south-westof the country, containing extensive reserves. The main mining companies areSouth Africa!s Anglo American Corporation (for nickel and chrome), Rio TintoZimbabwe (RTZ, with bases in the UK and Australia, for nickel and gold),Australia!s Turner & Newell (for asbestos), Falcon of Zimbabwe (for gold),Zimplats of Australia/South Africa (platinum) and AngloGold Ashanti of SouthAfrica (also for gold). Since 1992 all minerals, with the exception of gold, silverand platinum, have had to be marketed through the state-run ZimbabweMinerals Marketing Corporation (ZMMC), which charges 0.875% of the sale ascommission. The real problem for mining companies in recent years has beenthe exchange rate used by the ZMMC to value sales.

Gold used to make up about one-half of all mining output by value. Productionexpanded almost every year after independence until the late 1990s, reaching apeak of 27.1 tonnes in 1999, over double the output of 1980. However, the sectorhas been hit particularly hard by the inappropriate exchange-rate policy sincethen. All gold in Zimbabwe has to be sold to Fidelity Printers and Refiners,which is owned by the Reserve Bank of Zimbabwe (RBZ, the Reserve Bank),and the price paid has meant that the earnings in Zimbabwe dollars have notrisen fast enough to offset rapidly rising costs, notably labour, caused by theescalating rate of inflation. In addition, there has been an ongoing problem inimporting many key inputs owing to foreign-exchange shortages. Formal minedoutput in 2003 is estimated at about half the level achieved in 1999. To try tostem the decline, in July 2004 the RBZ sought to boost the sector by introducinga gold support price of Z$71,000/g (US$17.4/g) for both large- and small-scaleminers, as well as better access to foreign currency for importing inputs for goldmining. Meanwhile, small-scale mining has boomed as the economic crisis hasdeepened, and some estimates put total small-scale output as high as formalmined output at the end of 2003. Although much is smuggled out of thecountry, in November 2003 a system was introduced whereby small-scaleminers were paid the Zimbabwe dollar equivalent of US$10.93/g by thegovernment, which has increased sales through official channels. According tothe Zimbabwe Chamber of Mines, production increased significantly, from 12.6tonnes in 2003 to 19.6 tonnes in 2004, just below the government target of 22tonnes. However, production levels are unlikely to reach the government targetof 30 tonnes in 2005.

Mines in Zimbabwe vary widely in scale and size, and there has beenconsiderable rationalisation as the decline of the sector has gathered pace.Many mines have been sold to consortiums of businessmen with closeconnections to ZANU-PF, but the main gold-mining companies at the end of2004 were Metallon (owned by a South African businessman, Mzi Khumalo),Falcon Gold, RTZ and AngloGold Ashanti. Despite the continued poor state ofthe sector, there is still interest in investing in Zimbabwe!s gold mines, notablyfrom South African companies.

Gold mining is rebounding

34 Zimbabwe


Zimbabwe!s hopes of becoming the third-largest exporter of platinum, afterSouth Africa and Russia, suffered a setback in June 1999 with the closure of theHartley platinum mine operated by Australia!s BHP, owing to unstablegeological conditions and difficulties with equipment and manpower. This leftonly Zimasco!s tiny Mimosa operation. However, high world platinum pricesand the desire of South African mining companies to have supplies in morethan one southern African country have encouraged further investment inZimbabwe. This has been helped by the fact that the government has allowedthe sector to develop as an enclave, which can directly retain its foreignexchange. The main company driving increased platinum production inZimbabwe has been Zimplats, which started mining at Ngezi in January 2002and also operates the Selous Metallurgical Complex (part of the Hartleycomplex), which processes platinum ore into matte for export (Selous wasreopened in January 2002). South Africa!s Impala Platinum (Implats), whichowns 83% of Zimplats, estimates that it could boost production to reach 2.3m ozby 2008. However, Implats has delayed a massive investment of US$700m inZimplats until legal clarification is secured over property rights and Zimbabwe!sindigenisation policy for mine ownership. Another important development inlate 2003 was the announcement by Anglo American that it would investU$90m in the development of a further mine, Unki, which is expected to be infull production by 2007.

An enhanced platinum-sector regime came into effect in February 2005. Underthe new regime platinum will be accorded "strategic metal status" alongsidegold. All miners will have to sell their platinum to the Minerals MarketingCorporation of Zimbabwe, set up by the government, and platinum producerswill also have to localise all their foreign-currency accounts. The governmentalso plans to set up a platinum industry investment support programme thatwill support industry projects, particularly platinum refining. Together with apolicy for greater indigenisation for the mining industry, the new regime callsfor increased black Zimbabwean ownership within their sector. Despitewidespread consultations by the government beforehand, investors are said tobe nervous about the new regime and many will wait until it is fullyoperational before making major investment decisions. Nevertheless, platinumproduction has increased in recent years.

In addition to gold and platinum, there is substantial production of nickel andchrome in Zimbabwe. Under its newly rearranged structure in the country,Anglo American has sold off its gold mines and now has three divisions,Amzim, which deals with its platinum interests; Zimbabwe Alloys, which dealswith its chrome mining; and Bindura Nickel. Coal mining at Hwage colliery isalso important. Much of the coal is used domestically, mainly for powerproduction. Some industries in Harare, such as cement plants and the tobaccoindustry, use coal as an important source of domestic fuel but have hadsupplies interrupted in recent years owing to the problems with the railways.There has been renewed interest in diamond mining in recent years, with RTZexamining the possibility of opening an open-cast mine in Murowa, north-westof Bulawayo, which would start production in 2004. This would be the first

Other minerals

Platinum sector is expandingstrongly

Zimbabwe 35


commercial mining of diamonds in Zimbabwe since the closure of the RiverRanch mine in February 1998.

Manufacturing

Partly as a result of import-substitution policies during the years following itsunilateral declaration of independence (UDI) in 1965, which boosted thenumber of locally manufactured products, Zimbabwe has one of the largest,most diversified and well-integrated manufacturing sectors in Sub-SaharanAfrica. The manufacturing sector has struggled since the removal of protectivemeasures under the government!s 1990 enhanced structural adjustmentprogramme (ESAP). This caused manufacturing output to contract to around15% of GDP in the latter part of the decade, from around 25% of GDP in the1970s. Since the mid-1990s it has been affected by the general macroeconomicdeterioration in the country, most notably the lack of competitiveness causedby the overvalued exchange rate, the drying-up of foreign exchange for inputsand, more recently, price controls. As a result, the sector has contracted at anaverage annual rate of nearly 5% since 1997.

Although larger firms are often subsidiaries of British or South African firms,the government!s central strategy until 1990 was to increase state participation,or indigenisation, in the manufacturing sector. This was achieved through thepurchase of existing private corporations. Since 1990 there has been a shift ingovernment policy away from state participation, although the government hascontinued to actively encourage black ownership of companies. With the onsetof the economic crisis in the late 1990s, the government has periodicallythreatened to nationalise industries, particularly those threatening to close onsecurity grounds. The Privatisation Agency of Zimbabwe began operations inSeptember 1999 and sold off some stakes in listed companies, but thegovernment is now increasingly interested in ensuring the viability of keyparastatals rather than selling them off.

The Zimbabwe Steel Corporation (Zisco) is the only fully fledged Sub-SaharanAfrican steel producer outside South Africa. Its plant at Kwekwe has an annualcapacity of almost 1m tonnes of steel, and in 1999 it underwent amodernisation and upgrading programme, led by a German company,Ferrostaal, in preparation for privatisation. Other major industries includeZimbabwe Alloys, which produces ferrochrome for export, and a number ofheavy engineering companies working for the mining industry and therailways. Dunlop Zimbabwe makes tyres and tubes; there are also a number oflarge pulp and paper firms and several plastics companies.

The largest single company is Delta Corporation, which dominates beer andsoft drinks production and also has interests in retailing, furniture and hotels.David Whitehead dominates textiles, while Bata leads the shoe industry. Thelargest company under local private control is the widely diversifiedTA Holdings. The economic and political climate has led to a sharp downturnin manufacturing production in recent years and has even forced some firms toclose operations, either temporarily or permanently. The most high profile ofthese closures was the shutdown in June 2001 of Willowvale Mazda Motor

A diversifiedmanufacturing sector

Policy waivers onnationalisation

36 Zimbabwe


Industries, the country!s only vehicle assembly plant, which has since beenreopened and closed again depending on various factors such as theavailability of foreign exchange to buy the kits that it uses.

Construction

Following a boom in the 1970s, the construction industry followed adownward trend in the 1980s and 1990s: its share of GDP fell from 5% in the1970s to 2.5% in the late 1990s. Even so, the sector experienced positive growthin 1996-98. Subsequently, there was a sharp downturn, with the trend in outputmoving from growth of 16.6% in 1997 to contraction of 5.2% in 2001, accordingto the RBZ. At this lower level, construction represented just 2% of GDP.

Employment in the sector reached just over 80,000, or about 4.5% of totalformal employment, in mid-1998. The latest data from the Central StatisticalOffice (CSO) show that employment fell to around 60,000 in mid-2000 and tojust 41,800 in June 2001 (3.5% of a much smaller number of total employees).There are some large local contractors, including International Holdings,Gulliver Consolidated and John Sisk & Son.

Another sector particularly hard hit by the problems facing the economy is thecement industry. One of Zimbabwe!s largest cement producers, Circle Cement,closed operations indefinitely in February 2003 because National Railways ofZimbabwe could not deliver enough coal for the production of cement. Thecompany claimed that it had tried using road transport, but found it much tooexpensive. The closure of Circle Cement was followed by that of Unicem,which also shut owing to coal and diesel fuel shortages and the government-imposed price controls, which were making production unviable. Theseclosures come a month after that of another cement producer, Sino Zimbabwe,for similar reasons. Meanwhile, Portland Cement has also warned of a possiblesuspension of production. The closure of the cement producers will hit theconstruction sector, which had been undergoing a boom, as property pricessoared in 2000-03, clearly illustrating the knock-on effects of the country!seconomic problems.

Financial services

The RBZ acts as the supervisory body for the banking sector, but it lacks thenecessary legislative framework and statutory power to monitor banksadequately, the Ministry of Finance and Economic Development beingresponsible for issuing banking licences. However, the appointment of GideonGono as the new Reserve Bank governor in late 2003 has given the RBZ a muchhigher profile, even if it is likely to continue to accommodate government fiscalpolicy rather than adopt a more independent line.

The liberalisation of the financial sector since 1991 has led to the emergence ofa range of local banks, often encouraged by the government, which has soughtto promote black participation in the sector. In the absence of effectivemonitoring powers the RBZ has been unable to enforce standards, and many of

The construction industryis weak

The cement industry suffers

Poor supervision of banks

Zimbabwe 37


these banks are financially unsound. The first sign of this was in the economicdownturn in 1997, which had a serious impact on a number of the new banksthat previously benefited from quick access to lucrative state contracts, despitetheir low liquidity rates. In April 1998 the government revoked the licence ofUnited Merchant Bank. New banking regulations were introduced in 1998, butmore struggling financial institutions had to be bailed out by the RBZ. In late2000 Universal Merchant Bank was placed under state-appointed managementby the RBZ, and in early 2003 the First National Building Society was alsoplaced under RBZ curatorship.

The most recent crisis among locally owned banks came in early 2004, afternominal interest rates were raised sharply, temporarily, in late 2003. Since early2001 economic policy has resulted in highly negative real interest rates, leadingmany banks to become involved in speculative investments, most notably inproperty and the stockmarket, but also on the foreign-exchange market. Thecollapse of these markets as interest rates rose in late 2003 caused a majorliquidity crisis. During the last year ten financial institutions were placed underRBZ curatorship: Trust Bank (previously the largest bank by value of its assets,although many are illiquid); Intermarket Banking Corporation; IntermarketDiscount House; Intermarket Building Society; Barbican Bank; Rapid DiscountHouse; CFX Bank Ltd; CFX Merchant Bank; Royal Bank of Zimbabwe, and TimeBank of Zimbabwe. The government merged three banks into a single financialinstitution, Zimbabwe Allied Banking Group (ZABG), and reopened them to thepublic in January 2005. First National Building Society, Century Discount Houseand Rapid Discount House were put into liquidation. The RBZ also began intro-ducing stricter regulations in 2004, requiring higher minimum capital require-ments and that banks obtain international credit ratings. However, fears of abanking collapse have caused a flight to quality, with the main beneficiariesbeing the foreign-owned banks that have more cautious lending policies. Inparticular, UK-owned Standard Chartered Bank and Barclays Bank have bene-fited, as have banks that have links with South African banks. Standard Bank ofSouth Africa has a major presence in Zimbabwe through its Stanbic retail chain,Absa has a large minority stake in the Commercial Bank of Zimbabwe andNedcor has a similar stake in the Merchant Bank of Central Africa.

Banks under curatorship or put into liquidationUnder curatorship Under provisional liquidation1. Trust Bank Corporation Ltd 1. First National Building Society Ltd2. Royal Bank of Zimbabwe Ltd 2. Rapid Discount House Ltd3. Intermarket Discount House Ltd 3. Century Discount House

4. Intermarket Banking Corporation Ltd5. Intermarket Building Society Ltd

6. Barbican Bank Ltd7. Time Bank of Zimbabwe Ltd8. CFX Bank Ltd

Source: Reserve Bank of Zimbabwe, Quarterly Monetary Policy Statement, October 2004 and January 2005.

In 1993 the government allowed foreign investment in the Zimbabwe StockExchange (ZSE), boosting its performance. The economic downturn since late1997 caused a halving of the index between August 1997 and December 1998,

The stock exchange has beenon a rollercoaster ride

A major liquidity crisis hits thebanking sector in early 2004

38 Zimbabwe


from 12,000 to less than 6,000, with market capitalisation in both Zimbabwedollars and US dollars falling dramatically (from US$5.2bn to US$1.3bn). Despitethe economic collapse of recent years, for most of the time the stock exchangehas been on a major bull run. The industrial index rose steadily in 1999 and2000, to reach 17,988 by the end of 2000. With interest rates turning negative inearly 2001 and the growing difficulty of getting money out of the country,domestic investors had little choice but to invest in the stock exchange, and theZSE industrial share index rose to 46,352 by the end of 2001 and 103,495 by theend of 2002. However, this was just the start of a major speculative rally thatsaw the ZSE industrial share index reach 754,604 by the end of August 2003.The index then moved sideways for the subsequent few months, until interestrate increases in late 2003 and the emerging banking sector crisis caused it tocollapse, ending the year at 401,543. After initially falling further in 2004, themarket recovered steadily through the year, with the index at just over1,065,000 by the end of 2004. However, in early 2005 the stock soaredfollowing an announcement by Mr Gono that interest rates would be cut overthe year. Nevertheless, the stock market is highly volatile and remainsvulnerable to another collapse. Valuing the index has become increasinglydifficult in recent years given the numerous exchange rates in place and thedifficulty for foreign investors of buying and selling stocks. At the end of 2004,79 companies were listed on the ZSE, although it is still dominated by sevenlisted mining companies.

Other services

Domestic and South African chains dominate the retail sector. As a result ofimport-substitution policies these companies rely on domestic suppliers ofprocessed food, clothing, furniture and light consumer goods. The main SouthAfrican chains in Zimbabwe are Pick!n!Pay and OK Bazaars for food and Edgarsand Truworths for clothing; domestically owned chains include TM and BonMarché for food, and Meikles and Tedco for clothing and furniture. There hasbeen a movement of many retail shops from downtown Harare to suburbanshopping centres in recent years.

Until the current political and economic crisis Zimbabwe had a growingtourism industry. The government favours upmarket tourism, especially eco-tourism and safari holidays. There are a number of world-class hotels in thecountry, including the historic Victoria Falls Hotel. Meikles Hotel in Harare isregularly rated as one of the best in Africa. The total number of visitors to thecountry grew at an annual rate of almost 20% from 1990, when numbersreached about 636,000, to a peak of 2.7m in 1999. Numbers fell back to 2.4m in2000 but experienced a temporary boom in 2001 of up to 2.8m, largely due tothe arrival of visitors to witness the total solar eclipse in June. Since then, thenumber of tourists has halved to, 739,284 in 2002 and 1,089,256 in 2003.

The total figure includes many visitors from Zambia and Mozambique, whocome for short shopping trips; the proportion of high-spending tourists isestimated to be just one-third of the total. Anecdotal evidence indicates that thenumber of visitors from regional neighbouring countries has increased in recent

Retail

Tourism

Zimbabwe 39


years, with shoppers taking advantage of the overvalued exchange rate.According to the RBZ, earnings from tourism were US$201.6m in 1999, but fellto just US$32m in 2001 and US$11m in 2002, but showed modest recovery toUS$16m in 2003. Despite its current problems, the industry has the capacity torecover quickly, although this is unlikely unless the political crisis is resolved.

The external sector

Trade in goods

Zimbabwe!s merchandise exports are dominated by agricultural products(particularly tobacco, sugar, cotton and maize), minerals (mainly gold andnickel) and manufactured goods (ferro-alloys, steel and clothing). Imports areprimarily of machinery and transport equipment, manufactured goods,chemicals and fuels. Having peaked at nearly US$2.4bn in 1997, the value ofexports has fallen steadily, to an estimated US$1.4m in 2003, but the declinelooks to have bottomed out in 2004 owing to rising gold and platinum exports.The fall in foreign exchange, lack of access to external credit, the introduction ofhigher import duties and the collapse of the economy have subsequently led toa substantial import compression, with imports falling from US$2.7bn in 1997 toan estimated US$1.8bn in 2003. Distortions caused by the exchange rate haveled to substantial growth in the informal trade of products in and out of thecountry.

Zimbabwe has been a major beneficiary of the EU!s various trade regimes withthe African, Caribbean and Pacific (ACP) states"now formalised under theCotonou agreement (see Regional overview: Membership of organisations)"owing to the organisation!s beef and sugar quotas. Duty-free access to theEuropean market for Zimbabwe!s manufactured goods and horticulturalproducts has also proved beneficial. Zimbabwe has benefited from access to theUS market for sugar exports under the generalised system of preferences (GSP),but failed to qualify for duty-free access for many other products under theAfrican Growth and Opportunity Act (AGOA) owing to non-compliance withpolitical criteria.

Because of the deepening economic crisis in Zimbabwe, there has been a majordecline in the country!s trade with South Africa. There are also fears that thenew EU-South Africa free-trade agreement may hurt Zimbabwean exports tothe EU and divert investment into South Africa. Given the difficulty of agreeinga comprehensive new free-trade pact with South Africa to replace the 1964 free-trade agreement, in recent years Zimbabwe has concentrated on promoting afree-trade pact for the whole of the Southern African Development Community(SADC). This has been ratified by all the SADC parliaments, but will take up toa decade to come fully into effect.

Cotonou and SADC

Trade is contracting

40 Zimbabwe


Invisibles and the current account

Zimbabwe has suffered from periodic balance-of-payments crises, notably in1991 that led to a substantial devaluation of the currency. Balance-of-paymentsproblems re-emerged in the late 1990s, with the fall in exports since 1997 fasterthan the drop in imports. This led to the emergence of recurring trade deficits,which in turn drove increases in the current-account deficit. In 1997-98 thecurrent-account deficit averaged just over 5% of GDP. However, from 1999 thedrying-up of foreign exchange, compounded by the country!s lack of access toany foreign credit, has meant that imports have also contracted sharply, pushingthe current account back towards balance. According to Economist IntelligenceUnit estimates, based on our forecasts and those by the IMF and the Ministryof Finance and Economic Development, the country ran a small current-account surplus in 1999 and 2000. IMF figures indicate that it then moved intosubstantial deficit between 2001 and 2003, largely as the trade surplus swunginto deficit. We estimate that from 2004 the current-account deficit has shrunkowing to declining import levels.

In the late 1990s there was substantial growth in services credits as a result ofthe increase in tourism, helping to narrow the traditional deficit on the servicesaccount. Credits are thought to have fallen back sharply in 2000-04, in thewake of the political violence, and will take time to rebuild. Controls ondividend and profit payments were relaxed in 1993 and completely freed fornew investments. However, the outflow of blocked funds relating to pastdividends is still controlled, and with the current foreign-exchange shortages,there is a large backlog of current payments, which have almost dried up. Netprivate transfers remained relatively modest in the 1990s, but remittances toZimbabwe are estimated to have picked up substantially in recent years as thelarge number of Zimbabweans living in the US, UK and South Africa have sentmoney home to help support their families. A number of websites, whichallow goods to be bought in Zimbabwe but paid for overseas, appear to havehelped migrants to remit money outside official channels.

Capital flows and foreign debt

Until recent years Zimbabwe has received substantial amounts of foreign aid.However, total net overseas development assistance declined from a peak ofUS$793m in 1992 to just US$159m in 2001, and is likely to have fallen muchfurther since then, as many donors have suspended aid to all but civil societygroups and non-governmental organisations. New long-term and IMFdisbursements rose rapidly when economic reform began, but have since fallenback steadily as economic reform has stalled and the political climate hasdeteriorated. Since 2001 the Zimbabwe government has been in continuousarrears to the IMF, and by the end of 2003 Zimbabwe had overdue obligationswith the Fund of SDR187m (US$302m). In 2004 the Zimbabwe governmentresumed some repayments, prompting the IMF to delay the process of suspend-ing it from the Fund, but did not return to implementing an IMF-agreedeconomic reform programme. Donor support is unlikely to be forthcominguntil a resolution to the country!s political crisis is agreed and EU and US smart

The current-account deficitwidens

Aid is falling

Zimbabwe 41


sanctions are lifted. Once this has happened, substantial assistance will beawarded if a coherent and agreed economic programme, which includes acomprehensive and constructive approach to land reform, is drawn up.

Throughout the 1980s and early 1990s Zimbabwe received sustained inflows ofnew lending. As a result, the country!s external debt stock peaked at just overUS$5bn in 1995. However, since the late 1990s new debt inflows have fallensubstantially: total disbursements in 2002 were only US$25m, compared withmore than US$600m in 1998. With declining inflows and a good repaymentrecord until recently, Zimbabwe!s debt stock has fallen steadily over the years.From its peak in 1995 the stock stood at only US$3.7bn by the end of 2001,according to World Bank data, although it rose marginally, to US$4bn, by theend of 2002 owing to the weakness of the US dollar, which led to currencyrevaluations. External debt is overwhelmingly composed of medium- and long-term debt. There are concerns that government-guaranteed debt owed by theparastatals is higher than shown in the official data.

Although the external debt stock fell steadily in the second half of the 1990s,the growing economic crisis meant that by early 2001 the government and theprivate sector had not only defaulted on debt payments to the IMF and theWorld Bank, but also to most official bilateral creditors. According to the latestWorld Bank statistics, total external arrears reached US$967m at end-2002 andhave mounted steadily since. We estimate that they will have reached overUS$2bn by the end of 2004, which represents half of the outstanding debtstock. It is also not clear to what extent World Bank data include debt owed byparastatals, which have accumulated substantial arrears to both counterpartsand external suppliers, notably for the purchase of electricity and fuel, even ifthese have a government guarantee. The only way that the government will beable to clear its arrears will be through a comprehensive rescheduling deal,which will be possible only when relations have been restored with the EU, theUS and the IMF. Owing to its loss of access to international sources of credit inrecent years, the government has built up substantial domestic debt,predominantly in the form of 90-day Treasury bills. In many respects, thisdomestic debt is now of more concern than its external debt obligations.

From the early 1980s official policy encouraged foreign direct investment (FDI),but inflows were undermined by the government!s objective of increasing thedomestic share of the country!s capital base. Net FDI was thus usually negativeuntil the 1990s, mainly because of the active encouragement of South Africancapital divestment, usually at a substantial discount. With the establishment ofthe Zimbabwe Investment Centre (ZIC) in 1989, FDI was more vigorouslyencouraged, and FDI inflows picked up in the second half of the 1990s.

According to data published by the Reserve Bank of Zimbabwe (RBZ, theReserve Bank), FDI inflows peaked at US$444m in 1998, but then fell to justUS$4m in 2001. Inflows rebounded modestly, to US$26m in 2002, owing tonew investment in the platinum sector, and are then estimated to have pickedup more sharply, to US$95m in 2004, owing to the purchase of the mobile-phone company, Econet Wireless Group, by a South African firm, Allied

Arrears mount rapidly

Investment is falling

Declining debt

42 Zimbabwe


Technologies. Portfolio investment was permitted in 1993 and inflows built upquickly, to peak in 1997. Since 1997 inflows have fallen sharply, while outflowshave remained high; as a result, there were net outflows in 2000 and 2001.

Foreign reserves and the exchange rate

Total foreign-exchange reserves rose to US$599m (excluding gold) at end-1996,but dropped sharply, to US$160m, at end-1997 as the RBZ tried to halt the slide ofthe currency. Reserves fell further in 1998, to a year-end level of just US$131m,equivalent to about three weeks of import cover, but rebounded in 1999 as theIMF released some limited financial support, ending the year at US$268m. FromOctober of that year they began to fall again, to just US$64.7m at the end of2001, and fluctuated around that level in 2002, to end the year at US$83m (thelatest available data). The IMF disputes these figures and suspects thatsubstantial proportions of these reserves are held in illiquid assets, whichcannot be utilised at short notice. Usable reserves were valued at US$18m at theend of 2003, representing 0.1 months of imports of goods and services. Ineffect, Zimbabwe has virtually no foreign-exchange reserves. The newexchange-rate regime introduced in 2004 resulted in an increase in foreignexchange inflows. However chronic shortages of foreign-exchange persist andthe level of reserves has not increased given the ongoing shortages and highlevel of official demand for foreign exchange.

The Zimbabwe dollar has lost considerable ground against the US dollar sinceindependence, falling from Z$0.64:US$1 in 1980 to Z$21.41:US$1 in 1998, despiteexchange controls and currency restrictions remaining in place for much of thetime. Although the Zimbabwe dollar was floated in 1994, the economicproblems of the late 1990s led to a substantial fall in its value, notably inNovember 1997 when political and economic uncertainty prompted a run onthe dollar. It subsequently continued its downward trend, reaching Z$44:US$1in early 1999 as the economy slowed further. At this point the RBZ took action,effectively pegging the currency by persuading financial institutions to maintainthe rate at around Z$38:US$1. The government broke the peg with a 24%devaluation in early August 2000, introducing a new rate of Z$55:US$1 inOctober 2000. Against the background of the economic crisis and high inflationrates, these prolonged pegs have led to a huge erosion in the competitiveness ofZimbabwe!s exchange rate.

Faced with the threat of the widespread closure of many companies, but withthe president, Robert Mugabe, implacably opposed to devaluing the currency,the task of the finance minister and the Reserve Bank governor has been todevalue the currency without officially devaluing it. The first scheme wasintroduced in February 2002, when it was announced that an exchange rate ofZ$824:US$1 would apply to exporters but the official rate would remain atZ$55:US$1 to fund essential imports of food and fuel. The governmentreimposed foreign-exchange controls in November 2002 to try to capture agreater share of declining export earnings, with exporters having to give up ashare of their earnings at the official rate before being able to obtain currency atthe exporters! rate.

Reserves are precariously low

The currency has steadilyfallen in value

Devaluing without devaluing

Zimbabwe 43


A foreign-exchange auction for exporters was introduced in December 2003.Exporters are required to surrender 25% of their export earnings to the ReserveBank at the official rate of Z$824:US$1 (amended in July 2004 to zero percent ofearnings where funds are remitted within 30 days or 15% if funds are remittedbetween 31 and 90 days), and can use the rest to buy Zimbabwe dollars at aweekly auction, although 25% must be auctioned immediately and 50% after21 days. The first auction was on January 12th 2004, and the exchange rate wastrading at around Z$4,000:US$1 by late February and Z$5,600:US$1 by earlySeptember, remaining at around this level through to the end of the year.Although this represents a substantial devaluation compared with the old rate,the auction is being closely controlled and the real exchange rate remains over-valued. This new approach does allow the Reserve Bank governor, GideonGono, to claim that no devaluation has taken place and also allows the RBZ tohave some direct control over the market.

The official rate of Z$824:US$1 is still in existence for various prioritygovernment purchases such as food imports, and there are additional exchangerates, such as the reintroduced gold support schemes for gold and tobaccoexporters and a new minimum exchange rate for migrant remittances. Inaddition, the ongoing overvaluation of the official rate has led to the emergenceof a vibrant parallel market rate, which was trading at an average ofZ$6,600:US$1 in 2004. Although the government initially tolerated the parallelmarket from 2002, it announced the closure of all foreign-currency accountsand foreign-exchange bureaux in November 2002. This has pushed the parallelmarket underground, although complete closure would probably accelerate aneconomic collapse.

Exchange rates Z$:US$, 2004a

Average auction rate 4,303.3Homelink rate 5,200.0

Official rate 824.0Parallel rate 6,600.0

a Excludes special exchange rates for gold and tobacco exporters.

Source: Economist Intelligence Unit.

44 Zimbabwe


Regional overview

Membership of organisations

Based in Lusaka, Zambia, the Common Market for Eastern and Southern Africa(Comesa), is the successor organisation to the regional Preferential Trading Area(PTA), and came into force on December 8th 1994 with 12 members. Comesanow has 19 members: Angola, Burundi, Comoros, the Democratic Republic ofCongo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Madagascar, Malawi, Mauritius,Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia and Zimbabwe. TheComesa region has a total population of around 385m and an estimated GDPof US$170bn. Lesotho, Mozambique and Tanzania have all withdrawn fromComesa since 1997 to concentrate on their membership of the Southern AfricanDevelopment Community (SADC), while Namibia withdrew in July 2003,stating that its industries were too weak to compete with Comesa!s Free TradeArea (FTA). South Africa!s decision not to join Comesa makes SADCmembership more attractive to its main trading partners.

The original PTA, launched in 1981, aimed to liberalise trade and encourage co-operation in industry, agriculture, transport and communications. Comesa!sprincipal aims build on these ideals; its main goals are to eliminate thestructural and institutional weaknesses of member states and to promote thepolitical security and stability necessary for sustained development, bothindividually and collectively as a regional bloc. These aims are to be achievedthrough monetary union with a single currency and a common central bank.The creation of an FTA on October 31st 2000 was to be a major step towardsachieving them. By mid-2004 eleven of the 19 members had agreed toparticipate (Burundi, Djibouti, Egypt, Kenya, Madagascar, Malawi, Mauritius,Rwanda, Sudan, Zambia and Zimbabwe), with Swaziland being granted aderogation to participate on a non-reciprocal basis (in order to reciprocate,Swaziland would require the permission of other member states of theSouthern African Customs Union, to which it also belongs).

The eleven FTA members have removed all barriers to intra-regional trade,although they retain tariffs on imports from outside Comesa, and the Rwandangovernment has stated that it will only offer zero tariffs on goods produced byComesa countries participating in the FTA. To encourage other members to jointhe FTA, a fund was created in 2002 to compensate those countries facingrevenue loss, although the source and extent of this funding is not clear. Indeed,this fund does not appear to have been used when Burundi and Rwandajoined in early 2004, with both countries estimating large drops in customsrevenue as a result of participating.

The reluctance of most of the remaining eight member countries outside of theFTA to join, coupled with intense disagreements over a Common ExternalTariff (CET), is jeopardising any chance of the organisation meeting its objectiveof a customs union by December 2004. Senior members at the Comesasecretariat have reportedly acknowledged that the customs union will have to

Common Market for Easternand Southern Africa (Comesa)

Zimbabwe 45


be delayed into 2005 at least. The target of full monetary union by 2025remains, but seems similarly improbable.

Between 2001 and 2003 trade among Comesa FTA countries grew by 48%,compared with growth of 22% among Comesa countries as a whole. Intra-regional trade was valued at US$5.3bn in 2003. In 2002 intra-Comesa trade as aproportion of total trade ranged from 4.3% for the Seychelles to 18% for Kenya.Over the past 30 years the share of Comesa exports as a percentage of intra-regional exports has grown only slightly, from 9% in 1970 to 10.7% in 2002(although these figures do not capture the high level of illegal crossbordertrade). Reasons for the low level of intra-Comesa trade include a lack ofpolitical commitment and political stability in member countries, and weakbalance-of-payments and foreign-reserves positions. In some cases there arehardly any official trade links between member states. Egypt, Kenya, Ugandaand Zimbabwe accounted for 58.8% of the trade between members of Comesain 2002.

As industry and manufacturing are generally poorly developed, manymembers are unprepared to reduce tariffs further for fear of undermining localindustries (Tanzania!s main reason for leaving) and fiscal revenue collection. Afurther constraint has been the strict and cumbersome rules of origin, whichare open to conflicting interpretations, and there have been some instances ofmember countries refusing to honour the relevant certificate of origin presentedwith Comesa imports. In addition to these impediments, progress towards freetrade is hampered by political tensions between member states.

Regional free-trade areas like Comesa!s FTA aim to increase intra-regionalcommerce, leading to higher economic growth rates, but they attract criticismfrom many who feel that this cannot be achieved while supply-sideconstraints"such as poor infrastructure, inefficient transport links, loweducation and skills levels, and cumbersome bureaucracy"remain. Comesa hasconcentrated on trade integration, but the lack of uniformity in investmentcodes and regulatory arrangements has been an impediment to crossbordertrade and investment. The commitment to Comesa of many of its members isweak and meetings are frequently cancelled. Moreover, attempts at promotingcrossborder investment and monetary harmonisation have been superseded byinitiatives introduced by the East African Community and SADC.

Under the old PTA system, a multilateral clearing facility was established and aPTA unit of account (UAPTA), equivalent to the IMF!s SDR, was used to settledebts between members, the balance being payable in US dollars. In 1997 theUAPTA was replaced by the Comesa dollar, which is pegged to the US dollar. AComesa court was officially opened in March 2001, although it had beenestablished three years earlier. In theory, the court, which aims to be anindependent arbitrator in trade-related disputes, has jurisdiction over nationalcourts, but in practice it does not have the powers to enforce its rulings and hasbeen hamstrung by a lack of finance. Comesa also set up the African TradeInsurance Agency (ATI) in 2001. Financed by a US$5m start-up loan from theWorld Bank, the ATI aims to provide political risk cover for investors in allmember countries. In November 2002 Comesa, along with other Eastern andSouthern African regional integration organisations, established the Inter-

46 Zimbabwe


regional Co-ordinating Committee (IRCC) to promote regional economicintegration and the integrated management of natural resources, transport andcommunications.

A new, 20-year, convention was signed in June 2000 in Cotonou, Benin,offering a group of 77 African, Caribbean and Pacific (ACP) countriespreferential trade and aid links with the EU. The Cotonou Convention replacedLomé IV, a convention that was signed in 1989 and replaced previousagreements signed in 1975, 1979 and 1984. Although similar to the Loméconventions, the new convention has a stronger political dimension. Respect forhuman rights, democratic principles and the rule of law were essentialcomponents of Lomé IV. Under the Cotonou agreement, the ACP countrieshave also agreed to promote good governance, combat corruption and try toprevent illegal immigration into the EU. A revision of the Cotonou Conventionis made possible every five years by a special clause. Negotiations between theACP countries and the EU for the review and adaptation of the accord shouldstart in autumn 2004 and be completed in February 2005.

Under previous conventions, ACP products, whether agricultural or industrial,entered the EU duty-free, although four agricultural products"beef, sugar,bananas and rum"were subject to a more restrictive system of tariff quotas.Because the type of trade agreement established by the Cotonou Conventiondoes not comply with the rules of the World Trade Organisation (WTO), thenew agreement offers a negotiating framework for tailor-made regional free-trade agreements known as Economic Partnership Agreements (EPAs), underwhich ACP countries, preferably within existing economic groupings, willgradually open their domestic markets to European products. Given theadjustment costs involved, a preparatory period of eight years (2000-2008) hasbeen agreed, during which the old system of preferences will continue to apply.However, under existing global trading rules, the 33 African countries classifiedas least developed countries will still have the option of entering the EU!sgeneralised system of preferences (GSP). Unlike the Lomé Convention, the GSP,which benefits all developing countries, complies with the rules of the WTObecause it is based on the twin principles of non-reciprocity and non-discrimination. In September 2003 the ACP countries and the WTO signed anagreement at the Cancun trade round, whereby the WTO will provide trainingand technical assistance to ACP countries as a form of mutual co-operation.

The European Development Fund (EDF) will remain the main source ofmultilateral European aid to the ACP countries. Under the new convention,EDF instruments have been regrouped and rationalised into two programmes:one to provide grants for long-term development schemes being carried outeither at the national or the regional level, with additional support available inthe event of a fall in export earnings, and the other to finance risk capital andloans to the private sector. The ninth EDF will total $13.5bn (US$12.9bn). Inaddition, about $10bn left undisbursed from previous programmes will remainavailable until 2007, and the European Investment Bank will provide $1.7bn.The financial protocols are concluded for a period of five years, with the ninthEDF running from 2000 to 2005. The Cotonou Convention finally entered intoforce in April 2003 with all 15 EU members and 76 ACP nations (not Somalia)

Cotonou Convention

Zimbabwe 47


ratifying the treaty. A month later the ACP representatives signed the BrusselsDeclaration, which calls for the timely and effective implementation of EDFfunds. This represents a commitment towards the efficient disbursement of EDFresources for the benefit of ACP countries. In June 2004, at the 4th Summit ofACP Heads of State, the ACP Council of Ministers was mandated to ensure theeffective co-ordination and coherence of EPA negotiations within the ACP andbetween various ACP regions, as well as with the WTO negotiations, so as toensure unity.

In August 1992 Angola, Botswana, Lesotho, Malawi, Mozambique, Namibia,Swaziland, Tanzania, Zambia and Zimbabwe signed a treaty establishing theSouthern African Development Community (SADC). It replaced the SouthernAfrican Development Co-ordination Conference (SADCC), which was formedin 1980 by the Southern African states in a largely unsuccessful attempt toreduce the region!s economic dependence on white-ruled South Africa.Namibia joined the SADCC shortly after independence in 1990; South Africabecame a member of SADC in 1994; Mauritius joined in 1995; the DemocraticRepublic of Congo (DRC, formerly Zaire) in 1997; and in August 2004Madagascar was awarded "candidate member status" for a year, which shouldpave the way to full membership. Although Seychelles joined in 1997, itwithdrew from SADC in 2003 to cut costs and because it had difficultyadhering to all of the organisation!s protocols.

SADC inherited the SADCC!s secretariat, based in Gaborone, Botswana, andinitially continued with allocating responsibilities for promoting developmentin different sectors of the economy to member states. However, since 2000 theorganisation has been going through a major restructuring process, which aimsto give it more focus and enhance its capacity to deliver on its policies. Thisinvolves the creation of four directorates within the SADC secretariat (trade,industry, finance and investment; food, agriculture and natural resources;infrastructure and services; and social and human development and specialprogrammes) and an integrated committee of ministers comprising at least twoministers from each member state. There are also proposals to increase theresources available for the organisation, which has traditionally been poorlyfunded. The restructuring is already over schedule and may not be completeduntil early 2006.

The admission of South Africa into SADC in August 1994 had a profound effecton the organisation. In mid-1994, before South Africa joined, only 4% ofmembers! trade was within the community, but this figure has now risen toaround 25%, with most of the countries being major trading partners withSouth Africa, although not with each other. There has also been a wave ofSouth African investment into many of the countries. After several years ofnegotiation, on September 1st 2000 the SADC trade protocol came into effect,having been ratified by all member states. This aims to achieve a Free TradeArea by 2008, when substantially all trade will be duty free. However, progresswill depend on the speed at which member governments dismantle theirexisting barriers to trade, with the SADC likely to be increasingly divided intothose countries making progress, such as South Africa and the countries in itsimmediate economic orbit, and those that are laggards, such as Angola.

Southern AfricanDevelopment Community

(SADC)

48 Zimbabwe


Under World Trade Organisation rules, the Cotonou Convention, whichprovides preferential trade access to African, Caribbean and Pacific (ACP) statesinto the EU market will not be renewed. This means that all SADC memberstates will have to decide whether SADC as a region should have a free-tradeagreement with the EU or whether its members should negotiate individualfree-trade agreements. At present, some members of SADC (Angola, Botswana,Lesotho, Namibia, Swaziland and Tanzania) and the EU have agreed tonegotiate an Economic Partnership Agreement during 2005-07. The EU andSouth Africa concluded their own free-trade agreement, which came into effectin January 2000, and the Southern African Customs Union (SACU) countriesare in preliminary negotiations with the US to draw up a free-trade deal.Although there are long-term plans for a regional development bank, acommon currency and a regional parliament, increased co-operation is morelikely in specific sectors, particularly within the energy sector. There are plansfor member countries to link their power grids, and considerable progress hasbeen made on this.

According to the SADC protocol, member states are bound to help to defendexisting governments from foreign invasion and internal insurgency. Animportant part of this is supposed to be the establishment of a regional rapid-deployment peacekeeping force, which was voted for in 1994 but at presentonly exists in an embryonic form as a "stand-by force". In the past, when SADChas tried to resolve domestic political crises in its own region, it has createdtensions. Despite South African opposition, several states sent troops to theDRC to support the government of the former president, Laurent Kabila,although the moves towards peace in the DRC since December 2002 and thesubsequent withdrawal of the troops have eased tensions. In contrast, SouthAfrica was keen for SADC to intervene in Lesotho in September 1998 to preventa coup, leaving South Africa open to criticism for its inconsistent regional policy.

SADC has also been divided on how to deal with the worsening political andeconomic situation in Zimbabwe in recent years, despite the obvious damagethat the situation in Zimbabwe had done to the reputation of the region.However, there was a positive step forward in August 2004, when all SADCmember states signed the Principles and Guidelines Governing DemocraticElections. The first real test of commitment to these is due in March 2005, whenZimbabwe holds parliamentary elections. If Zimbabwe breaches the guidelines,which is distinctly possible, SADC will have to decide whether it will suspendits membership or reach a compromise agreement and use the threat ofsuspension to push for genuine political change in the country.

The African Union (AU) is the successor to the Organisation of African Unity(OAU) and is based in the Ethiopian capital, Addis Ababa. The AU was formallylaunched in July 2002 at a meeting of African heads of state in the SouthAfrican city of Durban. This came two years after the AU!s formation was firstagreed in Togo in July 2000 and followed a one-year transitional period thatbegan after the ratification of the constitutive act of the AU by two-thirds of themember states in May 2001. The AU is modelled on the EU and has ambitiousplans for a parliament, a central bank, a single currency, a court of justice and

African Union (AU)

Zimbabwe 49


an investment bank. The most advanced of these is for a Pan-AfricanParliament, which held its first session in South Africa in October, although itwill not play a legislative role for five years. The president is currently GertrudeMongella from Tanzania. The AU also aims to have common defence, foreignand communications policies, based loosely on those of the EU. Even if thesegoals are not fulfilled, the organisation fills the need for a forum for discussingthe continent!s problems and the idea of pan-African unity exerts a strong holdover member countries. In practical terms, the most high-profile AU event is theannual conference of heads of state, which is hosted by the member state thatis due to hold the chairmanship of the organisation for the following year. Theday-to-day affairs of the AU are managed by the AU commission, which ismodelled on the EU commission and was endorsed by the AU heads of statesummit in July 2003. The commission is headed by the former Malianpresident, Alpha Konaré, aided by a deputy, Patrick Mazimhaka of Rwanda,both of whom were elected at the summit. There are also seven appointed AUcommissioners.

One of the main problems facing the AU is that many of the proposed newinstitutions and policy co-ordination mechanisms are costly and cannot befunded within the AU!s current resource allocations. To help to counter this, atthe July 2004 Annual Summit Mr Konaré presented a 2004-07 StrategicFramework aimed at launching Africa into the 21st century. Under this, memberstates are supposed to pledge 0.5% of GDP to fund the AU, which will allow itto double the staff at its headquarters and to push ahead with theimplementation of the New Partnership for Africa!s Development (Nepad). Thisis a potential bone of contention with the South African government, which iskeen for Nepad to remain in its South African headquarters. However, to date,many members still fail to pay their membership dues so further commitments,other than from external donors, are unlikely. In December 2003 donors andexternal lenders expressed their full support for the AU!s initiatives and thecreation of new institutions.

The main criticism levelled at the OAU in the last decade was that little realaction resulted from its policy announcements. There are concerns that the AU,like its predecessor, will be undermined by a lack of real commitment to itsinitiatives amongst the 53 member states, many of which suffer from very weakgovernance. This problem is further compounded by the fact that manymember states are unlikely to give up the sovereignty required to make severalof the proposed initiatives"such as a single currency or a court of justice"operate effectively.

The AU will also battle to overcome opposition to the principle of non-interference, which has been a major hindrance to the resolution of conflicts onthe continent and is a contentious issue among member governments.Although non-interference was enshrined in the old OAU, this is not the casewith the AU, which has set up a Peace and Security Council (PSC; to replace theOAU!s Mechanism for Conflict Prevention, Management and Resolution)modelled on the UN Security Council. It is envisaged that the PSC will sanctionmilitary intervention in member states in cases of genocide, unconstitutionalchanges of government and gross human rights abuse. The proposed military

50 Zimbabwe


intervention by the AU is to be through a standing armed force, which isprojected to comprise five battalions by 2010 and has already received somefunding from both the EU and the US. Even without the establishment of thePSC, since May 2003 the AU has had an observer mission in Burundi, led bySouth Africa and including troops from Mozambique and Ethiopia, to helpenforce a peace agreement in Burundi!s civil war. An AU observer mission wasalso sent to the Darfur region of Sudan in July 2004, and a protection force isbeing deployed. If this is increased, to become a real peacekeeping force, itcould prove to be the first real test of the AU!s commitment to intervening inmember countries! domestic affairs.

Zimbabwe 51


Appendices

Sources of information

Owing to the economic and political situation in Zimbabwe, there has been asubstantial deterioration in the timeliness of data in recent years, whilequestions over their accuracy have increased. The Central Statistical Office (CSO)has experienced increasing difficulty in retaining trained statisticians and hasalso encountered problems in operating new computer systems. Most of thelisted CSO publications have become irregular and some, in particular theStatement of External Trade, have not been published for many years. Trade datahas become especially problematic since October 2001, given the unrealisticofficial exchange rate and the extent of divergence between the official rate andthe parallel market rate. Only the Quarterly Digest of Statistics has any aspirationsto regularity, although it is usually extremely late and contains frequent revisionsto earlier data. With the assistance of the World Bank, the CSO has producednew national accounts data up to 1997, incorporating the informal sector. TheReserve Bank of Zimbabwe (RBZ, the central bank) has a much better record,although its non-financial data are dependent on the CSO. Some governmentdata are reported to the World Bank and the IMF, whose reports frequentlyprovide such information much earlier than official domestic publications.

Central Statistical Office, National Accounts 1985-98, Harare, 2000

Central Statistical Office, Stats-Flash (monthly), Harare

Central Statistical Office, Quarterly Digest of Statistics, Harare

Central Statistical Office, Zimbabwe Facts and Figures, 1999, Harare

Government of Zimbabwe, Budget Statement and Budget Estimates (annual),Harare

Government of Zimbabwe, Zimprest (Zimbabwe Programme for Economic andSocial Transformation 1996-2000), Harare, 1998

Reserve Bank of Zimbabwe, Monthly Review (formerly Monthly Bulletin), Harare

Reserve Bank of Zimbabwe, Quarterly Economic and Statistical Review, Harare

Reserve Bank of Zimbabwe, Weekly Economic Highlights, Harare

IMF, International Financial Statistics (monthly), Washington, DC

IMF, Zimbabwe: Statistical Appendix, Washington, DC, September 2004

International Financial Corporation, Emerging Stock Markets Factbook,Washington, DC, 2000

OECD, Geographical Distribution of Financial Flows to Aid Recipients (annual),Paris

World Bank, Global Development Finance (annual), Washington, DC

World Bank, World Development Indicators (annual), Washington, DC

National statistical sources

International statistical sources

52 Zimbabwe


World Bank, Zimbabwe: Achieving Shared Growth, Washington, DC, 1995

Economist Intelligence Unit, Zimbabwe's First Five Years, London, 1981

Economist Intelligence Unit, Zimbabwe to 1996; at the Heart of a Growing Region,London, 1992

Europa Publications, Africa South of the Sahara (annual), London

First Merchant Bank of Zimbabwe, Quarterly Guide to the Economy, Harare

Zimbabwe Congress of Trade Unions, Beyond ESAP, Harare, 1996

Zimbabwe Independent (weekly), Harare

Africa Online, www.africanews.org

Financial Gazette, www.fingaz.co.zw

Reserve Bank of Zimbabwe, www.rbz.co.zw

Government of Zimbabwe homepage, www.gta.gov.zw

Mail & Guardian, www.web.co.za/mg/africa-archive/zim

MDC homepage, www.in2zw.com/mdc/home.htm

ZANU-PF homepage, www.zanupf.gov.zw

Zimbabwe Independent, www1.samara.co.zw/zimin

Reference tablesPopulation

1999 2000 2001 2002 2003Population (m)a 12.51 12.65 12.76 12.84 12.89

% change, year on year 1.3 1.1 0.9 0.6 0.4

a Preliminary estimates of the 2002 census put the figure at 11.6m�about 1.5m below earlierprojections�reflecting a combination of the HIV/AIDS pandemic, emigration, and over-countingrelated to manipulation of the electoral rolls.

Source: IMF, International Financial Statistics.

Select bibliography andwebsites

Zimbabwe 53


Transport statistics(year ending June 30th unless otherwise indicated)

1996/97 1997/98 1998/99 1999/2000 2000/01National Railways of Zimbabwe (Z$ m)Operating revenue 1,672 2,198 4,535 5,540 7,845Operating expenditure -1,204 -3,412 -3,271 -4,382 -7,051Balancea 468 -830 1,263 1,790 346Passengers carried ('000) 1,461 1,847 1,896 1,614 1,334Freight volume ('000 imperial tons) 20,163 12,421 12,028 9,422 8,843Air Zimbabweb

Passengers carried ('000) 602 526 461 409c n/a

a Figures as given in source. b Calendar years, starting with 1997; Zimbabwe has eight airports, of which Harare, Bulawayo and Victoria Falls areclassed as international. c To end-September only; estimate for year, 423,000.

Source: Central Statistical Office, Quarterly Digest of Statistics.

National energy statistics1997 1998 1999 2000 2001

Coal ('000 imperial tons)Production 5,301 5,467 4,977 3,986 4,511Exports 630 564 464 245 209 Coal 46 43 33 24 41a

Coke 584 521 431 221 168Imports (incl coke)b 16 48 81 225 169Electricity (m kwh)Production 7,055 6,582 7,090 7,016 7,926 Thermal 5,012 4,649 4,140 3,740 4,545 Hydroc 2,044 1,926 2,950 3,276 3,381Imports 4,533 5,042 5,314 5,154 4,185Total consumption 11,746 11,620 12,408 12,173 12,454

a January-October. b Z$ m. c From Kariba south bank.


Budget expenditure(Z$ bn)

1999 2000 2001 2002 2003Constitutional & statutory appropriations 26.1 74.2 52.1 66.3 146.0Education & culture 13.5 25.6 36.0 58.0 270.1

Defence 10.1 15.4 15.8 37.3 148.8Health & child welfare 1.2 2.0 2.6 10.1 26.8

Lands & agriculture 1.6 2.8 5.1 29.0 125.8Transport & communications 2.0 1.8 2.3 5.8 34.5

Total 79.8 175.1 169.9 343.7 1,284.4

Sources: Zimbabwe authorities; IMF staff estimates.

54 Zimbabwe


Money supply(Z$ bn; % change year on year in brackets; year-end)

1999 2000 2001 2002 2003Currency in circulation 7.26 9.94 25.64 79.66 441.7Demand deposits 27.80 44.17 106.00 275.40 1,636.45

M1 35.70 54.40 132.09 356.64 2,086.70(34.7) (53.3) (142.8) (170.0) (485.1)

M2 46.99 79.37 181.33 528.97 2,803.80(35.9) (68.9) (128.5) (191.7) (430.0)

Source: IMF, International Financial Statistics.

Gross domestic product(factor cost)

1996 1997 1998 1999 2000Total (Z$ m)At current prices 76,008 90,006 124,540 196,192 281,701At constant 1990 prices 22,835 23,174 23,646 22,021 20,957 % change, year on year 10.4 1.5 2.0 -6.9 -4.8Per headAt current prices (Z$) 7,118 8,303 10,700 15,835 22,304 US$ 743 524 471 443 430At constant 1990 prices (Z$) 2,103 2,065 2,017 1,876 1,697 % change, year on year 5.2 -1.8 -2.3 -7.0 -9.5

Sources: Central Statistical Office; Economist Intelligence Unit.

Gross national product by expenditure(Z$ m; at constant 1990 prices unless otherwise indicated)

1996 1997 1998 1999 2000Final consumption 17,645 18,651 17,899 17,780 17,043 Private consumptiona 13,267 15,136 14,194 14,289 14,125 Public consumption 4,160 3,310 3,509 3,296 2,753Gross capital formationb 3,454 3,634 3,532 3,590 2,793

Domestic expenditure 21,100 22,285 24,431 21,370 19,836Net exports of goods & services 37 -1,706 -458 -130 -207Statistical discrepancy 4,044 5,279 5,628 5,175 3,246

GDP at market prices 25,181 25,857 26,602 26,415 22,876Net primary income from abroad -902 4,185 -1,690 -1,909 -1,117

Gross national income 24,279 24,204 24,911 24,507 21,759

a Including private non-profit bodies. b Including change in stocks.

Source: Central Statistical Office.

Zimbabwe 55


Gross domestic product by sectora

(Z$ m unless otherwise indicated; at constant 1990 prices)

1998 1999 2000 2001b 2002b

Agriculture, hunting & fishing 3,946 4,043 4,208 3,699 2,885Mining & quarrying 1,015 962 884 838 925

Manufacturing 4,717 4,509 3,988 3,629 3,056Electricity & water 447 481 481 476 462

Construction 669 595 506 453 408Finance & insurance 1,818 1,750 1,769 1,742 1,725

Real estate 683 718 752 801 829Distribution, hotels & restaurants 4,069 3,988 3,869 3,656 3,089Transport & communications 1,947 1,919 1,909 1,861 1,768

Public administration 852 811 761 712 655Education 1,722 1,585 1,642 1,560 1,482

Health 313 317 224 179 167Domestic services 352 330 329 325 315Other services 1,101 1,183 1,158 1,141 1,129

Imputed bank service charges -1,014 -1,170 -1,523 -1,956 -2,278GDP at factor cost 22,638 22,021 20,957 19,176 16,702

a In the IMF's Zimbabwe: Statistical Appendix of September 2004, data for 2003 is provided only as percentage changes. b IMF estimates.

Source: Central Statistical Office.

Employment and earnings1998 1999 2000 2001 2002

Employment ('000; annual averages)Agriculture & forestry 345 338 325 290 221Manufacturing 208 201 181 179 171Other sectors 795 778 728 714 722Total 1,348 1,317 1,234 1,183 1,114

a No survey data have been reported since June 2001. Figure are averages of March and June 2001 quarterly digests.


Prices and interest rates(% av unless otherwise indicated)

1999 2000 2001 2002 2003Consumer price index (1995=100)a 301.3 469.6 807.5 1,883.1 8,757.1 % change, year on year 58.5 55.9 71.9 133.2 365.0Reserve Bank rate (end period)b 74.4 57.8 57.2 29.7 300.0

Treasury bills (90 days) 50.5 64.8 17.6 28.5 52.7Lending rate 55.4 68.2 38.0 36.5 97.3

Deposit rate 38.5 50.2 14.0 18.4 35.9

a Net of sales tax and excise duty. b Rediscount rate before December 1998.

Sources: IMF, International Financial Statistics; Economist Intelligence Unit.

56 Zimbabwe


Crop salesa

1996/97 1997/98 1998/99 1999/2000 2000/01Total crop sales (Z$ m) 9,936 9,290 13,862 24,789 33,865 Tobacco (flue-cured) 5,849 4,976 7,501 12,726 18,769 Sugar 1,403 2,026 3,125 4,248 6,927 Cotton 1,707 1,700 2,034 4,361 5,618 Maize 707 339 640 1,686 2,090 Groundnuts 3 90 12 16 53Volume ('000 imperial tonnes)Maize 932 301 279 445 388Cotton 297 313 286 272 354Tobacco (flue-cured) 202 187 216 192 224Groundnuts 1 26 2 2 6

a Sales to, and via, marketing authorities; crop years April-March.

Sources: Central Statistical Office, Quarterly Digest of Statistics; Stats-Flash; industry publications.

Livestock slaughtering and milk production1999 2000 2001 2002 2003

Value (Z$ m)Cattle 3,714 5,835 6,204 10,035 48,419Milk 1,248 1,852 2,905 6,902 9,029Pigs 463 653 1,193 2,966 14,839

VolumeMilk (whole-milk tonnes, '000) 158 145 136 117 82Cattle ('000) 347 382 347 329 208Pigs ('000) 199 219 201 177 114


Mineral production1997 1998 1999 2000 2001

Value (Z$ m)Gold 3,068 5,582 9,229 8,521 4,186a

Nickel 753 1,051 1,993 2,179 449a

Asbestos 751 1,031 1,467 2,776 2,422Coalb 911 1,189 1,793 2,690 4,548Chrome ore 264 269 489 778 1,511Platinum 45 745 68 350 181a

Volume ('000 imperial tonnes unless otherwise indicated)Gold ('000 oz) 777 809 872 708 297a

Nickel 10 10 10 6 3a

Asbestos 145 123 88 152 119Coal 5,301 5,467 4,977 3,986 4,511Chrome ore 670 605 654 668 723Platinum (kg) 345 2,685 390 504 183c

Total output (1990=100) 111 120 112 104 93

a January-June. b Value of sales not production. c January-April.


Zimbabwe 57


Manufacturing production1999 2000 2001 2002 2003

Volume (1990=100)a

Foodstuffs & stockfeed 84.2 73.4 73.7 65.2 48.5Drink & tobacco 96.2 114.0 95.1 61.8 62Textiles incl ginning 87.3 72.8 69.0 49.4 32.0Clothing & footwear 125.7 120.8 123.0 108.4 104.4Chemical & petroleum products 107.4 75.9 75.2 79.1 68.0Metals & metal products 82.8 82.9 73.6 65.8 65.4Transport equipment 69.2 52.0 43.7 41.2 38.6Overall index 99.9 93.3 86.9 72.6 64.0


Construction statistics(Z$ m unless otherwise indicated)

1996 1997 1998 1999 2000Building plans approveda 1,416 1,634 1,911 2,908 3,630 Industrial 76 103 163 118 127 Commercial 182 275 257 236 358 Residential 1,045 1,199 1,399 2,283 2,927 Othersb 112 57 92 271 219Low-cost houses (no.)c 2,349 3,331 2,026 1,886 1,250High-cost houses (no.)c 2,203 1,995 1,704 2,433 3,289

a Data after 2000 are available only for total building plans approved, which peaked at 8,592 in2002 and fell to 1,053 in 2003. b Mainly halls, schools and hospitals. c For all municipal areas.


Stock-exchange indicators(end-period)

1999 2000 2001 2002 2003Market capitalisation (Z$ m) 95,421 134,024 442,063 866,800 4,099,773Market capitalisation (US$ m) 2,514 2,432 7,972 15,632 4,975Share turnover (volume; 1976=100) 6,418 8,272 23,598 19,884 n/aIndustrial share index (1967=100) 14,427 17,988 46,352 103,495 401,543

Mining share index (1967=100) 1,396 1,598 2,435 6,526 n/aPrice/earnings ratio 12.5 12.2 14.6 9.4 5.5

No. of listed companies 70 69 72 76 81

Sources: Reserve Bank of Zimbabwe, Monthly Review; International Finance Corporation, Emerging Stock Markets Review, February 2003.

Foreign visitors1997 1998 1999 2000 2001

Total 1,549,460 2,401,570 2,720,815 2,420,323 2,763,069 Touristsa 1,075,573 1,828,067 1,762,712 1,614,187 1,781,386

a The remainder are in transit, on business or in education.


58 Zimbabwe


Foreign trade(US$ m)

1999 2000 2001a 2002a 2003b

Exports fobTobacco 612.0 548.7 594.3 434.7 321.0Gold 229.7 216.4 225.8 159.5 137.4Horticulture 82.6 125.4 118.9 126.6 117.9Ferro-alloys 152.1 154.8 81.8 106.8 105.2Nickel 48.1 77.9 35.2 31.8 78.3Platinum 3.5 11.4 17.5 14.5 68.2Sugar 51.5 96.4 70.0 64.2 54.9Cotton lint 111.9 156.0 81.9 53.2 50.2Asbestos 35.6 61.1 60.0 39.3 42.4Textiles, clothing & footwear 59.3 79.3 20.2 17.7 17.0Total incl others 1,924.5 2,200.5 1,575.2 1,397.9 1,225.4Imports cifMachinery & transport equipment 600 493 424 377 342Chemicals 289 311 408 363 329Food 82 62 68 337 281Fuels & electricity 223 372 335 352 227Other manufactured goods 298 324 273 243 220Crude materials 58 125 98 87 79Tobacco and beverages 26 61 44 39 36Total incl others 1,675 1,907 1,792 1,923 1,627

a Estimates for both imports; exports are actual. b Estimates for both imports and exports.

Source: Central Statistical Office, Quarterly Digest of Statistics; IMF, staff estimates.

Main trading partners(US$ m)

1999 2000 2001 2002 2003Exports fobChina 103 94 105 145 152South Africa 219 274 127 138 175Germany 150 142 157 130 143UK 182 160 171 116 86Japan 135 133 122 113 123Netherlands 66 60 26 106 105Italy 74 64 42 49 54Total incl others 1,888 3,279 2,281 2,437 2,752Imports cifSouth Africa 780 630 733 796 965Democratic Republic of Congo 0 7 87 95 115Mozambique 12 39 82 89 48Germany 113 48 60 51 55UK 142 72 57 51 48US 92 98 44 49 42Botswana 41 48 52 33 40Total incl others 1,933 1,646 1,581 1,735 1,888

Source: IMF, Direction of Trade Statistics.

Zimbabwe 59


Balance of payments, IMF dataa

(US$ m)

1999 2000 2001 2002 2003 (est)Goods: exports fob 1,924 2,200 1,575 1,398 1,225Goods: imports fob -1,675 -1907 -1,792 -1,923 -1,627

Trade balance 249 293 -217 -525 -402Non-factor services -2 -164 -198 -203 -250

Net investment income -355 -358 -331 -274 -278Private transfers (net) 155 191 249 398 508

Capital-account balance 143 -227 -396 -304 -256 Official transfers (net) 101 53 40 35 35Net errors & omissions -227 130 620 269 103

Overall balance -37 -136 -273 -639 -574

a The IMF's International Financial Statistics gives data to 1994 only; these data do not conform with the format outlined in the IMF's Balance ofPayments Manual V.

Source: IMF, Zimbabwe: Statistical Appendix, September 2004.

Balance of payments, national dataa

(US$ m)

1997 1998 1999 2000b 2001b

Trade balance -230 -95 249 262 344Current-account balanceExcl official transfers -827 -355 29 -114 23Incl official transfers -65 74 189 -298 -424Net errors & omissions 151 -17 -217 232 0

Overall balance -740 -298 0 -171 -406Foreign reservesZ$ m 5,061 11,061 18,230 15,584 12,658US$ m 272 296 478 283 230Import cover (months) 0.8 1.2 2.2 1.4 1.3

a Data have become very unreliable and lacking in detail; breakdown of trade balance unavailable. b Estimates.

Source: Reserve Bank of Zimbabwe, Annual Report 2001.

60 Zimbabwe


External debt, World Bank series(US$ m unless otherwise indicated; debt stock as at year-end)

1998 1999 2000 2001 2002Public medium- & long-terma 3,294 3,085 2,855 2,760 3,123Private medium- & long-term 200 240 210 175 146

Total medium- & long-term debt 3,494 3,325 3,065 2,936 3,269 Official creditors 2,876 2,720 2,527 2,441 2,756 Bilateral 1,162 1,096 1,042 1,016 1,187 Multilateral 1,715 1,624 1,485 1,425 1,569 Private creditors 418 365 328 320 367

Short-term debt 768 746 565 528 517 Interest arrears 0 0 52 156 287Use of IMF credit 407 369 281 262 280

Total external debt 4,669 4,440 3,911 3,726 4,066Principal repayments 763 454 292 72 33

Interest payments 218 193 160 51 25 Short-term debt 43 41 42 16 6Total debt service 981 647 452 123 58

Ratios (%)Total external debt/GDP 87.4 86.2 56.2 42.3 n/aDebt-service ratio, paidb 38.2 27.3 22.1 6.8 n/a

a Long-term debt is defined as having original maturity of more than one year. b Debt service as a percentage of earnings from exports of goodsand services.

Source: World Bank, Global Development Finance, 2004.

Net official development assistance (ODA)a

(US$ m)

1998 1999 2000 2001 2002Bilateral 216 219 193 149 178 Japan 27 78 62 29 24 Netherlands 28 13 11 24 22 UK 37 26 20 18 29 US 24 20 13 16 47 Germany 16 9 13 10 10 Sweden 20 19 15 8 8

Multilateral 46 59 -14 19 23Total 262 279 178 164 201 Grants 252 226 190 165 202

a Disbursements minus repayments. ODA is defined as grants and loans with at least a 25% grantelement, administered with the aim of promoting development and welfare in the recipientcountry. IMF loans, other than Trust Fund facilities, are excluded.

Source: OECD Development Assistance Committee, Geographical Distribution of Financial Flows to Aid Recipients, 2004.

Zimbabwe 61


Foreign reserves(US$ m unless otherwise indicated; end-period)

1999 2000 2001 2002 2003Foreign exchange 268.0 193.1 64.7 83.4 85.0Gold 105.0 45.0 55.0 37.0 23.0

Total reserves incl golda 479.0 283.0 176.0 165.0 131.0Gold (m fine troy oz) 0.7 0.5 0.2 0.1 0.1

a Official reserves include pledged and illiquid assets.

Source: Reserve Bank of Zimbabwe.

Exchange rates(Z$ per unit of currency; annual averages)

2000 2001 2002 2003 2004US$ 43.29 54.95 54.95 727.88 4,303.3

£ 65.63 79.13 82.50 1,189.65 7,875.0� 39.88 49.17 51.72 840.51 5,336.1

South African rand 6.24 6.38 5.21 96.22 666.2SDR 71.94 68.97 74.63 1,018.16 6,368.9¥ 0.40 0.45 0.44 6.28 39.8

Source: IMF, International Financial Statistics; Economist Intelligence Unit

Editors: Nicola Prins (editor); David Cowan (consulting editor)Editorial closing date: February 4th 2005

All queries: Tel: (44.20) 7830 1007 E-mail: [email protected]

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Zimbabwe · · 2007-07-26country’s history, politics, infrastructure and economy. ... 36 Construction ... 39 The external sector 39 Trade in goods 40 Invisibles and …