Zim’s GDP growth is a paradox, says economist

2013-04-07 10:00

North Carolina economist Craig Richardson has said Zimbabwe’s rapid GDP growth and poor business environment appear to be a paradox, but the country’s rate of increase is not sustainable.

In a paper entitled Zimbabwe: Why Is One of the World’s Least-Free Economies Growing So Fast? Richardson says the country’s economic growth is the result of unsustainable economic factors.

These factors have, he says, created an artificially high growth rate, including a twelvefold increase in government expenditure since 2008, with government deficits fed by enormous inflows of foreign grants and loans from the International Monetary Fund, China and Western countries (both on- and off-budget).

The associate professor of economics at Winston-Salem State University says the current growth in GDP is not a reliable indicator of Zimbabwe’s long-term prospects, unless the government begins to fix its internal problems of extraordinarily poor governance, insecure property rights and dependence on foreign aid and raw exports.

“The case reminds us that correlations between economic freedom and economic growth are not always tidy, especially over a short period.

“But the advantage of studying one of the world’s least free economies is that it throws into sharp relief how economies can grow despite themselves, at least in the short run. It helps us further understand how all GDP growth is not the same.

“This is especially true when analysing other countries in sub-Saharan Africa, many of which are also growing rapidly but making more headway in constructing responsible governments and freer markets.”

Richardson says long-term investments, which bring rising standards of living to most citizens, must be accompanied by an economic environment characterised by risk-taking, trust in the secure rule of law and strong property rights.

“Yet there is some cause for optimism. Economic development is not far beyond Zimbabwe’s grasp, as it has the shell of a constitutional framework, a government originally organised along democratic structures, and a previous record of respecting property rights and rule of law.”

Richardson says that nearly 9% of Zimbabwe’s GDP comes from off-budget grants from the outside world, and those grants have rapidly increased over the past several years.

There has also been a rapid escalation in sales of raw minerals that have had the good fortune to benefit from higher commodity prices.

“Yet the country’s increasing reliance on exporting raw commodities, rather than investing in manufacturing,puts it in a vulnerable position, subject to volatile world prices beyond its control.”

He goes on to say dollarisation has played an important role in stabilising the economy, and has yielded improvements in local markets and the tourism sector.

But the artificial financial injections from the outside world have propped

up the economy and enabled the government to move to lower governance and economic freedom ratings, while damaging its long-term growth prospects.

» Malcolm Sharara is Fin24’s Zimbabwe correspondent

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