Why Is One of the World’s Least-Free Economies Growing So Fast?

via Zimbabwe: Why Is One of the World’s Least-Free Economies Growing So Fast? | Cato Institute Archives from March 18, 2013 by Craig J. Richardson

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Between 2009 and 2011, Zimbabwe’s GDP growth averaged an impressive 7.3 percent, making it one of the world’s fastest-growing countries. Yet World Bank governance indicators place Zimbabwe’s government among the world’s worst, and the Fraser Institute’s Economic Freedom of the World index ranks it as one of the world’s least economically free countries.

Zimbabwe’s performance coincides with its January 2009 adoption of the U.S. dollar and South African rand as its official currencies, which swiftly squelched rampant hyperinflation and stabilized the economy. Yet dollarization doesn’t explain why the country has been growing faster than Hong Kong, a territory with a stable currency and one of the freest economies in the world.

Zimbabwe’s dollarization was accompanied by three significant economic developments, none of which will foster growth long-term. First, between 2009 and 2011, 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. Second, 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. Third, Zimbabwe’s economy is becoming increasingly dependent on the production and export of raw mineral commodities, which have experienced rapid worldwide price hikes.

Zimbabwe’s recent growth rates do not accurately reflect its long-term economic prospects. Rather, they draw attention away from the country’s continuing pressing problems, including an inadequate food supply, poor governance, weakening property rights protection, and a bloated government sector. Those problems have been unwittingly enabled by Western governments and the IMF through massive cash infusions, which have given the Zimbabwean government little incentive to change.

 Craig J. Richardson is an associate professor of economics at Winston-Salem State University, North Carolina. He is the author of The Collapse of Zimbabwe in the Wake of the 2000–2003 Land Reforms(Mellen Press, 2004).

COMMENTS

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    Dzoromuvhu 7 years ago

    Craig, what is 10% of $10m, is it not one million? It should! What is 10% of $1 billion? Should be $10m! Zimbabwe was coming from negative 5% GDP, the added a few millions to be positive. In absolute terms the charge is insignificant, just $1m. In quantitative terms it appears 100% growth from -$1 to 0, its 200% from -$1m to +$1m GDP. We eat absolute dollars not stats, Craig. Professor Doctor Moyo ll still give you you dollars for this unworthy article, anyway.

    • comment-avatar

      Wow Dzoro, I though 10% of $1B was $100M/ The rest of what you write makes no sense.

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    Liberator 7 years ago

    Zimbabwe’s GDP increased in high percentages because it is coming from a very low base. If we move back and compare the current GDP with the GDP of 1990 when the economy of Zimbabwe was at the peak, the GDP will be in a negative growth. There is really nothing positive to talk about as far as the economy of Zimbabwe is concerned. As long as there is no freedom and rule of law in Zimbabwe, its economy will still continue to be on a deathbed. Thanks to the US dollar and Rand which revived the Zimbabwe economy from the dead in 2008. How it happened, its a miracle. As with foreign investors be warned, be patient. It is not the time to get into Zimbabwe and invest. There is a lot of turmoil and chaos to come within the next 5 years. The only investments that will work in Zimbabwe for now are illegal and underground dealings. If that’s your line of business, the time is now.