Economy of zimbabwe

ECONOMY of Zimbabwe

Properly managed, Zimbabwe's wide range of resources should enable it to support sustained economic growth. The country has an important percentage of the world's known reserves of metallurgical-grade chromite. Other commercial mineral deposits include coal, platinum, asbestos, copper, nickel, gold, and iron ore. However, for the country to benefit from these mineral deposits, it must attract foreign direct investment.

In the early 1970s, the economy experienced a modest boom. Real per capita earnings for blacks and whites reached record highs, although the disparity in incomes between blacks and whites remained, with blacks earning only about one-tenth as much as whites. After 1975, however, Rhodesia's economy was undermined by the cumulative effects of sanctions, declining earnings from commodity exports, worsening guerilla conflict, and increasing white emigration. When Mozambique severed economic ties, the Smith regime was forced to depend on South Africa for access to the outside world. Real gross domestic product (GDP) declined between 1974 and 1979. An increasing proportion of the national budget (an estimated 30%-40% per year) was allocated to defense, and a large budget deficit raised the public debt burden substantially.

Following the Lancaster House settlement in December 1979, Zimbabwe enjoyed a brisk economic recovery. Zimbabwe inherited one of the strongest and most complete industrial infrastructures in sub-Saharan Africa, as well as rich mineral resources and a strong agricultural base. Real growth for 1980-81 exceeded 20%. However, depressed foreign demand for the country's mineral exports and the onset of a drought cut sharply into the growth rate in 1982, 1983, and 1984. In 1985, the economy rebounded strongly due to a 30% jump in agricultural production. However it slumped in 1986 to a zero growth rate and registered a 3% contraction in GDP in 1987 due primarily to drought and a foreign exchange crisis. Growth in 1988-90 averaged about 4.5%.

Since the mid-1990s, this infrastructure has been deteriorating rapidly, but remains better than that of most African countries. Poor management of the economy and political turmoil have led to considerable economic hardships. The Government of Zimbabwe's chaotic land reform program, recurrent interference with the judiciary, and maintenance of unrealistic price controls and exchange rates have led to a sharp drop in investor confidence. Since 1999, the national economy has contracted by as much as 40%; inflation vaulted over 1,000,000% (year on year) in May 2008; and there have been persistent shortages of foreign exchange, fuel, and food. Direct foreign investment has all but evaporated. In a desperate attempt to control inflation, the government forced firms and supermarkets to reduce prices by half in July 2007, which resulted in severe shortages of basic and other commodities.

Agriculture is no longer the backbone of the Zimbabwean economy. Large-scale commercial farming has been effectively destroyed over the course of the last eight years under the government's controversial land reform efforts starting in 2000. Corn is the largest food crop and tobacco had traditionally been the largest export crop, followed by cotton. Tobacco production in 2006, however, slumped to its lowest level--about 50 million kg--since independence, off from a peak in 2000 of 237 million kg, before recovering to 73 million kg in 2007. Gold production, another former key foreign currency source, was less than one-third of its 1999 level in 2007. Poor government management has exacerbated meager corn harvests in years of drought or floods, resulting in significant food shortfalls every year since 2001.

Paved roads link the major urban and industrial centers, but the condition of urban roads and the unpaved rural road network has deteriorated significantly since 1995 for lack of maintenance. Rail lines connect with an extensive central African railroad network, although railway track condition has also worsened in recent years, along with locomotive availability and utilization. The electric power supply has become erratic and blackouts are common due to unreliable or nonexistent coal supplies to the country's large thermal plants and power plant breakdowns. Telephone service is problematic, and new lines are difficult of obtain. Municipal water supply is also erratic.

The largest industries are metal products, food processing, chemicals, textiles, clothing, furniture and plastic goods. Most manufacturers have sharply scaled back operations due to the poor operating climate and foreign exchange shortages. Zimbabwe is not eligible for preferred trade status under the African Growth and Opportunity Act (AGOA). Zimbabwean producers still export lumber products, certain textiles, chrome alloys, and automobile windscreens to the U.S.

Zimbabwe is endowed with rich mineral resources. Exports of gold, asbestos, chrome, coal, platinum, nickel, and copper could lead to an economic recovery one day. No commercial deposits of petroleum have been discovered, although the country is richly endowed with coal-bed methane gas that has yet to be exploited.

With international attractions such as Victoria Falls, the Great Zimbabwe stone ruins, Lake Kariba, and extensive wildlife, tourism historically has been a significant segment of the economy and contributor of foreign exchange. The sector has contracted sharply since 1999, however, due to the country's declining international image.