GLOBAL BUSINESS MANAGEMENT

Study Case : The Decline of Zimbabwe

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GROUP 5
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Frisca Renata Tri Okawati 041924353033

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Tira Puteri Jayanti 041924353034

Harkam Riyantoko 041924353035
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Jessica Claudia Mawikere 041924353036

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MAGISTER MANAGEMENT
FACULTY OF ECONOMICS AND BUSINESS
AIRLANGGA UNIVERSITY
SURABAYA
2021

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 CASE 2
Decline Of Zimbabwe

1. Why has Zimbabwe’s economic performance been so poor?

Zimbabwe's economic performance has been poor for various number of reasons. The most
important one is the factor of Corruption Watchdog Transparency International ranked
Zimbabwe as one of the most corrupt nations in the world. The first factor was when Prime
Minister Mugabe launched a “fast-track” land reform program that stimulated the
confiscation bythe state without compensation of land owned by 4,000 white farmers of the
country’s strong agricultural sector. The confiscated land was given away to ZANU-PF party

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and other supportersthat lacked agricultural knowledge. The second factor was in 2008

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Indigenization and Economic Empowerment Act, which required that enterprises doing

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business in Zimbabwe take at least 51% local ownership. Resulting into foreign corporation

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businesses to drop out. The third factor is that the country’s mining sector entitles all private
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licensing revenues owed vanished into the pockets of army officers and ZANU-PF
politicians. Therefore, taxes and tariffs are higher for private enterprises. The last factor is
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fluctuating rate of HIV infections.

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2. Do you think Zimbabwe's economic performance would have been better under a
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different system of government? Which one? Explain your reasoning.

The country's likely trajectory over the next one to three years and offers recommendations
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for the international community to help support Zimbabwe's recovery. In short, although
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Mnangagwa has deployed flowery reform rhetoric, his administration's piecemeal actions
belie any movement toward genuine political or economic reform. Repression has increased
and the economy continues to sink. With the old guard and military still firmly in power —
and both benefiting from perches atop the highly cartelized and patronage-based economy —
genuine reform is unlikely in the next one to three years under present conditions in
Zimbabwe.

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 Politics and economics are inextricably linked in Zimbabwe, and the country will be unable
to recover unless the two sectors are addressed in tandem. To help the country recover from
years of mismanagement, corruption, and state violence, international actors — including the
United States — would be wise to push the government in a coordinated fashion to
implement genuine political, economic, and security reforms.

Robert Mugabe’s dictatorial reign may be nearing its end: Mugabe may soon be forced out,
paving the way for a new government consisting of elements of his own ZANU-PF and the
opposition party Movement for Democratic Change, led by Morgan Tsvangirai. If and when
this happens, the new government will have to pick up the pieces of a shattered
Zimbabwean economy. Zimbabwe currently ranks last of 130 countries in the Fraser
Institute’s annual Economic Freedom of the World report.

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3. What steps need to be taken now to improve economic outlook for Zimbabwe?
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To get the economy on the right track to growth, the new government might consider the
following steps:
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1. Stabilize the currency situation

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With runaway inflation approaching 2,000 percent, Zimbabwe is sure to face some
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difficulty getting ordinary Zimbabweans to trust the currency, much less the financial
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markets. But Zimbabwe will not have time to lose and currency stabilization is a vital step
toward stabilizing the economy as a whole. Pegging the Zimbabwean dollar to a foreign
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currency might not send a strong enough signal to reassure the markets, because
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abandoning the peg in the future is relatively easy. The government should therefore adopt
the South African Rand or the Euro as its national currency—since South Africa and the
European Union are Zimbabwe’s main trading partners—and the possession, use, and
exchange of other currencies should be freely permitted. Since most Zimbabweans have
already seen their savings eaten away by inflation, and have either turned to foreign
currency or been reduced to barter, the switch should be relatively easy to accomplish.

2. Liberalize trade

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 Zimbabwe’s weighted average tariff rate is almost 19 percent, with additional non‐ tariff
barriers including import and export bans. Customs officials are corrupt and inefficient.
However, Zimbabwe also lacks strong domestic industries seeking protection from overseas
competition—an unintended consequence of Mugabe’s mismanagement of the economy.
The government should exploit that weakness and immediately abolish all tariff and non‐
tariff barriers to trade.

Doing so would mean ignoring the advice of Oxfam and Zimbabwe‐based Seatini, both of
which oppose unilateral trade liberalization and favor protecting infant industries.
Historical evidence suggests that domestic protectionism tends to encourage inefficiency
and increase the cost of consumer goods and services, rather than encouraging cub
industries to become globally competitive.

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3. Reform taxes

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The government should abolish the existing plethora of taxes and eliminate all subsidies,
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thus sending a powerful signal that Zimbabwe is committed to establishing a friendly and
non‐discriminatory business environment. To raise enough revenue to pay for the state’s
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most basic functions—primarily maintenance of law and order—the government should

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instead introduce a low‐rate and broad‐based consumption tax. Consumption taxes are
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relatively neutral with respect to altering behavioral patterns and spending habits, leading to
minimal misallocation of resources. Along with the economy, the provision of public
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services has totally collapsed in Zimbabwe; the government cannot be expected to

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reintroduce those public services in the short run. Thus, radical tax reform is all the more
achievable—and a radical tax overhaul could substantially increase future revenue without
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increasing the tax rate.

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4. Secure property rights

Securing private property is a fundamental requirement for economic growth.

Unfortunately, over the past seven years Mugabe has severely undermined Zimbabweans’
property rights. Pre‐Mugabe Zimbabwe had a long history of protecting private‐property
rights, so returning to the status quo ante should be possible. Zimbabwe is likely to rely on
agriculture as the main source of revenue and employment for the foreseeable future. Land
reform will thus have to be revisited. Mugabe’s expropriation of white farms was an

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 unmitigated catastrophe; the collapse of agricultural production clearly demonstrates the
need to end the state‐sponsored subsistence farming experiment and reconstitute large‐scale
commercial farming. Such a shift cannot be achieved without restoring at least some of the
land to white farmers and compensating them for expropriation, perhaps with bonds that
would mature in 15 or 20 years. Nicaragua undertook a similar and moderately successful
compensation scheme after the end of the Sandinista rule. The rest of Zimbabwe’s
government‐owned agricultural land ought to be auctioned off, with small‐scale farmers
who already occupy the land among the potential buyers.

Of course, these four steps will be just the beginning for Zimbabwe. Additional reforms
must include liberalization of the labor market and of business regulation. With
unemployment approaching 80 percent, Zimbabwe will need to create new jobs, and

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quickly. For the private sector to recover, obstacles to entrepreneurship must be

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reduced. To maximize foreign investment, exchange‐rate restrictions and capital controls
should be eliminated. And just as most Iraqi debt acquired by Saddam Hussein was

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forgiven after the 2003 U.S. invasion, the new Zimbabwean government should request
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that public debt acquired by Mugabe’s regime be forgiven on “odious debt” grounds.
But just as the first step to recovery is admitting you have a problem, a new Zimbabwe
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would do well to begin by repudiating Mugabe‐era economics and taking the above four
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steps to get rid of any lingering traces of Mugabe’s failed policies.

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