Electing for real growth in Zimbabwe

On Wednesday, Zimbabweans head to the polls. Standing against each other in the contest for the presidency are, for the third time, President Robert Mugabe and Prime Minister Morgan Tsvangirai. Their respective political parties, the ZANU-PF and Movement for Democratic Change, will battle for the control of the country’s Parliament.

None can be sure about the outcome, but smart money must be on the 89-year-old dictator, who seems determined to extend his 33-year hold on power. Mr. Mugabe has managed to hang on to the presidency in more difficult circumstances, murdering his way to electoral “victory” in the midst of hyperinflation and economic meltdown in 2008. Wednesday’s balloting will take place under slightly more stable and somewhat more prosperous circumstances brought about, paradoxically, by the efforts of Mr. Mugabe’s opponent.

Mr. Mugabe and Mr. Tsvangirai have been sharing power since 2008. Back then, Zimbabwe was in the midst of a man-made disaster. In the late 1990s, Mr. Mugabe started attacking a small but economically vital group of white farmers. Invasion and confiscation of white-owned commercial land followed in 2000. Banks, which used land titles as collateral when extending loans to farmers, found themselves in the red and the financial system collapsed. Most of the new occupants of the farmland were subsistence, not commercial, farmers and agricultural production dwindled. Companies that processed, packaged and exported agricultural produce went out of business.

From 1998 to 2008, Zimbabwe’s economy contracted at a rate of 6 percent per year. In contrast, the economy of neighboring Mozambique grew at a rate of 4.9 percent annually. Zimbabwe’s per-capita annual income fell from $1,640 to $661 — the lowest level since the late 1940s. In Mozambique, average income rose from $1,428 to $2,400. The United Nations‘ Human Development Index, which is an approximate measure of a standard of living that is calculated on a scale from 0 to 1, saw Zimbabwe decline from 0.376 in 2000 to 0.345 in 2008. Over the same period, Mozambique’s index rose from 0.202 to 0.327.

By 2008, Zimbabwe’s unemployment rate stood at 94 percent. With the tax revenue in free fall, the cash-strapped government started printing money. Professor Steve Hanke of Johns Hopkins University estimates that Zimbabwe’s inflation reached 90 sextillion percent in 2008. Prices doubled every 24 hours. In the end, the public refused to use the Zimbabwe dollar, which was abolished and replaced by the South African rand and American dollar.

Since 2008, Zimbabwe has experienced relative stability and high growth rates. From 2009 to 2012, economic growth has averaged more than 7 percent. Foreign direct investment, which dropped from a high of $444 million in 1998 to a low of $3.8 million in 2003, stood at $400 million in 2011. Mr. Tsvangirai understands the importance of economic freedom, rule of law and property rights. Unfortunately, the power-sharing arrangement, which handed half of the seats in Zimbabwe’s Cabinet to Mr. Mugabe’s cronies, made far-reaching reforms impossible. Consequently, Zimbabwe remains one of the world’s least economically free countries. In 2012, for example, Zimbabwe came in 142nd out of 144 countries surveyed in the Fraser Institute’s Economic Freedom of the World report.

What, then, explains Zimbabwe’s growth in recent years? Craig Richardson, associate professor of economics at Winston-Salem State University in North Carolina analyzed the sources of the country’s growth in a Cato Institute publication titled “Zimbabwe: Why is One of the World’s Least-Free Economies Growing So Fast?” He found the country’s growth to be largely artificial. From 2009 to 2011, he wrote, “two-thirds of Zimbabwe’s nominal GDP growth was the result of increases in government expenditures, augmented by hundreds of millions of dollars in International Monetary Fund grants and Chinese loans. [Moreover,] rich Western countries dramatically increased their infusions of ‘off-budget’ grants to Zimbabwe, and this foreign aid now accounts for nearly 9 percent of its GDP. [Finally] Zimbabwe’s economy is becoming increasingly dependent on the production and export of raw mineral commodities, which have experienced rapid worldwide price hikes.”

The combination of foreign aid, government borrowing and spending, and high commodity prices is unsustainable. Only structural reforms, including trade liberalization, credit and labor market deregulation, and general improvement in the business environment, can deliver growth in the long run. In the short run, however, Zimbabwe’s artificially stimulated growth may have had the paradoxical effect of improving Mr. Mugabe’s chances of success. An improving economy combined with gerrymandering of the electoral roll and voter intimidation, the dictator hopes, will be enough to return him and his party to power.

Marian L. Tupy is a policy analyst at the Cato Institute’s Center for Global Liberty and Prosperity.

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