Why the Zimbabwean economy has been growing faster than Hong Kong

NORTH Carolina economist Craig Richardson has said Zimbabwe's rapid gross domestic product (GDP) growth and poor business environment appear to be a paradox, and the rate of increase is due to unsustainable economic factors.

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

Between 2009 and 2011, Zimbabwe's GDP growth averaged an impressive 7.3 percent, making it one of the world's fastest-growing countries. Yet World Bank governance indicators place Zimbabwe's government among the world's worst, and the Fraser Institute's Economic Freedom of the World index ranks it as one of the world's least economically free countries.

Zimbabwe's performance coincides with its January 2009 adoption of the U.S. dollar and South African rand as its official currencies, which swiftly squelched rampant hyperinflation and stabilized the economy. Yet dollarization doesn't explain why the country has been growing faster than Hong Kong, a territory with a stable currency and one of the freest economies in the world.

Zimbabwe's dollarization was accompanied by three significant economic developments, none of which will foster growth long-term. First, between 2009 and 2011, two-thirds of Zimbabwe's nominal GDP growth was the result of increases in government expenditures, augmented by hundreds of millions of dollars in International Monetary Fund grants and Chinese loans. Second, rich Western countries dramatically increased their infusions of "off-budget" grants to Zimbabwe, and this foreign aid now accounts for nearly 9 percent of its GDP. Third, Zimbabwe's economy is becoming increasingly dependent on the production and export of raw mineral commodities, which have experienced rapid worldwide price hikes.

Richardson  says Zimbabwe's recent growth rates do not accurately reflect its long-term economic prospects. Rather, they draw attention away from the country's continuing pressing problems, including an inadequate food supply, poor governance, weakening property rights protection, and a bloated government sector. Those problems have been unwittingly enabled by Western governments and the IMF through massive cash infusions, which have given the Zimbabwean government little incentive to change.

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

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

He also says that nearly 9% of its GDP comes from off-budget grants from the outside world, and those grants have rapidly increased over the past several years.