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Monday, 18 June, 2001, 10:28 GMT 11:28 UK
Zimbabwe on the verge of collapse
Zimbabweans queue for fuel in Harare
As Zimbabwe's economy totters, fuel shortages are on the increase

By BBC News Online's James Arnold

Increasingly isolated from the rest of the world, Zimbabwe's economy is teetering on the brink of collapse.

Its vital export sectors have been crippled by unrest and political interference, starving the country of hard currency income.

At the same time, the government's sour relationship with foreign lenders and the international business community has reduced incoming investment and aid to a trickle.

For the Zimbabwean population, the result has been widespread shortages, a flourishing black market and a worrying rise in political tension.

"Zimbabwe is a powder-keg waiting to explode," said a Harare-based economist, who asked not to be named for fear of reprisals.

Policy muddle

Zimbabwe was once one of Africa's most prosperous countries, its economy fuelled by rich mineral resources - especially precious metals - and an export-oriented agricultural sector, based largely on tobacco.

But that prosperity has been rapidly eroded by the political and economic policies pursued by President Robert Mugabe, who is pursuing an aggressive campaign for re-election in 2002.

The country's main problem is that there is almost no money is coming in.

Zimbabwean president Robert Mugabe
Mugabe: Economic mismanagement

Mr Mugabe's policy of encouraging attacks on white-owned farms and other assets has crippled the tobacco and mining sectors, which together usually account for half of all exports.

Simultaneously, the resulting rise in lawlessness has scared off almost all foreign investors - investment so far this year is down by over 60% on 2000.

And despite periodic attempts to mend relations, Zimbabwe still receives no money from the International Monetary Fund or World Bank.

Closing the doors

The government has taken drastic measures in an effort to check the collapse in confidence, in effect attempting to seal the economy off from world markets.

The exchange rate of the Zimbabwean dollar has been fixed, at 55 to the US dollar, and exports of currency are tightly restricted.

Retail prices of many key products have also been fixed.

This has produced an illusion of success: the stockmarket has surged by some 120% this year, as rich Zimbabweans have little else to do with their money than put it into shares.

Key economic indicators, 2000
GDP growth: -6.1%
GDP per head: $544
Inflation: 56.6%
Total debt per head: $406

It has, however, only stimulated the black market in foreign exchange, where the Zimbabwean dollar is currently trading as low as 130 against the US dollar.

Worse, the fixed prices, coupled with the country's shortage of foreign exchange, have led to dramatic shortages of many key consumer products.

Annual inflation has surged to 60%.

Fuel is now in dangerously short supply, and a recent move to allow a huge price rise has not brought more onto the market, instead simply causing popular unrest.

Lacking the hard currency to pay, Zimbabwe currently relies on credit lines from Kuwait and South Africa to fund oil imports.

Stumbling through

For Harare-watchers, the question is now whether popular unrest over the economy will balloon as next year's elections approach.

"Any spark could set this thing off, and there are a lot of sparks to choose from," said David Cowan of the Economist Intelligence Unit in London.

As both the maize and wheat crops are in deficit this year, a rarity in traditionally self-sufficient Zimbabwe, there is the genuine prospect of food riots.

A Zimbabwean trader sells to a petrol queue in Harare
Making ends meet

But Mr Cowan said the government willl be determined to make it through to April without being forced to devalue the currency or backtrack on any of its economic policies.

Despite the chaos in the countryside, some exports are still making it through, and prices for agricultural products such as tobacco are currently favourable.

This ought to be enough to stave off complete economic collapse, said Mr Cowan."[Finance minister Simba] Makoni is no fool."

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