Discuss the causes of a financial problem in a country or organization of your choice and suggest some solutions. Specify the problem and the City/Country and relate to a particular study. Zimbabwe is an agricultural based economy previously known as the ‘bread-basket’ of Southern Africa. In the past decade, the country experienced a drastic economic disintegration due to wide range of factors including: unconstitutional land redistribution, health, decline in foreign investment and hyperinflation. The Zimbabwean economy is strongly intertwined with politics; therefore the political instability subsequently offset the economy. In 2000, the government embarked on ‘the land reform programme’ which removed white commercial farmers from arable lands so that it could be redistributed among black farmers. The experienced farmers were replaced by mostly black subsistence ones, with no farming knowledge, equipment and capital and therefore could not produce at a commercial scale.
There was no agricultural export, meaning there was a loss of foreign currency being injected into the economy on a regular basis. This marked the beginning of economic downfall. Richardson (2004:307). The failure of the agricultural sector which is the backbone of the economy led to the economic crisis. This meant that the government could not generate enough revenue to sustain its infrastructures such as the health sector. Health conditions are directly related to the poor economy. Sick workers were not able to work as much or as productively as healthy ones. Labour markets were less efficient and the market was not able to produce as much. Consequently, the economy produced far less per-worker than a similar healthy economy. This was evident in Zimbabwe by the low participation rate that at just over 35 %, as opposed to 51.08 % in the U.S. or 51.97 % in Japan. Richardson (2004:289).
Another contributing factor was that foreign investors also fled, due to insecurities and the government policies dictating that 51% ownership of their businesses should be locally owned. Foreign direct investment fell to zero by 2001, and the World Bank’s risk premium on investment in Zimbabwe shot up from 4 % to 20 % that year as well. Hill (2003: 109). Furthermore, the Zimbabwean economy was brought down by the illegal sanctions (an order that is given to force a country to obey international laws by limiting or stopping trade with it. Merriam-Webster dictionary 2012:198) imposed by the American and European superpowers. This meant that no trade was to be done with Zimbabwe. There was a sudden death of foreign currency and investment influx to the country.
The U.S. and Britain have partially withheld financial support for Zimbabwe and there would be no access to the International Monetary Fund (IMF) because they could not pay their debt and the prevailing hyperinflationary conditions. Hill (2003: 102). The causes of Zimbabwe’s financial problem can be mitigated by first achieving a ‘political breakthrough’ that will depoliticize the economy. Then, land should be re-redistributed among experienced commercial farmers and train the less experienced ones to ensure a more sustainable output. There must also be a liberalisation of foreign investment regulations to attract the foreign investors. In conclusion, these suggested solutions will help to rebuild the economy and restore Zimbabwe as the bread basket of Southern Africa.
Richardson, C,J. 2004. The Collapse of Zimbabwe in the Wake of the 2000–2003 Land Reforms. New York: Edwin Mellen
Hill, G. 2003. The Battle for Zimbabwe. Cape Town: Zebra