The Economic Advisor

How the Zimbabwe Economy Dramatically Collapsed

Zimbabwe is a landlocked country in the southern tip of the massive continent of Africa. Zimbabwe has become a country of unprecedented economic and political attention in recent world history.

The troubles in Zimbabwe cannot be separated from Zimbabwe’s history dating back to the arrival of European settlers in the vast virgin land. However, the collapse of the Zimbabwe economy can be traced back to recent years as recent as the year 2000. Even by this turn of the millennium Zimbabwe’s economy had already started showing signs of failing. This was clear in 1998 on the day that became known as the black Friday when the Zimbabwe dollar collapsed by up to half its value against major currencies such as the USD and Pound Sterling.

Zimbabwe President, Robert Mugabe had awarded liberation war veterans some ZW$50000.00 (possibly US$15000 plus) in compensation for their physical damage in the protracted war in the 70s against the Ian Smith regime. Within two years the economy was entering a free fall due to the unprecedented land inversion of 2001. Scores of ruling party supporters forcibly entered vast tracts of commercial agricultural land belonging to mostly white commercial farmers. The mission was to claim land by force by overthrowing the white owners.

Within months this action was violently replicated all across Zimbabwe resulting in tens of deaths of farmers. Many who died had resisted the overthrow. Many chose to flee to neighbouring countries and to lands as far off as Australia abandoning generational legacy of farming and properties.

In no time food shortages hit Zimbabwe hard due to disturbances on the farms. The Zimbabwean economy was beginning to feel the effects of the illegal yet government sanctioned widespread land inversions. Due to limited access to foreign currency as a result of falling agricultural exports and failing tourism due to the violence; the government of the day became increasingly desperate to keep things going. Instead, it engaged loyalists at the central bank to put the printing press into overdrive.

This marked the beginning of unstoppable money printing by the government of Zimbabwe to meet its daily expenditure requirements. The end result was ever increasing money supply on the open market in the form of cash with little or no products to purchase. Inflation ballooned out of control yearly for the following 10 years into levels of billions percent per annum. Prices changed thrice or more than thrice per day to an extent that the Zimbabwe dollar became a useless piece of paper more expense to produce than its real value.

The following were the chronological causes of hyper inflation in Zimbabwe;

1. Award of unbudgeted compensation to war veterans in 1998

2. Farm inversions of 2001 disrupting exports

3. Sharp fall in tourism due to violent land inversions and violent elections

4. Unstoppable printing of Zimbabwe dollars by the central bank

Zimbabwe is a fascinating country. Zimbabwe people are a friendly and considerate people yet their experiences have been dreadful. You may read more on the Zimbabwe economy.