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Poverty despite growth

Daniel Pelz
July 29, 2013

Zimbabwe's economic troubles used to make headlines the world over. The situation has improved but challenges still remain.

Private security employee guarding a diamond processing plant in the diamond-rich eastern Marange region, where families were expulsed from their house to make way for excavation machines of major mining companies allied to the regime of President Robert Mugabe. Marange diamonds are now part of the formal global gem trade, green-lighted by the 'blood diamond' Kimberley Process watchdog, four years after Mugabe's military ruthlessly forced out casual panners to seize control. They are now seen as key to turning around Zimbabwe's spectacular economic collapse with five companies licenced to mine what is touted as the biggest find of the last decade. AFP PHOTO / JEKESAI NJIKIZANA (Photo credit should read JEKESAI NJIKIZANA/AFP/Getty Images)

On paper, Zimbabwe's economy is doing well. Between 2009 and 2011, the country's Gross Domestic Product grew by 20.1 percent. Zimbabwe benefited especially from high demand for its gold, platinum and other metals, which are valuable export commodities.That trend seems to be turning in 2013. "Zimbabwe's growth has been threatened somewhat in the last year or so," independent analyst John Robertson tells DW.

Scrapping the local currency

Still, Zimbabwe is far from the economic decline of the early years of this century. Between 1999 and 2008, economic output declined by 45 percent, according to World Bank statistics. Invasions of farm land by self-styled war veterans led to the collapse of the agricultural sector, triggering an economic crisis. At one time, inflation reached more than 500 billion percent.

TO GO WITH AFP STORY BY Sibongile Khumalo Zimbabweans waiting in front of a South African Standard Bank branch, Stanbic Bank, in Harare on July 12, 2008. South African firms are resisting the urge to pull out of Zimbabwe despite an increasingly hostile business climate in the hope they will be in prime position to benefit from a future upturn. AFP PHOTO / Alexander Joe (Photo credit should read ALEXANDER JOE/AFP/Getty Images)
Zimbabwe's banks are reluctant to approve loansImage: ALEXANDER JOE/AFP/Getty Images

"When the coalition government took office in February 2009, the economy was in a hyper inflationary mode," the World Bank Country Manager for Zimbabwe, Nginya Mungai Lenneiye tells DW in an interview. To counter inflation, Finance Minister Tendai Biti decided to scrap the country's currency, the Zimbabwe Dollar. Now, US dollars, South African rands and British pounds can be used to buy goods. That measure yielded some success. In 2012, inflation stood at 5.5 percent.

The 'dollarization' of Zimbabwe's economy is making life harder for many small-scale business owners. "It was easier to do business when we had Zimbabwe dollars. Now only the most effective businesses can survive," John Robertson says. Zimbabwe is facing a liquidity crisis and many banks are short of money. Getting loans is therefore a big challenge.

Land reform

Agricultural production has improved, with the agricultural sector growing by four percent in 2011. Some reports published in recent years also claim that some of the farmers who acquired land after the chaotic land reform program of the early 2000s have been able to increase the output of their farm. Zimbabwe's agricultural sector had almost collapsed after the reform, because many of the program's beneficiaries lacked the skills and the capital to take care of their farms.

ZIMBABWE Industry Group of miners in safety helmets and work clothes at Patchway gold mine with Code of Signals mining regulations notice behind them.
Mining is one of the sectors driving the economyImage: picture alliance/Photoshot

Still, commercial farmers who own farms of between six and 20 hectares (14 - 49 acres) only contributed 15.6 percent to the national grain reserve in 2012. Zimbabwe is still dependent on food imports. "Prices for imports such as maize and wheat are rising to levels we have never seen before," says John Robertson. That particularly hurts poor Zimbabweans who can ill afford the high prices for goods.

Indigenization - a new bone of contention?

While the economy is growing, povery remains high. Close to 72 pecent of the population lives below the poverty line. President Robert Mugabe's ZANU-PF party is promoting the concept of indigenization to change that. Under the law, international subsidiaries of foreign companies have to transfer at least 51 percent of their shares to black Zimbabweans.

"We are not opposed to foreign investors. Zimbabwe will always welcome foreign investors but on the terms that make the indigenous people realize maximum benefit from their God given resource," Zimbabwe's Minister for Youth Development, Indigenization and Economic Development, Saviour Kasukuwere, tells "New African" magazine.

A Zimbabwean looks at a new 50 billion dollar bank note issued by Zimbabwe's central bank on January 13, 2009. The bank has been introducing new banknotes every month sometimes more than once a month as the country battles to catch up with runaway inflation fast eroding the value of the local currency. AFP PHOTO/Desmond Kwande (Photo credit should read DESMOND KWANDE/AFP/Getty Images)
Zimbabwe scrapped its currency in 2009Image: AFP/Getty Images

Some international companies have already complied with the new law. In March 2013, Impala Platinum agreed to transfer 51 percent of its Zimplats subsidiary into local hands. Still, the business community is not happy. "The law has dampened the business mood," says the World Bank's Nginya Mungai Lenneiye.

Waiting for the election results

Prime Minister Morgan Tsvangirai's MDC-T party is opposed to the indigenization program. The party plans to introduce its own program called "Juice" if it wins the July 31 poll. Business leaders and analysts will therefore be watching election day with a great deal of interest.

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