The Regional Impact of the Zimbabwe Crisis

The main impact of the collapse of the Zimbabwe economy has of course been on its own people. However, sight should not be lost of the wider impact and here I personally feel that studies conducted some three years ago were somewhat limited in their scope and, in my personal view, underestimated the impact.

To give any impact study real meaning, we should start by estimating where the Zimbabwe economy might have been if this implosion had not taken place. That would then suggest levels of regional trade and the multiplier effects that could be used to assess the possible impact of such growth and stability on the other countries of the region.

Zimbabwe sits astride regional power and transport systems and at one time had the most advanced and developed financial and industrial sectors after South Africa, in the region. At one stage it was the largest trade partner of South Africa, Zambia, and Malawi on the continent and was also a major trading and services partner for Botswana and the Congo with a lesser position in Namibia, Mozambique and Angola. After South Africa we also had the largest tourism industry in the region.

Another factor that I think is understated is the impact of contagion and perception. There is no doubt that we are all tarred with the same brush when it comes to fighting for a place in the sun as far as trade, investment and tourism is concerned. These are all elements in the development business that are very sensitive to perceptions and public understanding. They are also very shy when it comes to any sort of conflict or instability. Capital flight from areas or countries suffering from instability and conflict are a sensitive and critical barometer of their situation and its implications.

I took as a base line 1996/97 as the last year when the Zimbabwe economy was still functioning on a 'normal' basis and expostulated the social, economic and trade situation to 2006 over a period of 10 years. The results were very interesting: -

Factor 1996/97 2005/06 (Estimated) 2005/06 (Actual)
GDP (US$ billions) 8,4 12.9 4.4
Tourism (visitors) 1 200 000 2 500 000 280 000
Exports (US$ billions) 3,4 5.78 1,4
Foreign Aid (US$ million) 800 1200 350
Imports (US$ billion) 4.2 7.4 1.8
Agric Output (US$ b) 1.554 2.564 500
Mining Output (US$ m) 672 1176 780
Employment 1 400 000 2 030 000 850
Population 12 500 000 14 790 000 10 500 000

When you look as these figures, the effect of the implosion over the past 10 years can clearly be seen. The assumed rates of growth in these numbers is modest - 4 per cent per annum in GDP, more in exports driven by rising export receipts in mining and agriculture as well as tourism. It should be noted that the tourism industry in South Africa has doubled in size since 1995 and I think tourism here would have increased faster than that under normal conditions. There were no major droughts in this decade.

The regional impact is obvious - in 1996 we were the largest trading partner for South Africa in Africa - trade in both directions at about R1 billion a month with imports from South Africa growing rapidly. By my estimates South Africa could have been exporting goods to Zimbabwe to the value of at least US$2,5 billion a year by 2006 perhaps even higher. All these exports would have been in the form of manufactured products with high multiplier and employment effects in the South African economy. This element alone points to a loss of potential exports to Zimbabwe by South Africa of something approaching US$10 billion in ten years.

If the region had not suffered from the effects of the Zimbabwe crisis internationally there can be little doubt that tourism would have risen faster than it has - by how much is difficult to estimate. Some of this potential has found its way to Botswana and Zambia but most of it has been lost - perhaps to the extent of 3 million potential visitors to the region in 2006. In the form of jobs this is equal to 375 000 jobs in the tourism sector alone.

In terms of capital flight, it is estimated that Zimbabwe has been loosing up to US$500 million a year in capital stock to capital flight. In South Africa the net loss of capital is in the order of a billion Rand a month - about three times the level of capital flight from Zimbabwe. The difference is that Zimbabwe is in a deep political and economic crisis with damaging and negative economic policies. South Africa on the other hand has pursued conservative economic policies and has made a remarkable transition from what it was before. Other SADC States all have positive net capital inflows - but resource based rather than based on either the investment climate or confidence in those countries as a developing services or industrial economy.

Without the negative impact of the Zimbabwe crisis it is possible that South Africa might have experienced perhaps 2 per cent more real growth in GDP per annum than it has actually achieved since 1994. This is equal to US$2,6 billion a year in additional GDP growth. Combined with capital flight of about half this figure this represents a loss of potential economic activity of US$4,3 billion a year. No developing country, especially a country like South Africa, with 40 per cent unemployment, millions homeless and extreme rural and urban poverty, can ignore such a loss of economic potential without running the grave risk of instability in the longer term. That is exactly the price that South Africans are paying for Mugabe's delinquency and bad government.

If you lift Zimbabwe out of the SADC economy and study what is left, the picture is pretty good. Angola, Mozambique and Botswana are all headed for growth above 8 per cent; Zambia is not far behind while South Africa's economy, boosted by the massive surge in mineral and precious metal prices is also likely to grow strongly. That leaves the minnows of Malawi, Swaziland and Lesotho - all showing growth but at lower levels. If you then had Zimbabwe also recovering and perhaps growing strongly, its economy fuelled by tourism, mining and agriculture, you would see stronger regional growth overall - perhaps of the order of 1 to 2 per cent. That's the difference between making an impact on poverty and unemployment and not.

Eddie Cross
Bulawayo, 16th July 2006