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The dramatic deterioration in commercial activity and purchasing power in Zimbabwe over the past two years is the price the nation is paying for economic mismanagement under the Mugabe regime. As households put spending on hold, more than 380 small businesses closed their doors and over 125,000 jobs were lost during 2001 alone.

Household expenditures on consumer goods dropped off sharply starting in 2001 and it is unlikely that demand will firm at any time during 2002. Inflation of over 100 percent during 2001 essentially halved purchasing power. The high cost and scarcity of financing has caused the purchase of high-end durable goods to decline to a trickle. Sales of motor vehicles should be very weak through the remainder of 2002.

Zimbabwe's GDP declined 7 percent in 2000 and another 10 percent in 2001. The drop-off in economic activity is a reflection of serious setbacks in both the mining and agricultural sectors. Uncertainty about farmland ownership has led to undercapitalization of the nation's farms and a sharp decline in harvests. An estimated 2,000 white-owned farms were forcefully taken by what the government describes as "veterans." Most are unskilled workers who lack the ability to manage a farm. Those who have taken possession of the land generally lack capital and their presence has undermined the demand for farm equipment and supplies.

Gold production, one of the leading sources of export earnings, declined to the lowest level registered since the mid-1990's. That drove down demand for mining equipment and services. Mining sector expenditures are not likely to recover this year.

Now more than ever, Zimbabwe is in need of more foreign investment capital. Direct foreign investment dropped more than 75 percent during 2001. It will be extremely difficult to attract foreign capital because the nation's economic freefall has not yet ended. During February, Zimbabwe was dropped from the Commonwealth of Nations and the EU announced that it had cancelled US$110 million in aid as well. Not only are investors steering clear of Zimbabwe, but so are tourists. Tourism was off more than 35 percent in 2001, with no sign of recovery during the first quarter of 2002. The natural beauty of Victoria Falls and Zimbabwe's game parks survive. However, tourists in greater numbers may not return until they feel confident that domestic violence is under control.
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Publication:Market Africa Mid-East
Date:Apr 1, 2002

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