The Road Ahead in Zimbabwe Still Looks Rough

Sources:

Financial Times 1
Financial Times 2
Financial Times 3

According to a report entitled “Comprehensive Economic Recovery in Zimbabwe” published by the United Nations Development Programme (UNDP), Zimbabwe is in bad shape financially and could need billions of dollars in foreign aid. Five Zimbabwean economist were responsible for the 239 page report often calls for drastic and potentially painful policy measures to get Zimbabwe’s economy back on track.

The report says it could take at least 12 years for Zimbabwe to recover to peak levels of per capita income recorded in 1991. A 5% annual growth rate of the economy of 12 years would be necessary to return to 1991 levels of income. The authors warn that 4% annual growth is much more likely to occur. And while Zimbabwe has been experiencing devastating inflation and a shrinking economy, other countries in sub-Saharan Africa have seen large economic gains. Zimbabwe is losing millions of skilled workers to South Africa and the UK and wide-spread AIDS has dropped the average life expectancy by 20 years.

It seems that a minimum of $5 billion of foreign aid will be necessary over the next 5 years in order to get Zimbabwe back on its feet. Most of the money will go to plug up large budget deficits and to beat back the hyper-inflation that has crippled the economy. The report also suggests that action must be taken immediately in order to ensure swift change and that the initiatives do not get bogged down by internal conflict.

As a previous post discussed, the recent presidential election in Zimbabwe was marred with conflict. The leaders of the two rival parties are in the process of negotiating an agreement to share power in a way that reflects the will of the Zimbabwean people. These negotiations have been mediated by South Africa’s president, Thabo Mbeki, who has recently resigned amid his own political controversy. Many worry that the rival parties will use this to their advantage and slow real progress.

The UK, US, and the European Union are all worried that no real political stability will emerge, thus making it difficult to imagine that they will be giving large sums of aid-money in the near future. The US has recently given Zimbabwe an ultimatum that it must quickly settle its government problems and insure that aid money will be available to all citizens regardless of political affiliations otherwise the US will not give more aid money. Ultimately the economic situation in Zimbabwe will continue to be unclear until the government can provide much need stability.

Questions:

1) After a heated election this summer that resulted in many deaths, how likely is it that the rival parties will be able to settle its differences and focus on the severely damaged economy?
2) Will the strain that the credit crisis is causing in the US and the recent announcement of the $700 billion bailout funded by taxpayers affect the US’s ability to offer substantial aid to Zimbabwe?