African Institute for Agrarian Studies
Agrarian Policy Research and Dialogue Activities for Agricultural Revival and
Conflict Resolution in Zimbabwe
Agricultural Productivity and Efficient Management of Resources Study
The Overall Macroeconomic Environment and Agrarian Reforms
G. Chigumira and I. Matshe
September 2004
TABLE OF CONTENTS
1.0 Introduction........................................................................................................ 3
2.0 Macro economy and Agrarian Reform............................................................... 5
3.0 Land Reform and Resource Allocation in General............................................ 8
4.0 The Macroeconomic Environment and Agricultural Policy Incentives .......... 10
5.0 Foreign Exchange Earnings and the Agricultural Sector ................................ 14
6.0 Macro policies vis-à-vis Practice....................................................................... 16
7.0 Agrarian Reforms and Current Macro-economic Policies ............................... 18
7.1 Sustainability of Fiscal Policy and its implications on Agrarian Reform ................. 18
7.2 Monetary and Foreign Exchange Policies .................................................................... 24
7.3 Trade Policy ...................................................................................................................... 26
7.4 Implications on Food Security and Income Distribution .......................................... 27
7.5 Budgetary Implications of Agrarian Reforms .............................................................. 27
8.0 Conclusion and Policy Recommendations.......................................................29
Statistical Appendix ................................................................................................ 31
2
1.0 Introduction
Since the 1980s the Zimbabwean economy has been characterised by increasing
unemployment and scarcity of foreign exchange. The shortage of foreign exchange has
hampered the importation of spare parts and other intermediate inputs essential for
industry as well as the agricultural sector. High unemployment means low demand for
both manufactured and agricultural products. Low effective demand restricts the
productive capacity. Shortages of essential commodities imply missed opportunities and
divergences between market prices and economic values that could be sustained only
through government intervention- eg. price controls or subsidies. Inevitably such an
environment poses serious constraints and challenges to any new policy initiatives such
as the agrarian reform. The question then is how macroeconomic distortions can be
addressed in order to ensure that the potential benefits of the agrarian reforms are
realised.
The economy’s capacity to generate new jobs is dwindling. Most of the graduates from
the education system are increasingly being employed in the informal sector, whilst some
are disguisedly unemployed in the smallholder farms in communal areas or engaged in
cross border trading, vending, and crafts. The minimum wages policy, the strict anti-
dismissal rules of the 1980s, the low interest rate policy and the overvalued exchange rate
regime encouraged the substitution of machinery for labour, thus leaving a large pool of
productive labour unemployed. The goals of agrarian reform are constrained by an
environment of high unemployment rates given the fact that most farmers particularly
those in communal areas and the A1 resettlement scheme depend heavily on remittance
income from family members employed in the formal sector for the purchase of essential
inputs and working capital.
The foregoing confirms that there are complementarities and synergies between the
agricultural sector and other sectors of the economy, which are jointly affected by the
imbalances in the macro-economy. The overall effects of the agrarian reform have been
negative just as much as the feedback effects from the macro-economy on to the
agricultural sector (or more specifically on the resettled households). For example, the
chosen mode of financing of the agrarian reform has contributed to a higher budget
deficit, which feeds into higher monetary growth and ultimately inflation. A highly
3
inflationary environment has negatively affected the agrarian reforms through high cost
of inputs and/or scarcity of essential agricultural inputs and high cost of borrowing as
reflected by the high nominal interest rates. In an environment of high interest, banks
and other financial institutions have restricted lending to the productive sector including
agriculture due to the high risk of default. This lead to credit rationing which fell heavily
on the small and newly resettled farmers who have no fixed assets that qualify as
collateral security.
Among the issues that deserve scrutiny is the consistency of the agrarian reforms and
other policies or government initiatives to revamp the rural economy. Some of these
initiatives are designed to promote off-farm employment in the rural economy through
the promotion of SMEs. Off-farm employment boosts the income of the rural
community. This income is used for consumption smoothing, investing in agriculture
and/or generating effective demand for the agricultural sector output. Growth in
agriculture, which has important linkages with non-agriculture is an essential element for
poverty reduction in Zimbabwe. Many non-farm activities, with upstream and
downstream linkages to agriculture and natural resources sector, have important
multiplier effects. Thus developing effective support for the rural non-farm economy is
an essential part of rural development strategy. In this regard government interventions
would need to strengthen existing opportunities, seek new ones, and address the removal
of barriers to entry by rural entrepreneurs and communities to diversified employment
and enterprise activity. To date these interventions have failed to address the institutional
support necessary to foster a diversified rural economy at the national and sectoral levels
as well as at sub-national, local and community levels.
Agrarian reform has resulted in the loss of well over 50 000 permanent agricultural jobs
in the large-scale commercial farming areas, but the country is yet to see positive gains in
terms real growth in the small-scale. On the contrary capacity has been lost as the
process of reform has progressed and the procedures followed had less to do with
efficiency considerations and more with the sole objective of land redistribution
irregardless of the low land uptake rates. The question to ask is how these reforms could
be structured to minimise the negative employment impact and create a conducive
environment for a fuller engagement of resources laid off from commercial farming,
4
including farm labour, which possesses vast tacit farming knowledge acquired through
years of learning by doing.
Agrarian reforms therefore need to be viewed in terms of what is happening at both the
macro- and the micro-level of the economy since it is expected that the physical
redistribution of land will translate into equitable distribution of income. Whether this
will be the case depends very much on the effects of other macro policies. To date there
have been policy conflicts and/or non-complimentarity of policies thus negating the
benefits of the agrarian reforms both in the short- and medium-term. Thus this paper
sets out to also examine the nature of the trickle-down and indirect effects at the macro
level caused by the reforms.
The foregoing suggests that there is need not only to dwell on the sectoral analysis but
consider the economy-wide effects. This enabled us to disentangle the intricate backward
and forward linkages between the agricultural sector and the rest of the economy and
how they can be reinforced. It is in this light that we explore whether and how agrarian
reforms strengthen or weaken backward and forward linkages with the rest of the
economy. An economy-wide perspective may indicate that indirect effects of
macroeconomic and industrial policies are no less important to the success of the
agrarian reforms than the direct sector specific agricultural policies, which are picked up
by sectoral studies.
2.0 Macro economy and Agrarian Reform
Following independence from the colonial regime in 1980, the government pursued
many policy interventions to improve agricultural institutions including those involved in
input supply, credit, marketing, mechanisation, agricultural research and extension, etc.,
in order to stimulate increased agricultural production and enhance productivity,
particularly in the smallholder sector. The sector recorded significant gains following
these interventions. However, policy reviews identified skewed land distribution as one
of the main constraints to higher returns from the other interventions.
Macroeconomic imbalances, especially overvalued exchange rate and high inflationary
environment can have adverse effects on current and post land redistribution investment
in the agricultural sector. For example, exchange rate misalignment can impose severe
5
implicit taxes on the agricultural sector through reduced export revenue and increase cost
of imported agricultural inputs where funds are raised on the parallel market. Ways of
harmonising macroeconomic policies and sectoral policies to achieve a common
objective need to be explored.
However, it was realised at the onset that land reform is a major national activity that
would require huge resources and would upset (both positively and negatively) the way
the economy operates. Thus, it was inevitable that a significant success factor for
Zimbabwe’s agricultural sector would be the degree and speed with which the economy
will offset the economic costs of the land reforms. The Government expected the
ownership structure that emerges from land redistribution to form the basis for equitable
and sustainable economic growth. However, how this would be achieved depended
primarily on the prevailing macroeconomic policy environment.
Macroeconomic policies include fiscal and monetary policy, budgetary policy and policies
that govern the economy-wide or macro prices (ie. the exchange rate, the interest rate
and the wage rate). Government, as is the case in other developing countries, has been
extracting a greater amount of tax revenue from agriculture than it spends on agricultural
subsidies or investments even during the reform. The provision of the single largest fixed
asset (land) to many more farmers than was the case before reform, from the
government’s perspective, would result in an improvement in the productive capacity of
the agricultural sector. However, land alone cannot guarantee a turn-around of the sector
let alone the whole economy. As can be shown on the flow chart (Figure 1) below other
macro-policies and the general economic environment play a large part in the success or
failure of the agrarian reform, which in effect affects first and foremost a fixed resource.
6
Figure 1. Flow Chart for a CGE-Type Framework
Fixed Factors
Labour markets
Labour demand* Activities
≠w
Labour supply Domestic
Exports*
supply*
Products
≠p External ≠ p’
markets
Factor income markets
Domestic
demand* Imports
Institutions’ income Transfers, taxes
Hh, govt, firms
Demand for commodities
Disposable
Household demand
institution Govt consumption
income* Savings Investment
Notes: * indicates the areas most critically affected by the disruptions
p, p’, w are equilibrium prices
Source: Adapted from de Janvry and Sadoulet, 1995
For the Zimbabwean economy the effects of land reform should be viewed from the
point of view of land as a fixed factor and the source of livelihood for the majority of the
population. Thus the immediate (short-run) effect of the reform has been to increase
unemployment (well over 70% of the Zimbabwean population is unemployed). This has
disrupted the equilibrium wage rate (due to the disequilibria between supply and demand
of labour) that has led to a disruption of the activities both on and off-farm in the
economy and therefore factor incomes have dropped by an average of 21% in real terms.
Second, was the impact of the reform on factor incomes and disposable incomes of
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institutions and hence savings and investment1. On the other side of the framework the
disruption resulted in a drop in domestic supply and exports, which in turn resulted in
disruption of internal prices and a fall of foreign exchange. Of course the impact of all
these phenomena cannot easily be isolated from the impact of economic and political
sanctions and the political fallout from the land acquisition process. In this case, then
there arises a need to carry out a quantitative analysis of the exact impact of one without
the other or the other without the one
Other macro policies like trade policies provide opportunities to supplement domestic
savings and to stimulate investment for overall economic growth. The export earnings
from trade help the economy to finance imports of capital equipment and other inputs to
support long and short-term investments in the agricultural and non-agricultural sectors.
Export earnings also enable the country to meet its foreign public and private sector
debts.
3.0 Land Reform and Resource Allocation in General
Land redistribution remains the most immediate and visible expression of the
Zimbabwean agrarian reform. But land redistribution alone does not make agrarian
reform. Post-land transfer, farm and beneficiary development in terms of back-up
services (especially agricultural research and extension as well as credit and finance),
development of irrigation schemes, infrastructural development such as construction of
roads, bridges, schools and clinics all require government funding. Experience from
resettlement schemes of the 1980s/1990s shows that progress of agrarian reform has
been constrained by the inability of government to finance infrastructural investment
required to make resettled areas productive. For example, breaking up of large
commercial farms into smallholder agricultural unit required substantial investment in
roads, water and social infrastructure such as schools and medical facilities. This implied
that the success of the current agrarian reforms depended on agriculture’s ability to
compete for resources both domestically and off-shore with other sectors of the
economy.
1
This effect has been compounded by high inflation and negative investment conditions that were
exacerbated by political imprudence and economic mismanagement.
8
Generally competition for resources in the economy is governed by the economic
competitiveness of different activities reflected by agricultural relative prices. Agricultural
prices in Zimbabwe have fell by about 8% in real terms in the decade leading up to the
so-called fast track land redistribution programme. This effect has been exacerbated by
other economic wide policies, whose impact has been through the real exchange rate and
the price of non-agricultural activities. It has generally been shown that many macro-
policies in developing countries are biased against agriculture and Zimbabwe is no
exception (Valdes, 2000). Trade and investment policies over the past 10 years have
tended to have a negative impact on agriculture drawing resources away from the sector
particularly from the small-scale sector. Indirect effects of macroeconomic and industrial
policies were no less important to agriculture than the direct sector specific agricultural
policies. Two key relationships are central in this analysis: the relative price of agricultural
to non-agricultural commodities, and the price of tradable to non-tradable (or “home”)
goods, the real exchange rate.
Additionally the way in which the policies themselves have evolved over time in
Zimbabwe and how they affect agricultural incentives and performance is also important.
Understanding this will help in the design of appropriate policy interventions that will
avert the negative policy-induced effects on agriculture. Zimbabwe’s agricultural policies
evolved in a closed economic environment and most of the other macro-policies have
tended to be inward looking. It was not until the early nineties that open economy
macro-policies were adopted in the context of Structural adjustment.
From the viewpoint of efficiency, agriculture has been taxed (implicitly) over the years
relative to other sectors. At the same time some sections of the sector has been favoured
(through subsidies). The effect of direct taxes on agriculture was to keep prices low for
urban consumers and obtain export revenue. However, the poorest section of the
population is located in the rural areas rather than in cities and so this has not lead to
benefits for the poor but has resulted in a rise in poverty levels and food insecurity.
Generally it is preferable to use non-price instruments to attain social and distributional
goals to avoid the negative effect of price distortions. Price distortions in agriculture lead
to inefficient resource allocation across the whole economy or the major parts of the
Zimbabwean economy.
9
Macroeconomic policy induced domestic forces (such as changes in technology and
productivity) and exogenous international forces (such as changes in the country’s terms
of trade) impinge on the success of the agrarian reforms. The general view among policy
makers is that the agrarian reforms in Zimbabwe can propel an agricultural led economic
recovery. This is based on the notion that agriculture can be an engine of growth through
proving income necessary to nourish and sustain economic development while fostering
self-reliance. This view assumes a stable macroeconomic environment. If the
macroeconomic is not stable as demonstrated by galloping inflation and the increasingly
unsustainable fiscal deficit, then there may be forces emanating from the macro-
economic environment that can militate against the success of sectoral policy initiatives
such as the agrarian reform.
In a stable macroeconomic environment the agrarian reforms do not only boost
agricultural output but they also have potential of boosting export revenue in an
economy that is currently capital and foreign currency starved. The success of the
agrarian reforms will also mean that a large pool of surplus and underemployed labour
force in the rural areas will find work thus helping to reduce the national unemployment
rate. This will have feedback effects through increased demand of products produced by
other sectors of the economy.
The success of the agrarian reforms may also be affected by slow and weak response to
policy signals due to such constraints as imperfect factor mobility and information
asymmetry. For example, displaced experienced farm labour and machinery has not
readily had access to appropriate employment, regardless of the shortages being
experienced in some parts of the country.
4.0 The Macroeconomic Environment and Agricultural Policy Incentives
Government policies affect agricultural performance through sector specific measures
including, input and credit subsidies, price controls, quantitative restrictions, government
expenditures and taxes (implicit and explicit). Indirectly government policies often have
unintended effects on agriculture. Policies concerning industrial protection, exchange
rates, interest rates, fiscal and monetary policies can strongly influence the incentive to
invest in the agricultural sector. The growth and performance of the agricultural sector is
also affected by resource flows between sectors, and because these flows adjust the
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relative opportunities by different sectors over time. Thus an economic wide view of the
returns is necessary for understanding the dynamics of agricultural sector growth and
employment in an environment of agrarian reforms. In a general equilibrium framework,
agricultural incentives could be determined in terms of the relative price of agricultural
and non-agricultural products.
Sectoral policies designed to protect the manufacturing sector can work against
agriculture by reducing both the relative incentive (or demand) to invest in the
production of agricultural goods and the resources available (supply) for this investment.
Thus, there is need to explore ways in which sectoral policies can be coordinated at the
macro level to achieve policy harmony. Policy co-ordination is even more important at
the macro level in order to avoid distortions caused by policy conflicts.
This paper considers the relationship and interaction between the agricultural sector and
the macro economy in an environment of agrarian reforms. The basic premise being that
agriculture can be an engine of economic growth. To establish whether this premise is
correct in the case of Zimbabwe we need to look at the link between real GDP growth
and Agricultural growth.
During the period from 1990 to 2000, the average annual contribution to the GDP by
the agricultural sector was 16 percent. This is unique for Zimbabwe. Sectors with a
comparable contribution are the manufacturing sector and the distribution, hotels and
restaurant industry. The latter accounts for a substantial part of the earnings from
tourism. In contrast, the average contribution by the agricultural sector in SADC
countries was 8.2% in 2000. However, the figure for the region is highly variable from as
low as 2.8% in Botswana to as high as 45.8% in Tanzania (SADC FANR, 2000).
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Table 2. Gross Domestic Product and Agricultural Product (1990-2000)
Z$ million
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
GDP at nominal rates
GDP
19349.00 26284.00 31321.00 38807.00 50555.00 54471.00 75215.00 89097.00 116898.00 184413.00 286898.00
Ágriculture,
Hunting &
Fishing
3188.00 4013.00 2322.00 5836.00 9592.00 8312.00 16714.00 17042.00 22788.00 35812.00 57406.00
Nominal GDP
Growth rate 35.8% 19.2% 23.9% 30.3% 7.7% 38.1% 18.4% 31.2% 57.7% 55.6%
Nominal
Agricultural
Growth rate 25.9% -42.1 151% 64.3% -13.3 % 101.1% 2.0% 33.7 % 57.1% 60.3%
Agricultural
Sector
Contribution to
GDP 16.5% 15.3% 7.4% 15.0% 19% 15.3% 22..2% 19.1% 19.5% 19.4% 20.0%
GDP at constant 1990 prices
GDP 19349 19973 18884 19212 20293 20084 21799 22365 22711 23829 22855
Agriculture,
Hunting &
Fishing 3188 3221 2474 3145 3375 3119 3737 3834 4023 4277 4345
Real GDP
Growth Rate
3.2% -5.4& 1.7% 5.6% -1.0% 8.5% 2.6% 1.5% 4.9 -4.1
Real Agricultural
Growth Rate 1.0% -23.2% 27.1% 7.3% -7.6% 19..8% 2.6% 4.9% 6.3 1.6
* - Ministry of Finance estimates
Source: CSO, 2000
Table 2 shows very high rates of nominal GDP growth ranging from 7% to 58% in the
past decade. However, the table shows that in real terms the economy experienced very
modest growth ranging from –4.1% to 8.5%, translating to a ten year average of 1.7%
respectively. The agricultural sector grew at a much higher rate during the same period,
attaining an average annual growth rate of 4.7 percent. During the drought years of 1992
and 1995, the real growth rate for the sector declined dramatically by –23.3% and –7.3%,
demonstrating the need for improved drought management including development of
irrigation and water storage. Reduced output in the two years corresponds to negative
GDP growth rates of –5.4 percent and –1.0, showing the strong positive relationship
between performance of the agricultural sector and the rest of the economy illustrated
further in Figure 2.
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Figure 2 Real GDP and Agricultural Growth Rates (1990-2000)
30
20 Real GDP
Growth Rate
10 (%)
0
Real
-10 Agricultural
Growth
-20 Rate(%)
-30
Agricultural reforms then are crucial to GDP growth. This fact is not true not only
because of the proportion of domestic product from the sector but also because of the
linkages elaborated in section 8 below.
Over the past five years Zimbabwe’s economy has declined substantially as shown by
rising unemployment and poverty, high inflation and interest rates, declining investment,
high budget deficits and deteriorating balance of payments (Ministry of Finance, 2001).
Table 2 illustrates the decline, which became more pronounced from
Table 2 Trends in Interest Rates and Inflation
Year Interest Rate Annual Inflation Exchange Rate
(Treasury Bills) (%change in CPI Base (Zim$/US$)
year 1990)
1990 9.50 2.64
1991 18.50 23.30 5.05
1992 35.50 42.09 5.48
1993 26.94 27.63 6.93
1994 30.00 22.27 8.39
1995 29.83 22.57 9.31
1996 18.90 21.43 10.84
1997 31.39 18.85 18.61
1998 35.38 31.70 37.37
1999 68.68 58.52 38.11
2000 66.20 55.41 44.62
2001 26.65 56.58 55.08
Source: CSO, RBZ 2000&2001
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1998 when the fast track land reform process took centre stage. Some of the critical
factors affecting that decline include poor export growth due to declining terms of trade
for primary commodities, poor implementation of the structural adjustment and
stabilisation programs form 1991 to 1997, withdrawal of international donor support for
policy reforms and uncertainty over the land reform programme. At the peak of the
reforms in 2001, the economy contracted by an estimated 7.3% and the agricultural
sector declined by 12.2% (Ministry of Finance, 2001). The decline in agricultural output
worsened to 22% in 2002 and it is set to accelerate considerably in 2003. The weak
macroeconomic environment, and the decline in agriculture due to the linkages between
the two sectors too have influenced the manufacturing sector. Manufacturing output has
been estimated to have fallen by 16% in 2002 after a decline of 9% in 2001 with 400
company closures in 2001 and an additional 200 in 2002.
In 2000 the Government responded to the falling economic indices by cobbling up the
so-called Macro-Economic Recovery Programme (MERP) whose main objective was to
restore macro-economic balance. National consensus on economic adjustment targets,
effective implementation and monitoring were key elements of programme success and
the agrarian reforms were important components of MERP that Government expected
to provide the basis for sustainable and equitable economic growth. The programme
never really took off due to a myriad of problems surrounding the agrarian reform
process. Therefore, macroeconomic imbalance continued to worsen making it difficult to
build a strong base for the reforms to make any positive economic effect.
5.0 Foreign Exchange Earnings and the Agricultural Sector
The agricultural sector is the single largest contributor to Zimbabwe’s export earnings.
Table 3 shows that the sector contributed an average 42.2 percent of total export
earnings between 1990 and 1998. The sector therefore plays an important part in
maintaining a healthy balance of payments position for exchange rate competitiveness
and stability.
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Table 3. Contribution of Agriculture to total Exports
Agric Contributions to
Year Total Exports Agric Exports Total Exports
(Z$m) (Z$m) (Percent)
4231.00
1990 1796.00 42.45
5544.00
1991 2467.00 44.50
7334.00
1992 2851.00 38.87
10164.00
1993 3600.00 35.42
15365.00
1994 7143.00 46.49
18259.00
1995 7139.00 39.10
24209.00
1996 11204.00 46.28
30208.00
1997 12512.00 41.42
44927.00
1998 20762.00 46.21
Average 42.20
Source: CSO, Statement of External Trade
Given this historical contribution of the agricultural sector to foreign exchange earnings,
it follows that one measure of the success of the agrarian reforms is its effect on the
contribution of the agricultural sector on foreign exchange. This should be one of its
objectives to increase the sector’s contribution.
The exchange rate peg (at Zimbabwe$55 to US$1 during October 200 to February 2003)
and intensification of surrender requirements on exports have undermined the inflows of
foreign exchange into the official market. the decline in exports and virtual lack of
foreign financing resulted severe import compression and rapid build-up of external
arrears. The loss of investor confidence due to the worsening macroeconomic instability,
15
serious domestic political tensions and sharp curtailment of donor assistance continued
to deter capital inflows.
6.0 Macro policies vis-à-vis Practice
In order to be able to distinguish the different aspects of the impacts of reform
throughout the economy the starting point is to discern these impacts first and foremost
on the sectors and sub sector directly linked to the agricultural economy. These form the
basis of the recommendations one can make about the way forward. Below is a matrix
for the food sub-sector, reflecting the policies and practical response to those policies
and policy recommendations thereof.
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Table 4. Agricultural Policies – Practice and Implicatioms
POLICY PRACTICE IMPLICATIONS RECOMMENDAITONS
Gov’t announces farmgate buying price, Private sectors offers better Farmers with poor access to Increase private sector role so farmers
Private traders set own price. Gov’t sets prices than gov’t when there are private traders get lower prices. get higher prices. Improve infrastructure
Pricing – Farmgate minimum buying prices shortages, Distorts internal production instead of merely increasing buying points
Payments are made in cash. and consumption patterns. which just increases the costs for the
buying agency
Spatially differentiated
Gov’t controls retail price, previously not Gov’t effectively subsidises Decontrol the price or Reduce/abolish
controlled. Gov’t marketing agency sells shortages have led to parallel grain prices. subsidies in normal year, when supplies
at subsidized prices, private sector setsmarket for maize and other Cheaper subsidized food in are adequate.
Pricing – Retail
own prices. Gov’t restricts grain grain products where buyers short supply
movement pay more. Private sector prices
are higher than gov’t prices
TRADE & MARKETING POLICIES
Gov’t through its procurement agency Private sector can not compete Frequent food shortages in Allow private imports
contracts and subsidizes imports of with government subsidized poor agricultural seasons, high
Import/Export …
grain. Private can import on their own. grain. cost to gov’t to pay for
Participation
Gov’t issues certificates for exports subsidies. Huge logistical
nightmare in grain movement.
% duty on grain imports and exports Import duties sometimes Waivering import duties on Reduce import duties to encourage
Import/Export … waived in times of food food during shortages efficient resource allocation and
Duties shortages encourages private sector competitiveness Under current situation,
imports waive duties
Gov’t marketing agency sells (at Shortages at gov’t outlets, Markets (gov’t and private) Need safety net for poor households.
subsidized price), Restrictions on grain Available in local markets at cannot meet households food Grain movement restrictions should be
Domestic movement apply to private sector – any parallel market prices (high) and demand. Poor households revisited
Marketing movement has to be sanctioned by the in small quantities cannot access food when gov’t
state agency cannot deliver required
quantities
Gov’t to maintain 500 000-936000 tonnes Usually holds less, currently no No fallback stocks, urgent need Consider alternatives including financial
Food Reserves maize reserve stock stocks to import food reserves and use of futures market
No official policy. Gov’t lacks clear grasp Tried several years ago, but not Purchases at high last minute Needs to incorporate experts with futures
Futures of advantages any more. Private sector still prices and no assurance of market knowledge in strategy formulation
carries out some futures trading availability and implementation
Composite controls in agric marketing Thriving commodity exchange Timely distribution curtailed Return to pre 1998 regime
Other
following the 1994 deregulation of agric market suspended
____________
trade
Transport GMB quotes ‘delivered to depot’ price Farmers pay for transport costs Farmers’ profits eroded by Re-allow private traders to participate in
TRANS-
to GMB, Private traders collect transport costs grain purchase
PORT
from farm gate
Gov’t and some NGOs distribute at Usually late response and/or Where available inputs too Allow private sector to import and
subsidized prices. Where allowed private short supply for season from expensive for most households. distribute. NGOs to assist in distribution.
Distribution
sector at full price. Some inputs prices are the Gov’t and NGOs. Lower duty on inputs
INPUT POLICIES
controlled. Shortages of inputs
Subsidized process (or free) to poor Distribution of subsidized Non-targeted groups benefit Exercise more control in distributing
Pricing (subsidy) households inputs often personalized and from subsidies subsidised inputs
politicised
Imports of chemicals allowed under Most fertiliser produced locally, Inaccessible inputs due to high
Import/Export … restrictions most chemicals imported. cost and market imperfections.
Participation Inputs suffers from lack of
foreign currency
Import/Export … Export subsidies not encouraged, import Reduce duties for imported inputs not
Duties tariffs charged available locally
Currency fixed at artificial rate Parallel market of higher rate, Shortages of foreign currency Gradual devaluation, eventually floating
Foreign Exchange
operates openly or official dual exchange rate
Do not exist Difficulties in export financing Exporters source forex on Need more information
Forex facilities parallel market and increase
MACRO-POLICIES
prices of goods
Financing of the GMB Financing inadequate resulting GMB failure to deliver its Allow private sector participation
Financing
in huge deficits services as per its mandate
Agric Sector Investment Programme Programme still under Support services severely Institute policies that encourage savings
Investment introduced. Public sector investment implementation affected and investment.
programme funding decreased
Formal and informal services exist, both Pvt sector mostly lend to LSCF, Farmers lack adequate and Private sector participation should be
Credit private and public sectors advance loans former parastatals advance inputs to improve production encouraged. Also encourage local group
inputs to small holder farmers savings
Interest rates fixed by gov’t, negative real Current interest rates are about Causes difficulties for farmers Liberalise depending on the exchange rate
Interest Rates
interest rates common 35% regime adopted
Redistribution to the land scarce Most productive land with Majority still needs to be Speed up redistribution. Provide basic
Other
HE
OT
infrastructure allocated to the allocated land infrastructure in the process
R
____Land________
more affluent individuals
Source: Matrix originally constructed for FAO, 2002
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7.0 Agrarian Reforms and Current Macro-economic Policies
7.1 Sustainability of Fiscal Policy and its implications on Agrarian Reform
Fiscal policy can be used to influence resource allocation within an economy. The most
obvious Unsustainable deficits in the external accounts have been a major source of
exchange rate overvaluation. Macroeconomic policies that affect the balance of payments
affect the real exchange rate2. Beginning December 1997 government expenditures rose
sharply, monetary policy became expansionary, and inflation followed close behind. Since
the nominal exchange rate was held fixed or even made to appreciate gradually, the real
exchange rate of the Zimbabwean dollar appreciated considerably.
Fiscal policy is of primary interest when the government budget balance is considered to
be unsustainable. The budget balance in Zimbabwe is chronically in deficit therefore
consumers and producers are affected directly. If we consider the basic national
accounting identity:
Y = P.Q + (FOREXIN – FOREXOUT) = C + I + G,
Where Y = monetary value of national output or national income
P.Q = value of goods and services produced
FOREXIN = Value of foreign exchange inflows (exports and foreign capital
outflows)
FOREXOUT = Value of foreign exchange outflows (imports and domestic
capital outflows)
C = consumption expenditures in the private sector
I = domestic investment expenditures in the private sector
G = government expenditures on public consumption and public investment
Or
(S – I) + (FOREXIN – FOREXOUT) = G – T.
Positive values of G – T correspond to a government budget deficit. In this case the
economy must experience a surplus of foreign exchange inflows over foreign exchange
outflows, or some combination of the two. Unfortunately for Zimbabwe this has not
been the case. Foreign exchange outflows have completely outstripped foreign exchange
2
The real exchange rate the relative price of two goods, represented by the ratio of the domestic price
of tradable goods to the price of nontradale goods. This ratio is frequently used to measure the relative
profitability of producing tradables compared with nontradables.
18
inflows. Therefore, in order to generate the necessary balance in government resource
use, the government altered budgetary policy and reduced expenditures (causing G to
decrease) instead of increasing taxation and transferring expenditures from the private to
the public sector (causing T to increase). This alternative proved too politically sensitive.
Total expenditure declined. For the most part, this reflected low interest rates and thus
low interest outlays on domestic debt. In 2002 expenditures on goods and services,
subsidies and transfers increased relative to GDP as part of the savings in the interest bill
were reallocated for non-interest outlays in the supplementary budget. Since the civil
service wage bill declined in that year as a percentage of GDP the resultant real wage
compression hampered the recruitment and maintenance of critical staff. This trend is
evident in the table 5 below. Instead government borrowed domestically by increasing
the interest rate to decrease private consumption and private investment in favour of
savings (causing S – I to rise). This policy led to crowding out of the private sector.
As the table shows national budget deficits have been constant features of the
Zimbabwean economy. The major problem however is how these deficits have been
financed. Although reliable figures are hard to come by, it is generally believed that in
Table 5. Zimbabwe budget Deficit levels
YEAR LEVEL OF DEFICIT
(million Z$)
1993 -2 644.4
1994 -2 134.0
1995 -6 315.3
1996 -5 315.5
1997 -6 129.0
1998 -7 797.3
1999 -18 930.9
2000 -55 180.0
2001 -42 447.5
2002 -37 690.8
Source: RBZ, 2003
the mid- to late 90s more than 60% of the deficit was financed through borrowing. In
this respect it is not surprising that in 2000 the budget deficit rose by more that 250% at
a time when year-on-year inflation was hovering around the 60% mark. Since a major
component of the funding for land reform (ie. Compensation for acquired land, services
and infrastructure provision) were sourced from the national budget, the expansion of
the programme during that period is one of the major factors that led to the substantial
19
rise of the deficit. These trends can be seen to have resulted almost directly to the
substantial rise in inflation during the latter half of that year.
Zimbabwe has been bedevilled with BOP problems since 1981. In December 1982 the
government reluctantly agreed to an IMF standby package including a 20% devaluation
of the currency, the adoption of a free exchange rate policy and ceilings on government
borrowing (credit restriction). The program however failed to attract the much-needed
foreign investment. The country continued to experience intense BOP problems in 1997
when the Zimbabwean dollar fell by about 50% in local currency terms and foreign
reserves fell to critically low levels. IMF policy measures were adopted and these
included increasing the interest rates to restrain domestic credit allocation. Nominal
rates at times exceeded 40%. In 1998 the government committed itself to reducing its
stock of domestic debt to enable the Reserve Bank of Zimbabwe to tighten domestic
credit without constraining the availability of bank credit to the private sector. Yet
despite these measures Zimbabwe has failed to realise consistent growth in the real
GDP: in 1995 real GDP fell by about 0.7%, rose by 7.3% in 1996 and went down by
about 3.2% in 1997. Total fixed investment (public and private) fell by 9% in real terms
between 1991 and 1996. There has been little reallocation of investment in favour of
export activities (Ncube et al, 1997). Of significance was the rise in the ratio of debt to
GDP as a result of the increase in real interest rates that exceeded the growth rate. By
1996, it had reached 80% of GDP. This meant that most of government resources were
devoted to repayment of debt and as such public investment declined sharply. There is
evidence that the high real interest rates have a strong negative effect on investment
(Marande and Schmidt-Hebbel, 1994). Zimbabwe’s stock of FDI had declined from $7.0
billion in 1980 to about $2.3 billion in 1994 (UN, World Investment Report, 1995).
Furthermore devaluation makes imports more expensive and because Zimbabwe’s
economy is dependent on external inputs devaluation reduces production and output.
The balance of payments remained under severe pressure in 2002. the current account
deficit widened from 4.9% of GDP in 2001 to an estimated 6.7% in 2002 ( see table 6).3
3
Here we use nominal GDP at world prices as a measure rather than nominal GDP converted at the
current exchange rate in view of the high inflation ration rate in the economy and the overvalued
official exchange rate.
20
Table 6. Balance of Payments (in millions of US$)
1999 2000 2001est 2002est
Current Account (excluding official transfers) 30 41 -391 -478
Trade balance 258 346 -170 -404
Exports f.o.b. 1933 2195 1609 1418
Imports f.o.b. -1675 -1849 -1779 -1822
Food -82 -62 -68 -304
Non food -1593 -1787 -1711 -1518
Non-factor services 31 -90 -131 -202
Receipts 621 331 246 219
Payments -590 -421 -377 -421
Investment income -390 -390 -324 -290
Interest -175 -173 -147 -123
Receipts 37 26 12 10
Payments -211 -199 -159 -133
Other -215 -217 -177 -167
Private transfers (incl transfers to NGOs) 131 175 234 418
Capital account (including official transfers) 188 -249 -387 -334
Official transfers 101 53 40 35
Direct investment 50 15 1 23
Portfolio investment 21 -1 -68 0
Long-term capital 73 -230 -270 -256
Government -60 -168 -203 -186
Receipt 163 56 8 0
Payment -223 -224 -211 -186
Public enterprise 70 -34 -44 -46
Private sector 63 -29 -23 -24
Short-term capital -56 -126 -90 -135
Public sector 0 0 13 -13
Private sector -56 -126 -103 -122
Errors and omissions -251 41 363 393
Overall balance -33 -207 -415 -420
Financing 33 207 415 420
Gross official reserves (-increase) 8 25 2 5
Net use of fund resources -27 -70 -85 -95
Drawings 35 0 0 0
Repayments -62 -70 -85 -95
Other short-term liabilities (net) -57 -106 -44 13
Change in arrears (decrease-) 109 359 542 498
Debt relief/rescheduling 0 0 0 0
Source: IMF, 2003
The current account widened from 4.9% of GDP in 2001 to an estimated 6.7% in 2002.
while the value of reported imports increased by 2.4%, mainly due to food imports.
Other imports declined by 11.3%. Exports declined by 12% in 2002 from a decline of
33.3% in 2001.
21
The other option that has been popular with the government is the use of monetary
policy, this policy entailed borrowing from the Reserve (or central) Bank., which finances
the government debt by increasing the money supply4. However, Zimbabwe faced
binding resource constraints that could not be breached simply by increased public
expenditure. What was adjusted was the average level of prices. Thus monetary policy
caused, among other things, demand-pull inflation. This policy could not finance the
budget deficit since savings did not increase (they decreased by 50%) relative to
investment and net foreign inflows did not increase. In fact, Zimbabwe now does not
have foreign exchange cover for more than 24 hours.
Because current policies will have implications for the future, the sustainability of fiscal
policies is based considered in an intertemporal framework. Sustainability here relates to
public debt sustainability because fiscal deficits are financed through borrowing
domestically or abroad. While there is no universally agreed upon measure of the
sustainability of fiscal policy, it is commonly accepted that fiscal policy becomes
unsustainable if current and future fiscal policies result in a persistent and rapid increase
in the public debt-to-GDP ratio.5 Zimbabwe’s fiscal position was relatively stable
throughout the 1990s, as the primary deficit averaged about 1% of GDP with relatively
little variation in the yearly outcome (See Figure 3).
4
Generally, if the country had unemployed resources that could be combined (proportionately) with
existing technologies and management, the increase in money supply could have resulted in the growth
of production of goods and services. Taxes and saving would rise and the budget is financed.
5
A good example is that of the EU where under the Maastricht Treaty specified that countries wishing
to join the monetary union should not have public debt that exceeded 60% of their national GDP.
22
Figure 3. Indicators of Fiscal Sustainability
20
10
0
-10
-20
-30
-40
-50
Year
Real interest rate (adjusted for real GDP
growth)
Overall balance (before grants)
Real interest rates, after adjusting for real GDP growth, were close to zero and were not
a significant source of fiscal instability. Critical for the reforms however, is the fact that in
the late 1990s public sector financing increasingly shifted towards domestic credits as
access to foreign financing, official and private, was lost, reflecting faltering investor
confidence in Zimbabwean’s economy and the deterioration in the government’s fiscal
stance (figure 4). In 2000 the primary deficit swelled to 5.5% of GDP. The central bank
tried to contain the resultant inflationary effects and as a result domestic interest rates
rose sharply. This led to severe crowding
Figure 4. Foreign Debt Financing, Foreign Grants
and Privatisation Proceeds
4
3
2
1
0
-1
-2
Foreign grants Foreign financing Privatisation
23
out of the private sector.6 The government’s debt service cost increased to 33.3% of total
expenditure in 2000 compared to 14% in the early 1990s. This had direct consequences
for the financing of agriculture reforms in general and land reform in particular.
Zimbabwe’s domestic borrowing became increasingly short-term7. Combined with the
absence of foreign financing would have led to a situation where the fiscal policy would
have become unsustainable. In November 2000 domestic debt was restructured such
that by 2001 at least 30% of the domestic debt stock became medium and long-term
securities. The government’s debt restructuring and loose monetary policies led to low
nominal interest rates and reduced the domestic borrowing costs to the budget. The ratio
of domestic debt to GDP declined from 52% in 2000 to 36% in 2002 whilst the share of
domestic interest outlays in total expenditure fell from 33.3% to 12% over the same
period. This also reflected the erosion of the real value of debt in an environment
characterised with negative real interest rates. The dramatic ‘reduction in interest costs,
together with the reduction in real government spending during 2001-02 (through the
compression of real wages (referred to earlier) and other expenditure outlays), reduced
the government’s domestic borrowing requirement from about 20% of GDP in 2000 to
4% in 2002. As became apparent later this led to poor provision of complimentary
investment to the land redistribution programme in real terms, particularly investment in
social services and infrastructure.
7.2 Monetary and Foreign Exchange Policies
The agricultural sector is particularly vulnerable to distortions in the real exchange rate
because agricultural output of Zimbabwe tends to be highly tradable. Not surprisingly
trade liberalisation and real exchange rate management appear to have had more positive
effect on agricultural production than on non-agricultural production. In 1998, all sub-
sectors experienced a big surge in output due to this effect, but declined immediately
trade liberalisation and exchange rate management received a negative knock.
The real exchange rate was also affected by an imbalance in the country’s external
accounts. The unsustainable component of the current account deficit – due to, heavy
6
Credit to the private sector declined in 1999 and in 2000 by 30% and 10% respectively.
7
The share of 3-month treasury bills in total debt domestic rose from 12% in 1991/92 to 95% in 2000.
by the end of that year all treasury bills had maturities of less than a year.
24
foreign borrowing – served to defend an overvalued exchange rate in the years 1998-
2001.
Of importance was the need to implement appropriate exchange rate policies that would
help prevent leakages of domestic savings in the form of capital flight as well as raise the
competitiveness of Zimbabwean exports on the international market. The Zimbabwe
dollar was seen as highly overvalued and as such devaluation was thought to be the
solution. An overvalued exchange rate levies an implicit tax on exports and hence
discourages the production of exportable goods. Additionally an overvalued exchange
rate sets an implicit subsidy on imports and hence encourages imports thereby worsening
the current account balance.
Since the late-1990s, Zimbabwe has effectively had multiple exchange rates. For example
the tobacco production sub-sector has had a different exchange from the rest of the
economy from 2001, the horticultural sub-sector since 2000 and the mining sector since
2002, although these rates were referred to, at introduction, as part of a set of
‘comprehensive’ export incentive schemes. These affect the social valuation of
commodities within the economy. In addition or partly as a consequence of this, the
parallel market for foreign exchange operates alongside the official government market.
In this circumstance, the effective exchange rate for domestic factor prices differ from
the particular exchange rates used for the tradable commodities of the commodity
system. In the general equilibrium framework, for example, the wage rate represents a
weighted average of the different exchange rate. Thus the average effective exchange rate
diverges from both the official rate and the parallel market rate. As has been mentioned
elsewhere in this paper this results in market signals that skew the allocation of resource
across the economy.
For land reform what is crucial is whether government can expand financing of the
process without adversely affecting land reform itself through secondary effects.
Experience so far seems to indicate that this is not possible unless the economy receives
an exogenous ejection of resources that can counter the effects of the deficits. The other
way would be to increase productivity and resource use. However, due to a complexity of
25
factors the reverse has actually occurred in Zimbabwe and the sooner this trend is
reversed the better for the economy.
7.3 Trade Policy
Zimbabwe has had a long experience with trade restriction measures and these have had
varying effects on the agricultural sector. During the agrarian reform period, however,
these have been reformed to aid the country’s ability to source inputs and to access the
export marketing chain, but at the same time some changes were put into place to enable
the official market to account for foreign exchange receipts8.
These were also accompanied by other import and foreign exchange controls and the
reduction of import taxes to a low uniform rate. Using the SAM-framework it was found
that trade policy reform alone significantly increased aggregate household income.
However, the least income gain accrues to smallholder farm households, which account
for about 80% of the poor in Zimbabwe. In this case then the equity impact is
unfavourable. Concurrent implementation of the reform with other measures such as
trade liberalisation, fiscal reform, and reduction in marketing margins improved
outcomes in aggregate income and in the incomes of the poor.
The relative price effects of trade and macroeconomic policies have various
repercussions on agricultural output and incomes. When agricultural products are under
priced, domestic output suffers – not only because the static efficiency of resource use
declines, but also, and more important, there are adverse effects on agricultural labour
supply, capital accumulation, and technological change over the long term.
Protection of agriculture can have adverse general equilibrium effects by raising costs and
reducing production and employment of the manufacturing sector. Indirect effects of
economy wide policies on agricultural incentives can be greater than the impact of
policies directed specifically toward agriculture. Conversely, agricultural policies have had
significant effects on macroeconomic variables.
8
For example, the changes in the surrender requirements were meant to enable government to access
foreign exchange from export proceeds. In February 2003 Zimbabwean authorities devalued the
currency but the surrender requirement introduced earlier in 2001 remained at 50%. However exporters
could now receive a rate of Z$824 per US$1 for the surrendered portion of their foreign currency
receipts
26
7.4 Implications on Food Security and Income Distribution
Using a SAM-based analysis showed that they are strong macro-linkages of agricultural
growth in Zimbabwe, particularly vis-à-vis labour intensive industrial growth. This result
is similar to the conclusion that Bautista and Thomas (1998) reached. The emphasis on
small-scale farms yielded the largest increase in national GDP. Food crop production, in
which small-scale farmers play a dominant role shows a larger GDP multiplier than both
the traditional and non-traditional export-crop sectors (which are dominated by large-
scale farms). These findings bear out the expectation of a stronger demand stimulus
generated by rising agricultural incomes for the less affluent farm households. The equity
effects are less clear-cut. The small-scale household path to agricultural development
leads to a dramatic growth of small-scale household income. However, the income gains
to the other two groups of low-income household groups especially large-scale farm
worker households are lower compared to those associated with other growth paths. To
achieve equitable growth, the upgrading of small-scale households need to be
accompanied by policies that raise large-scale farm workers’ income.
Growth in agriculture is an essential requirement for poverty reduction in developing
countries. However, without growth in non-farm rural income producing activities, rural
poverty reduction efforts will not meet with success. Many non-farm activities, often
with upstream and downstream linkages to agriculture and natural resources, have
important multiplier effects. Developing effective support to the rural non-farm
economy is an essential part of the rural strategy. Government interventions would need
to strengthen existing opportunities, seek new ones, and address the removal of barriers
to entry by rural people to diversified employment and enterprise activity. The
interventions will address the institutional support necessary to foster a diversified rural
economy at the national and sectoral levels as well as at sub-national, local and
community levels.
7.5 Budgetary Implications of Agrarian Reforms
From a fiscal perspective, the weight, which is placed on a sector, should be apparent
from the budgetary policies that the government pursues (or is seen to be pursuing). The
implications of the 17% drop (apparent form the table below) in budgetary allocation to
agriculture over the past ten years, for example, are of grave concern for the sector that is
supposed to be the driving force behind the economic revival of the economy.
Concentrating on the budget alone though ignores the very real and significant bias
27
against agriculture in budgetary allocations, which is complimented with pervasive
implicit taxes on farmers, levied unintentionally, through the exchange rate by skewed
macroeconomic management.
Central government’s budget allocation to the agricultural sector was dominated by the
need to contain and control the outbreak of the foot-and-mouth disease (the veterinary
services budget), land compensation (not shown in the table below) and salaries and
wages. This was at the detriment of the construction and maintenance of social
infrastructure and the provision of services to the sector. This created a near complete
dearth of services in the new areas where they were needed most. At the same time this
meant that economic activity in those areas was negligible which in turn had a negative
effect on demand and factor incomes hence depressing institutional incomes, savings and
investment. As the flow chart (Figure 1) shows the impact spreads through the economy
and tends to hamper economic activity in other sectors through relative prices and
competitiveness or lack of it.
Table 7. Budget Allocations to Agriculture, 1999-2003
1999 2000 2001 2002 2003
Administration and general 205 636 416 891 1 766 359 18 107 938 24 231 864
Research and specialist services 149 682 304 291 387 000 643 979 3 646 459
AGRITEX 382 245 866 348 1 126 168 1 901 240 1 479 592
Veterinary services 311 662 645 682 763 200 1 290 814 000 3 536 840 000
Tsetse and trypanosomiasis 87 402 167 804 199 589 578 005 000 942 524 000
Surveyor general 45 139 112 039 117 397 199 951 000 542 352 000
Lands and technical services 213 059 285 693 1 160 652 4 235 125 5 783 326
Livestock production 47 658 108 278 123 994 386 165 000
Source: GOZ, various years
.
The link between budgetary policy and agricultural policy is straightforward; budgetary
decisions constrain the levels of government resources available for agricultural
programs, such as public investments or recurrent subsidisation of agricultural
production or marketing. In the 2003 budgetary allocations, for example, agriculture
received 7% of total government funding, whilst other sectors accounted for much larger
shares. It thus seems that even over the period of the reform, in real terms agriculture
did not receive priority attention. Rather it is the areas of defence, welfare education and
health that were allocated the bulk of the nation’s resources. The effects of this skewed
priorisation can be dire. In 2001 the Grain marketing board, which has the sole purpose
of aiding the marketing of all grains in Zimbabwe was carrying a debt that was accruing
28
Z$30 million per month interest that was not provided for in the national budget for that
year. As a result the activities of the Board were severely constrained resulting in a failure
to provide adequate service and hence to national and household food insecurity.
The government also has significant contingent obligations. This arises because the debt
stock of public enterprises is mostly guaranteed by central government and given the
poor finances of most of these enterprises the guarantees are sometimes called. This will
make the consolidation of government’s position more difficult.
8.0 Conclusion and Policy Recommendations
Agrarian reforms could have positive and equity enhancing effects if there are
complimentary and supplementary macreconomic policies that deal with the negative and
economy-wide effects as well. A SAM-based framework shows that piecemeal or partial
reforms are inferior to more comprehensive reforms that take into account policy
complementarities. The effectiveness of land reform in promoting equitable growth
would be enhanced when combined tax policy reform, restructuring of government
expenditure to raise productivity in small-scale farming areas and trade liberalisation
(with reduced marketing margins for agricultural commodities). That significant
improvements in aggregate household income and its distribution are accompanied by
large increases in agricultural GDP is indicative of the central role that agriculture can
play in achieving equitable growth in Zimbabwe.
The importance of macro-economic linkages cannot be overstated. Using a flow chart of
the economy it has been shown that changes in fixed factors if not balanced with
supplementary policies (as in the case of Zimbabwe) causes disruptions, which
reverberates throughout the whole economy. There is need for agrarian reforms to be
carried out in an environment that is supportive of the agricultural sector in general.
Under the present set up where exchange rate overvaluation and distortions in the
marketing of agricultural commodities levy an indirect tax on the sector makes it difficult
for the reforms to have an positive impact. This can create problems for the long-term
effect of the reforms if corrective measures are not taken.
The paper underscores the links between macroeconomic policies and agricultural
performance, along with agriculture’s influence on aggregate income and its distribution.
29
Given that agriculture accounts for a substantial share of value-added, employment, and
export earnings it is important for economic performance and poverty alleviation that
corrective macro-policies measures be implemented sin a way that minimises economic
disruption while improving agricultural productivity. The issue of the overvaluation of
the exchange rate, which hurts farmers, particularly small-scale farmers needs to be
attend to. An overvalued exchange rate levies an implicit tax on exports and hence
discourages the production of exportable goods and sets an implicit subsidy on imports
and hence encourages imports thereby worsening the current account balance.
Additionally, trade policy reforms and general marketing policy need to address issues of
market (both local and export) access.
30
Statistical Appendix
Table 8. Zimbabwe: Central Government Operations, 1996/97 – 2002 (In Millions of
Zimbabwe Dollars)
1996/97 1997/98 1999 2000 2001 2002
TOTAL REVENUE 25412 56725 58564 87825 135974 300385
Tax revenue 23260 52480 55569 82275 128545 280769
Income and Profits 11815 27728 29670 52189 74840 159261
Custom Duites 4372 8875 8507 8543 17395 27170
Excise Duties 1017 2331 2926 4092 5335 18763
Sales tax 5079 11735 12340 15743 29327 72447
Other taxes 923 1811 2126 1708 1647 3128
Non tax Revenue 2152 4245 2995 5550 7430 19616
Total Expenditure 32974 70685 80377 158485 185973 351321
Current Expenditure 28419 65696 72157 149353 173806 320664
Goods and services 16316 35072 40238 74292 96939 215963
Wages and Salaries 11111 25450 28153 54837 64480 123932
Other 5205 9622 12085 19455 32459 92031
Intrest on Debt 7511 17699 21471 54896 52800 49494
Foreign 2/ 1201 3060 3400 3436 11678 9165
Domestic 6310 14639 18071 51460 41122 40329
Subsides and transfers 4592 12925 10448 19661 24068 55206
Capital Expenditures 2193 3789 5751 5993 11595 25208
Net lending 2362 1200 2469 3139 571 5450
Balance Excluding Grants and Foreign Interest arrears -7562 -13961 -21813 -70660 -49998 -50936
Grants 1180 1500 2144 3517 2972 668
Foreign Interest Arrears 0 0 .. 2751 11494 8793
Balance Including grants and foreign interest arrears -6382 -12461 -19669 -64392 -35532 -41475
Financing 4645 10593 22388 64635 35532 41475
Foreign Financing 271 -2927 -2280 -1997 707 -1484
Domestic Financing 4374 13520 24668 66632 34825 42959
of which privatisation proceed 541 761 841 0 6721 450
(In percent of GDP, unless otherwise indicated)
Total Revenue 26.7 41.8 27.8 28.1 26.8 28.3
Tax revenue 24.4 38.7 26.4 26.3 25.4 26.4
Domestic 19.8 32.1 22.4 23.6 21.9 23.9
Customs 4.6 6.5 4 2.7 3.4 2.6
Non tax revenue 2.3 3.1 1.4 1.8 1.5 1.8
Total Expenditure 34.6 52.1 38.2 50.7 36.7 33.1
Current Expenditure 29.9 48.4 34.3 47.7 34.3 30.2
Goods and Service 17.1 25.8 19.1 23.7 19.1 20.3
of which wages and salaries 11.7 18.8 13.4 17.5 12.7 11.7
interest 7.9 13 10.2 17.7 10.4 4.7
subsidies and transfers 4.8 9.5 5 6.3 4.7 5.2
31
capital expenditure and net lending 4.8 32.7 3.9 2.9 2.4 2.9
Balance, excluding grants and foreign interest arrears -7.9 -10.3 -10.4 -22.6 -9.9 -4.8
Memorandum item
GDP at market prices (millions of Zimbabwe dollars) 95202 135722 210409 312879 506792 1062045
Sources: Zimbabwean authorities ; and IMF calculations
Notes: Fiscal years July-June through 1996/97;1997/98 covers the 18th-month period July 1997- December 1998. Annual
thereafter
32
Table 9. Zimbabwe: Exports by commodity,1997-2002 1 (Values in millions of US dollars volumes in
thousands of kilograms, unless otherwise indicated)
1997 1998 1999 2000 2001(Est) 2002(Est)
Agricultural Exports 886 793.1 844.4 855.8 832.8 737.2
Tobacco 608.6 523.8 612 548.7 594.3 500.8
Volume 162 173.3 216.2 180.4 198.2 173
Unit Value 3.8 3 2.8 3 3 2.9
Sugar 80.5 62.9 51.5 96.4 70 59.5
Volume 232.5 200.9 162.6 248.2 179.5 150
Unit Value 0.3 0.3 0.3 0.4 0.4 0.4
Maize 36.1 46.4 9.1 2.5 0 0
Volume 266.6 311.7 75.8 0 0 0
Unit Value 0.1 0.1 0.1 0.1 0.1 0.1
Cold storage Company Beef 26.4 32.1 32.6 39.7 22.7 13.7
Volume 7 8.5 8.7 11.3 7.7 4.8
Unit Value 3.8 3.8 3.8 3.5 2.9 2.8
Coffee 41.6 51.2 37.2 17.1 15 14.1
Volume 9.2 12.7 10 6.5 6.2 6.4
Unit Value 4.5 4 3.7 2.6 2.4 2.2
Horticulture 64.8 67 82.6 125.4 118.9 138.9
Volume 35.7 40.1 48.6 33.8 39.9 43.9
Unit Value 1.8 1.7 1.7 3.7 3 3.2
Other agricultural 28 22.2 19.4 26.1 12 10.2
Mineral Exports 462 382.1 381.3 440.1 389.2 346.3
2
Gold 268 236 229.7 216.4 225 168.7
Volume 770 821.5 825.4 778.4 827.2 570
Asbestos 48.3 36.1 35.6 61.1 60 63.8
Volume 1143.3 112.9 113 134.1 129 133
Unit Value 0.3 0.3 0.3 0.5 0.5 0.5
Nickel 71.4 44.2 48.1 77.9 35.2 39.2
Volume 12.2 10.1 8.1 9 6.3 6.5
Unit Value 5.9 4.4 5.9 8.7 5.6 6
Platinum 0.4 3.4 2 11.4 17.5 17.8
Volume 1.1 9.4 5.4 21.1 35.6 37.4
Unit Value 0.4 0.4 0.4 0.5 0.5 0.5
33
Copper 15.2 4.1 5.2 8 0.6 0.4
Volume 5.3 2.6 3.4 4.4 0.5 0.3
Unit Value 2.9 1.6 1.5 1.8 1.2 1.3
Other mineral 58.7 58.1 60.6 65.2 50.9 56.4
Manufacturing exports 899.7 655.2 623.6 814.9 313.5 263.2
Ferrous alloys 178.2 162.6 166.5 154.8 81.8 66.9
Volume 249.1 242.8 243.4 274 222.2 193.5
Unit Value 0.7 0.7 0.7 0.6 0.4 0.3
Cotton lint 146.1 150.1 111.9 156 81.9 62.5
Volume 88.3 79.7 84.2 114 80 62.1
Unit Value 1.7 1.9 1.3 1.4 1 1
Iron and steel 10.1 8.3 12.5 15 3.5 2.4
Volume 47.5 36.8 55 65.2 15.3 10.2
Unit Value 0.2 0.2 0.2 0.2 0.2 0.2
Textiles and clothing 98.3 58 59.3 79.3 20.2 17.7
Machinery and Equipment 25.4 12.4 17 50.6 8.6 7.1
Chemicals 41.8 25.8 27.3 64.3 5.8 3.5
Other manufacturing 399.8 238.2 229 294.9 111.7 103.2
3
Total Exports 2423.5 1925.5 1933.2 2195 1609 1418.1
Sources: Reserve Bank of Zimbabwe: Central Statistical Office; and IMF estimates
1 At the official exchange rate
2 Volume in thousands of ounces and unit value in U. S Dollars per ounce
3 Includes migrants' effects re-exports and internal freight
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Table 10. Gross Domestic Product, 1997-2002(Percent change at constant 1990 prices)
1997 1998 1999 2000 2001(Est) 2002(Est)
Agriculture, Hunting, fishing and forestry 3.2 2.3 2.5 4.1 -12.1 -22
Mining and Quarrying -0.5 8.4 -5.2 -8.1 -5.2 10.4
Manufacturing -0.8 -3.4 -4.5 -11.6 -9 -15.8
Electricity and Water -0.4 -4.3 7.6 0 -1 -3
Construction 16.6 6 -11.1 15 -10.5 -10
Finance and Insurance -4.3 6.2 -3.7 1.1 1.5 1
Real Estate 5 5.4 5.1 4.8 6.5 3.5
Distribution hotels and restaurants 2.3 0.8 -2 -3 -5.5 -15.5
Transport and Communications 0.9 -5.6 -1.4 -0.5 -2.5 -5
Public administration -4.6 -3 -4.8 -6.2 -6.5 -8
Education 7.8 6.8 -8 3.6 -5 -5
Health -24.3 -0.3 1.3 -29.4 -20 -7
Domestic services 2.3 -1.1 -6.3 -0.3 -1.2 -3
Other services 10.9 2.2 7.4 2.1 1.5 -1
Less: Imputed bank services charges 57.5 39.7 15.4 30.2 28.4 16.5
GDP (at factor cost) 0.2 -0.5 -2.7 -4.8 -8.5 -12.9
Net indirect taxes 14.4 10.2 -14.9 -23.8 -11.8 12.5
GDP at market prices 1.6 0.7 -4.1 -6.8 -8.8 -12.8
Sources: Reserve Bank of Zimbabwe: Central Statistical Office; and IMF estimates
Table 11. Zimbabwe: Imports by Principal Commodities, 1997-2002 (On c.i.f basis)
1997 1998 1999 2000 2001 2002 (Est)
(In Millions of Zimbabwe Dollars)
Food 100.8 87 82.2 61.7 68 303.8
Tobbacco and Beverages 28.6 29.1 25.5 61 44.3 21
Crude Materials 80.5 74.3 57.8 125.2 81.4 42.5
Fuel and Electricity 361.5 277.1 267.1 371.9 335.3 328.6
of which petroleum 302.7 225.2 216.2 310.2 279.5 267.3
Oils and Fats 63.5 41 38.6 39.7 30.4 25.5
Chemicals 400.7 336.1 289.4 311.2 407.9 295.2
Machinery and transport Equipment 1005.2 801.2 599.9 493.2 500 481
Other Manufactured goods 395.6 324.7 297.5 300 311.2 280
Other 217.6 49.7 17.2 85 0 44.3
Total 2654 2020.2 1675.2 1849 1778.5 1821.9
(In percent of total imports, unless otherwise indicated)
Food 3.8 4.3 4.9 3.3 3.8 16.7
Petroleum Products 11.4 11.1 12.9 16.8 15.7 14.7
Memorandum item
Exchange rate (US$ dollars per Zimbabwe dollar : period average) 0.08 0.04 0.03 0.02 0.02 0.02
Sources: Reserve Bank of Zimbabwe: Central Statistical Office; and IMF estimates
35
Table 12. Direction of Import Trade, 1996-2001 (In percent of total imports)
1996 1997 1998 1999 2000 2001
Industrial Countries 35.1 34.6 31.6 29.1 20.3 14.2
Australia 1.6 1.7 1.1 0.7 0.5 0.4
Austria 0.4 0.3 0.5 0.3 0.1 0.5
Belgium 1 1.2 1 1.4 1.1 0.5
Denmark 0.5 0.8 0.4 0.4 0.3 0.2
France 3.1 2.5 3.1 2.9 2.1 1.4
Germany 4.9 4.5 3.7 5.2 2.4 2.5
Italy 2.5 1.8 2 1.1 1 0.4
Japan 5.1 5.5 4.8 4 3.1 1.6
Netherlands 1.8 1.7 1.3 1.4 0.8 0.7
Norway 0.2 0.5 0.3 0.2 0 0.1
Sweden 1 0.9 0.5 0.5 0.4 0.3
United Kingdom 7.9 7.4 6.8 6.4 3.7 3
United States 5 5.5 5.8 4.6 4.7 2.5
Developing Countries 48.5 48.2 48.7 52.6 46 53.1
Botswana 1.4 2 1.7 1.9 3.4 1.8
India 1.4 1.1 1.4 1.4 0.8 0.7
South Africa 38.3 36.6 38.5 39.4 31.4 39
Taiwan 1 1.2 1.1 0.9 0.7 0.5
Zambia 0.5 0.9 0.8 0.9 0.8 0.8
Other Industrial and Developing Countries 16.4 17.2 19.7 18.3 17.6 32.8
Total 100 100 100 100 100 100
Source: Central Statistical Office; and IMF, Direction of Trade Statistics
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Table 13. External Trade Indicators,1997-2002(1990=100,unless otherwise indicated)
1997 1998 1999 2000 2001(Est) 2002(Est)
Exports
Value (In U.S dollar terms) 138.3 109.8 110.3 125.2 91.8 80.9
Percentage Change -2.9 -20.6 0.4 13.5 -26.7 -11.9
Volume 122.2 108.4 113.4 120.4 97.3 85
Percentage Change 0.1 -11.3 4.6 6.2 -19.2 -12.7
Unit Value (in Us Dollars terms) 113.2 101.2 96.5 103.2 93.6 94.5
Percentage Change -3 -10.6 -4.6 6.9 -9.3 0.9
Imports
Value (In U.S dollar terms) 175.6 133.7 110.9 122.4 117.7 120.6
Percentage Change 18.1 -23.9 -17.1 10.4 -3.8 2.4
Volume 183.4 154.9 126.4 133 133 134.9
Percentage Change 23.2 -15.5 -18.4 5.2 0 1.5
Unit Value (in Us Dollars terms) 95.8 85.8 87.1 91.4 86.6 87.6
Percentage Change -4.1 -10.5 1.5 4.9 -5.2 1.1
Terms of Trade 118.2 118 110.8 112.9 108 107.9
Percentage change 1.2 -0.2 -6 1.9 -4.3 -0.1
Sources: Central Statistical Office; and IMF estimates
37