Is it Too Late to Save Zimbabwe's Economy?

Mihir Nayar

300%... according to the International Monetary Fund this was the inflation rate of Zimbabwe in August 2019. This hyperinflation is just one menacing statistic that highlights the economic problems that have plagued the people of Zimbabwe over the past few decades. In fact, 1 USD is currently equivalent to approximately 362 Zimbabwe dollars in the foreign exchange market, while Zimbabwe only has an economic freedom score of 40.4, making its economy the 175th freest of 186 nations in the 2019 Index. Along with these numbers, Zimbabweans feel the real world effects of such problems in their daily lives, with large-scale economic sectors (such as agriculture) suffering and contributing to issues like malnutrition. However you slice the situation, Zimbabwe is in dire need of government action to remediate its current economic problems.

Bar graph depicting the overall rise of inflation rates in Zimbabwe over the past year.

The biggest issue that prevents Zimbabwe from progressing is its corrupt, dysfunctional government. For more than thirty years, Prime Minister Robert Mugabe held authoritarian rule over Zimbabwe as a de facto dictator. While Mugabe rose to power under a fair election, he has since abused his governmental power and caused great economic instability. For example, the United Kingdom repeatedly wanted to invest money into purchasing white-owned land and distributing it to black laborers in Zimbabwe. However, due to cronyism in Mugabe’s cabinet, the UK lost its faith in the Zimbabwean leader who publicly stated, “Who can trust Blair?” Mugabe’s cronyism and lack of foreign alliances serve as just one example of his general misuse of power. Ultimately, he has brought about great instability to all sectors of the Zimbabwean economy. Even though Mugabe has passed, his right-hand man, Emmerson Mnangagwa, has continued to cause unrest in the economy.

[Left] Political cartoon depicting the fallacy that Zimbabwe is a thriving nation, when in reality, it has a serious economic crisis on its hands.

[Right] Political cartoon depicting Mugabe speaking to the people and abusing his authoritarian rule.

In order to rebuild Zimbabwe, one solution that is necessary is the creation of more state-wide government regulations and mandates. One of these mandates could include more frequent adjustments to interest rates on stocks and bonds to combat the hyperinflation rates that are causing many Zimbabweans to suffer. Additionally, better communications between the Reserve Bank of Zimbabwe (its central bank) and the rest of the national government will ensure that both parties are aware of any changes to monetary policy and credit balance. Most importantly, microfinance and more negotiations with trusted foreign lenders, such as the World Bank and the International Monetary Fund, could prove to be an effective way to help the impoverished people in Zimbabwe become more self-reliant. In microfinance, providing microcredit is a way of utilizing safe standards to foster more economic independence. However, what makes some microloans ineffective is their skyrocketing interest rates and the fact that they are traded within the black market. Thus, it is vital that microloans are distributed through a trusted organization such as the World Bank and that the loans are overseen by a credible third party. More generally speaking, it is critical that Zimbabwe seeks guidance for restructuring its debt from foreign lenders since, for nearly two decades, Zimbabwe has been in default on $9 billion worth of international debt. Overall, government change within the Reserve Bank and stronger negotiations with trusted lenders can help to remediate the economic crisis in Zimbabwe. 

Along with government reform, it is necessary for Zimbabwe to establish more allies abroad who could potentially agree to a system of foreign direct investments (FDIs). These investments would involve revitalizing certain industries in the Zimbabwean economy that have struggled the most since the 2008 financial crisis: mining, manufacturing, service, and agriculture. However, the one sector of the economy that requires the most revitalization is the agricultural industry. Farming has become ineffective because Mugabe established a land reform during the early 2000s that “seized white-owned farms.” Only recently has the new Prime Minister, Emmerson Mnangagwa, reversed this racist policy, but his “halfhearted” efforts simply will not be enough. To this day, white farm owners in Zimbabwe are still skeptical of the leases that they receive. Foreign direct investments provide a promising solution to restore the agricultural sector. While FDIs sometimes benefit developed countries more than developing countries, they have the potential to create a major positive impact in developing nations. For instance, in the African nation of Mauritius, foreign direct investments helped to “diversify the economy from sugar into textiles and tourism, and recently into luxury real estate, offshore banking, and medical tourism.” In the case of Zimbabwe, FDIs may allow for essential crops, such as maize, to be produced in a greater capacity. Through FDIs, investors from developed nations can not only bring money into the agricultural sector but also their “knowledge, skills, and technology.” As a result, there could be more modernized agricultural practices and sustainable food production.    

Farmers struggle to produce enough food, and the agricultural industry in Zimbabwe is dying.

In conclusion, it is still possible to restore faith in the economy of Zimbabwe. However, the government, the central bank, trusted organizations, credible third parties, and foreign investors all need to quickly involve themselves in Zimbabwe through a collaborative effort. If there is a lack of action from the aforementioned, it will be impossible to reduce the substantial hyperinflation rate of 300%, an economic freedom score of only 40.4, a widespread issue of government corruption, or a growing problem of malnutrition throughout the nation.