1. Most Discussed
  2. Gainers & Losers

zimbabwe meltdowm imminent

  1. longrunsthefox

    16,305 Posts.
    Zimbabwe slides into economic chaos

    by Carolyn Dempster
    in Harare

    In the second of a series of articles on Zimbabwe, BBC News Online reports on the economic collapse of the once thriving nation.
    Zimbabwe is running on empty.

    Empty political promises, empty fuel tanks, and empty bellies.

    Economists now predict that 2003 could bring the crunch point for Zimbabwe, as the country plunges towards economic collapse.

    "We are very close to implosion," says Professor Tony Hawkins, head of the University of Zimbabwe's graduate school of management.

    "Unless some radical new policies are introduced, one can't see it lasting the year."

    Inflation is running at 208%, with the International Monetary Fund predicting that it could rise to more than 500% by the end of the year.

    Unemployment stands at more than 70%.

    And the chaotic land reform programme has resulted in a 47% contraction in commercial agriculture - once the backbone of Zimbabwe's economy.

    At least 7.2 million out of Zimbabwe's population of 12 million is at risk of starvation, with deaths from Aids-related illnesses "peaking at about 2,500 per week", says Stephen Lewis, the UN's special envoy on HIV and Aids in the region.

    Zimbabwe's ruling Zanu-PF government has reverted to price controls in a desperate bid to rein in inflation.

    It has adjusted the official exchange rate for its currency, moving it closer to rates paid on the black market.

    Economy unwinds

    But the drive is not working.

    In every city and town, there are few essential foodstuffs - even sugar, salt and the staple maize meal - on offer at affordable prices.

    "Happy queue year" is the greeting Zimbabweans grimly exchange as they join the queues which can last for hours, or even days.

    Zimbabwe's economy is visibly unwinding.

    Fast money

    The only business that is booming is the parallel foreign exchange market.

    At the original exchange rate, US$1 used to buy 55 Zimbabwe dollars. Now the government has set the rate for exporters at 800 Zimbabwe dollars to the US dollar.

    On the streets, black market traders offer up to 1,500 Zimbabwe dollars for US$1.

    The red 500 Zimbabwe dollar note is jokingly referred to as a "Ferrari" because it drops in price so fast.

    And at the last count there were nine different exchange rates in operation in the economy, being applied in a variety of ways.

    Different rules

    Political patronage and corruption is spawning the growth of a rich and crooked business elite whom Mr Hawkins describes as the "crony capitalists" of President Robert Mugabe's regime.

    "There are different rules for different players," says Mr Hawkins.

    "Some people just ignore price controls, and they are politically well connected and that's alright.

    "Some of the banks do pretty much what they like and that's okay because they are politically well connected.

    "The normal rule of law no longer applies."

    Budget maths

    Ironically, there has been a 400% rise in property prices, because people do not trust the banks, and invest their money in fixed assets in the hope that, following political change, economic prosperity will return.

    Those who have the cash are splashing out on luxury vehicles, imported goods and expensive living.

    Everything is available on the black market, if one can afford it.

    For a newly qualified teacher, a monthly stipend of 56,000 Zimbabwe dollars does not go far, and in spite of promises of increases, teachers' salaries have now been frozen by the government.

    Yet in its 2003 budget the government managed to find the resources to earmark 76.4bn Zimbabwe dollars for defence - allocating almost twice as much to security agencies as to land, agriculture and rural resettlement.

    The equation was not lost on teachers.

    "If they are going to be giving chiefs vehicles, if they are going to pay militias allowances, why not teachers, who are citizens like anyone else," asks Raymond Majongwe, secretary general of the Progressive Teachers Union.

    "Even if it means them printing the money, so be it!"

    Colgate squeezed

    Lance Reynolds, a Harare businessman with interests in real estate and tourism, says he has been forced to revise wages for his employees every few months to keep pace with inflation.

    "We had no choice but to shut down our sail safari operation in Kariba," he adds, reflecting on the 80% drop in tourism revenue to Zimbabwe.

    A tube of toothpaste now costs 1,500 Zimbabwe dollars - US$27 at the official exchange rate.

    This month Colgate Palmolive, the country's principal manufacturer of soap, detergent and toothpaste, announced it was relocating its operations to South Africa.

    It became one of the dozens of manufacturers that have closed down, or moved elsewhere in the region.

    Petrol queues

    In rural areas, where the drought is taking hold and hunger is already biting deep, herds of cattle are being slaughtered, trees felled for firewood, and wild animals poached in their thousands.

    More than one million Zimbabweans have already abandoned their homeland in search of a better life elsewhere.

    The two-mile-long queue outside the passport office in central Harare tells a story that the exodus will not abate any time soon.

    Says Mr Hawkins: "The critical thing is that there's no economic solution, it's a political solution."

    And he says that even if there is political change, radical new policies and renewed support from the donor community, it will take decades to repair the damage done to agriculture and manufacturing.

    And it could decades before investors or tourists once again have faith in Zimbabwe.

Before making any financial decisions based on what you read, always consult an advisor or expert.

The HotCopper website is operated by Report Card Pty Ltd. Any information posted on the website has been prepared without taking into account your objectives, financial situation or needs and as such, you should before acting on the information or advice, consider the appropriateness of the information or advice in relation to your objectives, financial situation or needs. Please be aware that any information posted on this site should not be considered to be financial product advice.

From time to time comments aimed at manipulating other investors may appear on these forums. Posters may post overly optimistic or pessimistic comments on particular stocks, in an attempt to influence other investors. It is not possible for management to moderate all posts so some misleading and inaccurate posts may still appear on these forums. If you do have serious concerns with a post or posts you should report a Terms of Use Violation (TOU) on the link above. Unless specifically stated persons posting on this site are NOT investment advisors and do NOT hold the necessary licence, or have any formal training, to give investment advice.


Thank you for visiting HotCopper

We have detected that you are running ad blocking software.

HotCopper relies on revenue generated from advertisers. Kindly disable your ad blocking software to return to the HotCopper website.

I understand, I have disabled my ad blocker. Let me in!

Need help? Click here for support.