Zimbabwe: Economic melt-down

The economy has hit the rocks

By BBC News Online's Rachel Rawlins

Zimbabwe's economy is poised on the edge of an abyss.

The hardships that provoked riots around Harare - steep rises in prices of bread, sugar, transport and other basic commodities - are going to get worse, not better.

Zimbabwe is completely cut off from aid support after defaulting on its loans. It no longer has a working relationship with the International Monetary Fund or the World Bank, and most western donors have frozen all aid.

Economic indicators

Unemployment: 50%

Inflation: 60%

Poverty: 75%

Budget overspend: 25%

GDP: projected to shrink between 2 - 5%

Real income: dropped 75% in 10 years

The government will now find it very difficult to raise finance, having already overspent its budget by more than 25% and with interest rates are running at more than 60%.

There is little foreign exchange left to pay for fuel imports, electricity is rationed and continuing supplies are dependent on the patience of neighbouring South Africa towards its unpaid power bills.

Petrol shortages continue to worsen and the paraffin used for heating and lighting by most Zimbabweans is almost unobtainable.

Bad decisions

The current crisis stems from crucial decisions taken by President Mugabe.

In 1997 in order to quell unrest he awarded large, unbudgeted, payments to veterans of the independence war.

His policy of farm acquisition without compensating their white owners alienated many in the international community, and the decision to send troops to the Democratic Republic of the Congo (DRC) is a severe financial drain.

Estimates put the cost of maintaining Zimbabwe's military intervention in the DRC at around $30m per month.

Paraffin is almost unobtainable

Violence and political intimidation in the run-up to parliamentary elections in June disrupted the agricultural sector that provides the bulk of Zimbabwe's foreign exchange earnings.

President Robert Mugabe's campaign rhetoric about nationalising the country's other big income-earner, the mining industry, caused some companies to threaten to pull out altogether and has had an unquantifiable effect in scaring off desperately needed inward foreign investment.

Suffering

The effect on the urban population has been catastrophic.

Many can no longer afford to travel to work from the townships built during the Rhodesian era to house workers outside Harare's city centre.

I think the Zimbabwe economy will continue to go down the tubes until they get some political stability and, as long as Mugabe is there, that's not going to happen

Economist Robert Nelson

The price of fuel has more than doubled since the election and it is not uncommon for the daily commute to cost more than 75% of a day's wages.

Some people are getting up at 4am to walk to work. Others have stopped working for cash altogether.

Shifting population

As the prices of basic foodstuffs spiral upward and fuel for lighting and cooking becomes scarcer many in the towns and cities are returning to the rural areas.

As they go they will pass rural people drifting in increasing numbers to the towns and cities also trying to find a way out of the country's endemic poverty - the situation in the rural areas is no better than anywhere else.

Zimbabwe is usually a net exporter of the country's staple food, maize, but political violence coupled with bad weather threatens the harvest.

Politically motivated violence disrupted the tobacco crop

In the current economic climate there will be nothing with which to pay for any imports to cover the shortfall.

The state-controlled Grain Marketing Board (GMB) has itself only recently acquired a guarantee from the government to underwrite payments for grain.

One peasant farmer in the impoverished central area of the country took her surplus grain by ox-cart on the day-long journey to the nearest GMB office.

She slept overnight in the queue of farmers waiting to sell their maize. When she reached the front of the queue she was given a receipt for her grain and told to return the following week for payment.

When she returned after a similar wait she was given her grain back and told there was no money to pay her.

Blame

Some economic analysts say the current situation is partly the result of IMF-World Bank policies over the past decade which came up with the wrong prescription for Zimbabwe.

Motorists queue for more than two hours for fuel

But most economists put the bulk of blame for the situation squarely at the door of Mr Mugabe.

His economic policies are widely seen as being geared to short-term political expediency and the maintenance of power for himself and his ruling clique, to the detriment of the country's future.

An American economics professor, Robert Nelson of Maryland University, spent six months as a research associate at Zimbabwe University.

His conclusion is unambiguous.

"I think the Zimbabwe economy will continue to go down the tubes until they get some political stability and, as long as Mugabe is there, that's not going to happen," he said.

"He's sacrificing the welfare of his fellow Zimbabweans but doesn't seem to care."