By STEVE H. HANKE. Excerpts:
"During
Mr. Mugabe’s reign, all economic activity was dependent on political
decisions, which enhanced the prizes of political power and the stakes
in the fight for it. State-owned enterprises, capital controls, price
controls, import controls, one-time mining fees and a plethora of
regulations wrapped Zimbabwe in a giant ball of red tape and destroyed
the economy.
Measured by real gross domestic product per capita, living standards are
now
only 78 percent of what they were when Mr. Mugabe assumed power in
1980. When one looks at agriculture, for instance, the erosion is clear.
Zimbabwe used to export maize; now it is an importer. Since the land
reforms of 2000, the value of farm production has
shrunk by 45 percent."
"Zimbabwe’s annual budget deficits averaged 5.4 percent of G.D.P. during
Mr. Mugabe’s tenure, with the
current deficit at a whopping 11.2 percent. The result is a mountain of bad debts and arrears.
The collapse shows up in every international rating of the economy. In the World Bank’s
Doing Business 2018 index, Zimbabwe ranks 159 out of 190; in the Fraser and Cato Institutes’
Economic Freedom of the World listing for 2017, Zimbabwe is 144 out of 159; and in the World Economic Forum’s
Global Competitiveness Index for 2017-2018, Zimbabwe ranks 124 out of 137."
"In the
Fraser Institute’s Investment Attractiveness Index 2016 for
mining, Zimbabwe ranks 96 out of 104.
Zimbabwe’s
economic decline has been punctuated by several notable events and
episodes. One of these was the Fast-Track Land Reform Program of 2000,
under which land was seized from white farmers.
This
confiscation had been happening since 1980, but under this program, the
farms were taken without compensation. Zimbabwe’s Supreme Court
declared the program unconstitutional, but Mr. Mugabe’s government
ignored that ruling.
This
flagrant abuse of property rights and the rule of law sent the economy
into a deep dive. From 2000 to 2008, real G.D.P. per capita
contracted
on average by 8.29 percent per year. During this period Zimbabwe ran
large fiscal deficits financed by printing money and experienced the
second most severe case of hyperinflation in history.
On Nov. 14, 2008, the annual inflation rate peaked at 89.7 sextillion
percent.
Prices doubled every day, making Zimbabwe’s 100 trillion dollar notes
worthless. In the end, the government was forced to scrap the Zimbabwean
dollar, because Zimbabweans simply refused to use it.
Mr.
Mugabe’s government then instituted a system in which the United States
dollar became the coin of the realm. Government accounts became
denominated in United States dollars in 2009. As a result of this
dollarization and the installation of a national unity government in
2009, the economy rebounded.
That
rebound persisted during the term of national unity government, which
lasted till July 2013. During this period, real G.D.P. per capita
surged
at an average annual rate of 11.2 percent. The minister of finance,
Tendai Biti, who was a member of the opposition, understood that under a
dollarized regime, the country would no longer be able to print money
to finance deficits. Consequently, budget deficits were almost
eliminated.
With
the collapse of the unity government and the return of Mr. Mugabe’s
Zimbabwe African National Union-Patriotic Front party, old habits
resurfaced. Fiscal deficit
ballooned — something that should not happen under “dollarization rules.” But Mr. Mugabe would break any rule.
To
finance its ballooning deficits, the government began to issue an
enormous number of “New Zim dollars” in 2016. As night follows day,
Zimbabwe experienced its second bout of
hyperinflation in a decade.
The
end of Mr. Mugabe’s rule raises the question: What is next for the
economy? Zimbabwe could adopt the strategy of Lee Kuan Yew, Singapore’s
first prime minister. That strategy was based on four principles: stable
money, no foreign aid, first-world competitiveness and the protection
of private property and the public’s safety. With Mr. Lee’s near perfect
execution of the strategy, Singapore escaped its grinding poverty of
1965 to become one of the world’s most affluent countries."
"To
deliver, Mr. Mnangagwa must prohibit the issuance of New Zim dollars.
The dollarization rules followed by the unity government should be
restored. Mr. Mnangagwa should also announce that private enterprise is
Zimbabwe’s future.
The
World Bank has found that there is a strong positive relationship
between a country’s prosperity and how easy it is to do business there.
At present, Zimbabwe ranks 159 out of 190 on the bank’s ease of doing
business metric, with a score of 48.47. If the country loosened the
government’s grip on the economy and reached the same score as
neighboring Botswana (64.94), it would boom, as it did during the unity
government years.
The
new president should establish a cabinet task force that would be
responsible for making it easier to do business in Zimbabwe. It now
takes 61
days
and costs more than an average person’s annual income to start a
business. When compared with those of other countries in the region,
these costs are sky high. As a first reform step, the government should
slash the biggest contributor to these costs: the licensing requirements
and fees needed to start a business.
By
adopting such a strategy, confidence and the economy would both soar.
Zimbabwe’s G.D.P. per capita would reach the same level as Botswana’s
current level in about 16 years. Zimbabweans’ level of income would then
be almost six times its current level. Zimbabwe would once again be the
“
jewel of Africa.”"
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