Zimbabwe: Economy

Zimbabwe's wide range of natural resources makes agriculture and mining the main pillars of the economy. Agriculture and industry account for about 17% and 29% of gross domestic product (GDP), respectively. Zimbabwe 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. In order to develop these mineral deposits, Zimbabwe relies on foreign investment.

In the early 1970s, the economy experienced a modest boom. Real per capita earnings for both 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, the cumulative effects of sanctions, declining earnings from commodity exports, worsening guerilla conflict, and increasing white emigration undermined Rhodesia’s economy. When Mozambique severed economic ties, the Smith regime was forced to depend on South Africa for access to the outside world. Real 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 from 1982 through 1984. In 1985 the economy rebounded strongly due to a 30% jump in agricultural production. But drought and a foreign-exchange crisis triggered another slump in 1986 and 1987. Annual real GDP growth from 1988 through 1990 averaged about 4.5%.

Since the mid-1990s, Zimbabwe’s infrastructure has been deteriorating rapidly, but it remains better than that of most African countries. Political turmoil and poor management of the economy have led to considerable economic hardships. The Government of Zimbabwe's chaotic land reform program, recurrent interference with the judiciary, and imposition of unrealistic price controls and exchange rates caused a sharp drop in investor confidence. Since 1999 the national economy has contracted by as much as 40%. Foreign direct investment has all but stopped. In July 2007, the government had made a desperate attempt to control inflation, which brought persistent shortages fuel, food, and other goods, by forcing firms and supermarkets to reduce prices by half, which resulted in severe shortages of basic commodities. Inflation vaulted over 200 million percent (year on year) in July 2008, according to official estimates; independent economists estimated inflation was at least in the quadrillions of percent. In January 2009, official recognition of dollarization stopped hyperinflation. Investor confidence remains low due to insecurity of land tenure and indigenization laws that require, in theory if not always in practice, 51% of investments to be owned by Zimbabwean citizens.

Agriculture is no longer the backbone of the Zimbabwean economy. Large-scale commercial farming has nearly collapsed since 2000 under the government's controversial land reforms. 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 57 million kg in 2009. Gold production, another former key foreign currency source, has also slumped. In 2009, the country produced only 4.2 tons of gold. 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. 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, diamonds, 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.

Energy Resources
With considerable hydroelectric power potential and plentiful coal deposits for thermal power station, Zimbabwe is less dependent on oil as an energy source than most other comparably industrialized countries, but it still imports 40% of its electric power needs from surrounding countries--primarily Mozambique. Only about 15% of Zimbabwe's total energy consumption is accounted for by oil, all of which is imported. Zimbabwe imports about 1.2 billion liters of oil per year. Zimbabwe also has substantial coal reserves that are utilized for power generation, and coal-bed methane deposits recently discovered in Matabeleland province are greater than any known natural gas field in Southern or Eastern Africa. In recent years, poor economic management and low foreign currency reserves have led to serious fuel shortages.

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