ANTINOMICS

A Case Presentation on the Economic

Condition of Zimbabwe
Presented By
Praxis Business School

Noshin Mamsa
Harish Dalwaipattan

November 2008
 Overview

 The case background

 Zimbabwe – The Nation
 Current situation
 Reasons for the condition
 Hyperinflation
 Measures to control the situation
 Case Background

 Article in BBC News on 7th September 2001

 Unemployment at 50%, Inflation at 70%
 Economy expected to shrink by 10%
 Country in political turmoil, elections expected next year
 Unrest among coalition Veteran Military Association as
well as general populace
 Country facing acute food, fuel and forex shortage
 Foreign trade at an all time low
 Zimbabwe – The Nation

 The bread basket of Africa

 Major exports revenues from tobacco, cotton,
agricultural products, gold and minerals
 Rhodesia - Ruled by minority whites from 1965 to
1980
 Zimbabwe - Ruled by President Mugabe led ZANU –
PF from 1980 to date

ZANU PF – ZIMBABWE AFRICAN NATIONAL UNION – PATRIOTIC FRONT

 Current Situation – Year 2008

 Worst economic condition ever faced by any nation

 Inflation at 89.7 Sextillion % ( 89.7* 1021) [1]
 Unemployment at 85% [2]
 Agricultural and Industrial Production at an almost
stand still
 Almost a third of the population has fled the nation
 Majority survive on grain handouts

[1] New Hyperinflation Index (HHIZ) Puts Zimbabwe Inflation at 89.7 Sextillion Percent - Steve H. Hanke, Professor of
Applied Economics , The Johns Hopkins University and Senior Fellow , The Cato Institute, 14 November 2008
[2] Negotiating Zimbabwe's Transition, Africa Briefing N°51– Crisisgroup report , 21 May 2008
 Reasons for the Condition

 Political Turmoil
 Land redistribution reforms gone wrong
 Inefficient use of monetary tools
 Rampant corruption
 Loss of Confidence
 How it all happened?

 Land Reforms
 Fragmentation of land
 Commercial farming to community farming
 Loss of agricultural productivity
 Scarcity of food
 Loss in export revenue, thus forex
 Scarcity of oil
 Repayment of the IMF Loan
 Increase of money supply
 How it all happened?

 Participation in DRC war

 Increased scarcity of food and oil
 Escalation of cost of production
 Price control for more than 50% of the products
 No incentive for production
 Thus, capital deccumulation
 Shutdown of industries
 Loss of confidence
 How it all happened?

 Escalation of unemployment
 Rampant black marketing
 Prices soar higher
 Further increased money supply

 Result – HYPER INFLATION

 Loss of confidence

r
 Change in investors’
LM
animal spirit
 Pessimism regarding
the future of economy
r1  Pessimism validated by
r2
IS 1 fall in income
IS 2

Y2 Y1
 Recommendation

 Replace the central bank

 Official Dollarization
 Currency initially backed by reserve
 To be converted to gold standard in a specific
number of years
 Constitute an economic advisory board consisting of
members from SADC, and donor parties
 Focus on agriculture and infrastructure
SADC – SOUTH AFRICAN DEVELOPMENT COMMUNITY
Questions Please..