The African nation has been home to mismanagement & corruption since its rechristened avatar from Rwanda to Zimbabwe. Here's how poor public policy crippled millions of people.
The Zimbabwean Hyperinflation opened up Pandora’s box of nasty economics & served as a classic template of how not to manage an economy. Under the populist tutelage of Robert Mugabe, the inflation rate in Zimbabwe shot up like a rocket on a mars mission. The situation was so dire that the prices nearly doubled every single day! The Central Bank had to print notes of a hundred trillion dollars to keep up with the rising prices. Economic activity virtually came to a standstill & the unemployment rate hovered around a record 80%.
HOW IT ALL BEGAN
Till 1990, the Zimbabwean economy was chugging along nicely, Wheat production was a far cry from the drought years & was on the verge of booming. The economy was growing steadily. Crime rates were falling & employment rates were rising. Economic indicators for the economy were all in green. So what went wrong?
When Robert Mugabe became President in 1991, he did so on account of a populist & divisive mandate. He went ahead & turned his mandate into public policy. All white farm owners were evicted from their landholdings & were replaced by black ‘farmers’.
This policy would go on to act as a death knell for the economy. This was primarily because the new black farmers neither had the technical nous, resources nor experience on how to cultivate land & grow crops. Notice the ominous production drop (green line) between 1990 & 2000.
Being a relatively agrarian economy, this fall in production had a cascading effect on the income & employment levels of millions of people. The banking system collapsed too. The government had “urged” the banks to provide loans to the new farmers. And after the fall in output, they failed to pay back the same amount. So there were a record number of defaulters for the banks to contend with.
So along with the fall in agricultural production & the collapse of the banking system, the manufacturing sector too took a hit due to the credit crunch in the economy. With a service sector being virtually minuscule, the common man had no avenue to turn to.
BRRRR GOES THE PRINTING MACHINE
With such a dreadful impasse in the economy, Mugabe ordered what most authoritarian governments would do in such a scenario: Print more money.
And that was the beginning of the end of a stable Zimbabwean economy. This move steadily increased the money supply of the ZIM $ in circulation. Even in such a tumultuous time for the economy, Mugabe engaged himself in populist moves like financing a war in Congo (for geopolitical & personal gains) and hiking salaries of government employees and soldiers (in order to placate them & stay in power). He again financed both these moves by printing more money.
Apart from the increase in money supply, most of the consumer goods were also facing price pressure. This was simply due to a shortfall in supply which resulted in excess demand. This dual mechanism driving the prices up can be aptly explained by the diagram below:
THE DARK LORD RETURNS
In February 2020, hyperinflation was back in Zimbabwe. Inflation had peaked at 676% in March 2020.
The main causes this time were:
Disruption due to COVID-19 induced lockdown
Severe drought wreaking havoc on the relatively agrarian economy.
Outlawing dual currency & reinforcing Zimbabwean Dollar which had little public faith.
It remains to be seen if the inflation subsides as a new harvest season dawns upon the nation. A lot hinges on the amount of rainfall they receive.
WHAT YOU CAN LEARN
The crisis in Zimbabwe has a key lesson for everyone!
Never be fazed by popular notions. Mugabe bowed down to public pressure & being a populist leader, launched a racial policy that virtually served as a death knell for his nation. Think before you act. Be it a stock everyone is raving about. The skill is proclaimed by experts as a must-have. Or the technology being heralded as a future of everything. It is always better to have our own personal opinion on such matters.