Zimbabwe Economic Decline: 2013 - 2014

From Pindula

After relative economic growth between 2009 and 2012, in 2013 Zimbabwe started off into yet another economic decline.

The economic decline of 2013 has been mainly attributed to the victory of the Zimbabwe African National Union Patriotic Front (ZANU PF) in the 2013 parliamentary and presidential elections in which the party emerged with a two thirds majority.

Eddie Cross, a Zimbabwean Economist and member of the MDC-T political party commented in March 2014 commented on his website:

"It was not to be and on July 31st 2013, Zanu PF emerged with a two thirds majority. The President appointed a Cabinet without a single new face, the same old tired crew that brought us to our knees in 2008 and which had steadfastly failed to deliver growth and stability in the previous 34 years. The same team that gave us Gukurahundi and Murambatsvina. The markets reacted instantly – the stock market fell by a third, investors sold equities and took their money out the country, cash fled from the banks to safer havens and in a matter of days it was clear that the banking sector was in dire straits.

By December the economy had begun to contract. Nearly 100 companies a month were going into liquidation and this situation was not helped by the rapid depreciation of the South African Rand, resulting in the country starting a slow evolution towards deflation – for those who do not understand such terms, this is a situation where prices are falling in real terms while costs continue to rise. Many manufacturers were unable to cope with the flood of cheaper products from South Africa and abroad.

These economic conditions were compounded by the decline in output from the Marange diamond fields that in 2012 had been pumping millions of dollars a day into the local economy, even after “leakages”. The mining sector had been growing rapidly since dollarization in 2009 and the State saw this as a cash cow. They slapped massive fees on the industry and imposed new royalties and conditions. The expansion of the industry slowed and then stopped. Gold production, estimated by some to have been 40 tonnes in 2013 worth $2 billion started to contract and miners, large and small began selling their gold production on informal markets.

Ultimately all these negative elements culminate in the national budget and the new Minister of Finance now finds himself in an impossible situation. Revenues to the State have been declining for some time and the proportion of state revenue that has to be spent on salaries has climbed to over 90 per cent. In desperation and in an effort to cover urgent needs Ministries have been borrowing from the private sector and are not paying their bills or their service providers. The impact of another $1,5 billion in unpaid government commercial debt on top of all the other elements has put the business sector in jeopardy."[1]

References

  1. Eddie Cross, Countries do not go bust, they sag at the knees, Eddie Cross, Published:21 March 2014, Retrieved:6 April 2014