ZIMBABWE: THE ECONOMY UNDER BLACK MAJORITY RULE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP83B00225R000100040001-6
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 17
• Document Creation Date: December 20, 2016
• Document Release Date: January 4, 2007
• Sequence Number: 1
• Publication Date: February 1, 1982
• Content Type: REPORT

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Directorate of Confidential
Intelligence
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Confidential
ALA 82-10021
February 1982
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Directorate of Confidential
Intelligence
Zimbabwe: The Economy
Under Black Majority Rule
Information available as of 20 January 1982
has been used in the preparation of this report.
The author of this paper isi
Office of African and Latin American Analysis.
Comments and queries are welcome and may be
directed to the Chief, Skills Staff, ALA,
0
This report has been coordinated with the Directorate
of Operations, the National Intelligence Officer for
Afric
Confidential
ALA 82-10021
February 1982
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Confidential
Under Black Majority Rule
Key Judgments Both the economic recovery and the spirit of reconciliation that character-
ized Zimbabwe after its achievement of independence in 1980 show signs
of weakening. After two years of banner growth, internal and external
factors portend average expansion of only 3 to 4 percent in the next two to
three years; this will hamper the creation of badly needed employment
opportunities. Domestically, Salisbury must meet black demands for
sharply improved living standards. At the same time, it must keep the
country's basically capitalist economy moving despite recurrent transport
and skilled-labor constraints. Externally, the lagging recovery in the West's
demand for Zimbabwe's key exports, and South Africa's tendency periodi-
cally to aggravate trade and transport problems, will directly affect
economic development.
Above all, the need to show progress in meeting the basic needs of black
Zimbabweans will force a limited accommodation with key domestic
economic interest groups and the international financial and business
community. Prime Minister Mugabe's determination to demonstrate his
revolutionary credentials, however, augurs continued friction between the
government and these groups. Increasingly sensitive to criticism from his
opponents, Mugabe will be loath to appear too conciliatory. His posturing
will add to the reluctance of the business community to expand enough to
create needed jobs.
Over the long haul, the economy has the potential to grow faster than the
economies of most other developing countries, perhaps as much as 6 to 8
percent a year. A financially conservative government will make
Zimbabwe attractive to foreign donors, bankers, and investors alike.
Moreover, the local business and farm communities and foreign investors
will probably remain tolerant and supportive if the government does not
veer to the left. In coming years, Mugabe will have the benefit of a growing
number of educated and trained blacks making positive contributions to
the economy. Before the national elections to be held in 1985, Mugabe has
time to devise a strategy to spur development and advance peaceful social
change. His effective use of that time will depend heavily on the kinds of
pressures he senses from his political allies.
Confidential
ALA 82-10021
February 1982
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Zimbabwe's stability is important to US interests in southern Africa, both
to maintain and enhance Western access to the entire region, and to deny
the Soviet Union another opportunity for adventurism. Mugabe places a
high priority on maintaining his Western ties. The tide could turn,
however, if Mugabe is perceived at home as not doing enough to meet
black demands, or if he becomes frustrated with the slow pace of "the
revolution." Either development would be adverse for domestic and foreign
business and would increase the likelihood of heightened regional
instability.
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Zimbabwe: The Economy
Under Black Majority Rule
Introduction
The Mugabe government inherited a country with
resources of a character found in few other LDCs.
Zimbabwe boasts vast mineral wealth, a relatively
diversified industrial base, a healthy agricultural
sector, and a substantial pool of skilled farmers and
technicians. Moreover, Zimbabwe's transport and
energy bases are well developed, which is rare in Sub-
Saharan Africa. The groundwork for an efficient
transportation system-road and rail-is in place and
needs only to be upgraded and extended into the rural
areas. Per capita oil consumption is lower than in
many other middle-income LDCs, mainly because
Zimbabwe depends on hydroelectric power supple-
mented by coal-powered thermal generators to meet
electricity demand.
Even with this solid base, Zimbabwe has many prob-
lems common to other LDCs. The economy is divided
between a sophisticated modern sector-manu-
facturing, mining, commercial agriculture, and a wide
variety of services comprise over 95 percent of the
country's total output-and the basically undeveloped
rural sector that includes the Tribal Trust Lands.'
With this division has evolved a sharp divergence in
living standards that resembles conditions in South
Africa. About 50 percent of black Zimbabweans live
in the Tribal Trust Lands, where they are engaged
mainly in subsistence agriculture that contributes less
than the remaining 5 percent of GDP.
Population and urbanization pressures are mounting
rapidly in Zimbabwe. Despite Zimbabwe's low
population density, the population growth rate-an
average 3.3 percent per year-is higher than the
growth rate of the subcontinent and the growth rates
of other LDCs. The strongest pressures exist in the
Tribal Trust Lands, where they are the least support-
able. Although city dwellers make up just 23 percent
of the total population, slightly below the African
average, urbanization is occurring at a brisk 6.6-
percent annual rate. This, too, poses problems because
the new government is ill equipped even to sustain the
Rhodesian white standard of public services; the
extension of that standard to the blacks became an 25X1
Political pressure for income redistribution is also
growing. Black Zimbabweans, whose average real
wage is less than 10 percent of white wages, under-
standably hoped that a black government would bring
change and improvement. The slow progress in that
direction, however, is rapidly increasin demands for 25X1
greater advances.
25X1
Against this background, the shift to black majority
rule has compounded the growing strains in Zimbab-
wean society. Whites are worried both about losing
their economic clout through the nationalization of
their properties and about being replaced by blacks in
the work force. Blacks are concerned that land reform
is not fulfilling its promises and that inflation is
eroding the income of those who are lucky enough to
find jobs in the cities. 25X1
Meanwhile, Prime Minister Robert Mugabe, as part
of his increasingly strident rhetoric, has pledged to
make 1982 the first year of Zimbabwe's "national
transformation," promising to move in a socialist 25X1
direction. If he moves too quickly, it will be at the
expense of the whites, and will spur an even faster
exodus. If he continues to proceed cautiously, he may
damage his stature as the country's leader and risk
political attacks from the left. 25X1
Mugabe-The Initial Years
Reconciliation. Independence in April 1980 set the
stage for a turnaround in what had been a war-
wracked economy, but a climate of confidence was
needed.' The white population considered Mugabe to
be the most radical of the nationalist leaders; after his
25X1
: A discussion of the substantial structural changes that took place
in the Rhodesian economy over the initial sanctions period and the
war years can be found in the appendix.
25X1
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Confidential
Figure 2
Zimbabwe: Economic Comparisons
GNP per Capita, 1980 Real GDP Growth, 1976-80
US $ Percent
Non-OPEC
LDC Avg.
Zimbabwe
Botswana
Zambia
Mozambique
Zaire
Botswana
Non-OPEC
LDC Avg.
Zimbabwe
Zambia
Zaire
Mozambique
Non-OPEC
LDC Avg.
Zambia
Botswana
Zimbabwe
Mozambique
Zaire
Zambia
Zaire
Non-OPEC
LDC Avg.
Zimbabwe
Domestic Savings as a Share of Debt Service as a Share of
GDP, 1978 Exports, 1980
Percent Percent
Zambia
Botswana
Zimbabwe
Non-OPEC
LDC Avg.
Non-OPEC
LDC Avg.
Zambia
I
party's overwhelming election, they fully expected
nationalizations and outright property confiscations.
Many also feared that the tribally based political
differences between the nationalists-especially the
Mugabe and Joshua Nkomo factions-would perpet-
uate instability. 25X1
To the whites' surprise, the self-professed Marxist
immediately concentrated on trying to improve
security, to reassure the whites and the international
business community, and to increase the welfare of
black Zimbabweans. Indeed, Mugabe stressed that,
while he personally would have preferred a more
socialist economic system, he recognized the impor-
tance of retaining local and foreign private participa-
tion in order to restart the economy.
To attain his goals, Mugabe adopted a posture of 25X1
conciliatory pragmatism. To placate white commer-
cial farmers, the government raised producer prices
for the most important crops-corn and wheat-and
stressed the need to keep commercial agriculture
intact despite promises of land reform. Mugabe also
reiterated that he had no plans to nationalize local
industry, although he emphasized that state participa-
tion in key sectors would increase. Moreover, to
further mollify the white minority, Mugabe chose two
prominent whites to serve as cabinet ministers for
business and agriculture 25X1
The government's commitment to improving the eco-
nomic well-being of Zimbabwe's blacks was unques-
tioned. Some important first steps were taken, par-
ticularly to meet basic needs:
? All fees for primary education, as well as charges
for health care for lower income Zimbabweans,
were eliminated.
? Some rents and taxes affecting low-income people
were reduced.
? Higher minimum wages were legislated, including
66-percent increases (to $120 per month) in some
cases.
? Some 1,400 families were resettled on underutilized
land.
Further plans were announced to resettle some 18,000
black families on abandoned or underutilized land
over a five-year periodi 25X1
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Inflation Rate Real GDP Growth
Percent Percent
Central Government Deficitb Yearend Foreign Exchange
Million US $ Reserves
Million US $
Recovery. The removal of war-related trade sanctions
and a demand-induced recovery in the manufacturing
and agricultural sectors spurred a solid revival. High-
er base metal prices, especially for gold, also initially
boosted the economy. Offsetting the drop in metals
prices in 1981 was the rise in producer prices that,
along with favorable weather, almost doubled corn
production; a 1.5-million-ton surplus was produced,
compared to 300,000 tons in 1980. As a result of these
factors, Zimbabwe showed real GDP growth of at
least 7 percent in 1980 and about 5 percent last year,
to restore output to the 1976 level.
without sharp price increases. By mid-1981, however,
capacity constraints were beginning to be felt, owing
to the continuing exodus of skilled manpower and the
reluctance of entrepreneurs to expand their operations
despite rising demand. Moreover, higher production
costs caused by government-mandated wage increases
and new taxes were passed along to consumers. As a
result, consumer prices climbed at least 15 percent
last year, compared with the 8-percent rise in 1980.
The quick economic recovery severely strained the
country's balance of payments, as Zimbabwe em-
barked on a foreign buying spree that outpaced export
performance. Consumer demand for imported goods
and the replenishment of wornout and destroyed
capital stock pushed nominal imports up by 60 per-
cent in 1980 and probably another 10 percent in 1981.
Renewed demand for traditional exports such as
tobacco was not enough to offset the jump in mer-
chandise imports and associated service payments.
Zimbabwe's current account deficit nearly tripled, to
over $300 million in 1980 and doubled in 1981.1
Current account financing posed no problem in 1980,
but a widening trade deficit considerably dimmed the
outlook for meeting the 1981 deficit. Capital inflows,
mainly from Western donors and commercial bank-
ers, handily offset the current deficit during 1980.
The growth of the deficit demanded new financing
mechanisms, particularly in view of the slow response
from foreign investors. Anxious to maintain a debt
service equivalent to only 9 percent of export earnings,
Salisbury supplemented modest short-term borrow-
ings by drawing down international reserves to an
equivalent of less than two months' import cover
Reform and Its Problems. The Mugabe government's
attempts to satisfy black aspirations began increasing-
ly to strain public welfare expenditures as well.
Education and health spending soared to over $700
million, or 25 percent of the planned budget last year.
Partially to cover the rise in social spending, the
government enacted a series of progressive tax meas-
ures that hit investors and high-income consumers,
mostly whites, particularly hard. Salisbury could not
dip-as it had in 1980-into domestic capital markets
One problem was a slight increase in inflationary
pressures. Emerging economic problems and generous
wage increases accelerated inflation after mid-1980.
Buttressed by free-wheeling import policies, local
industry had been able to meet consumer demand
to cover its financing needs without tightening the
availability of credit for private business
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Zimbabwe: Composition of Government Expenditures a
Percent
(Except Where Noted)
Total expenditures (million US $)
710
765
877
1,098
1,245
1,580
2,200
2,880
Allocation
100
100
100
100
100
100
100
100
Civilian
83
81
78
77
72
68
78
83
Education
5
6
6
5
5
10
13
18
Health
5
5
5
4
4
5
6
7
Transport and power
4
5
6
4
5
6
5
7
Pensions, executive
salaries, and other
fixed expenditures
9
10
10
9
8
9
9
7
Debt amortization
27
22
20
27
21
17
17
17
Others, including subsidies
33
33
31
28
29
21
28
27
Defense
17
19
22
23
28
32
22
17
Budget deficit (million US $)
75
4
65
160
337
712
778
920
Share of GDP
2.3
0.1
1.8
4.4
9.7
17.6
14.1
13.8
a Data are for fiscal year, which runs 1 July-30 June.
b Estimated.
Projected.
289.4
919.7
-235.0
-27.6
26.8
265.4
304.4
242.9
158.6
898.0
901.9
1,044.9
1,445.6
-243.4
-231.5
-285.3
-342.2
-24.3
26.8
-69.4
-138.4
-2.3
46.1
-111.8
-322.0
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The government's attempts at conciliation were not
sufficient to stem white emigration. Most of those
who left had no concrete stake in the new state, such
as land or business ownership, and were lured to
South Africa by familiar living conditions and the
lucrative job opportunities advertised by labor-hungry
industrialists. Moreover, Salisbury's desire to Afri-
canize the bureaucracy persuaded many white civil
servants that they had no future in Zimbabwe. All
told, about 30,000 whites, in addition to the 60,000
that fled after the escalation of the civil war, left in
the past two years
Government efforts to meet heightened black expecta-
tions became increasingly unbalanced. Free health
care and primary school education and the integration
of all public facilities was a boon to blacks, par-
ticularly in the urban areas, where these facilities are
concentrated. Urban blacks or rural commuters also
were the main beneficiaries of rising minimum wages.
Improved living standards did not, however, trickle
down to the 3.5 million Zimbabweans in the Tribal
Trust Lands, which had suffered severe damage to
public works and facilities. Little of the $1 billion in
official Western aid earmarked for rural development
in the past two years was disbursed, because of slow
donor followup and local administrative shortcomings.
As a result, many schools still operated without
adequate structures, books, and personnel, and many
technical self-help projects hobbled along only by
virtue of such private donors as missionary societies.
Even when money was available, a lack of expertise
and trained manpower-particularly extension agents
and health officers-seriously hampered implementa-
tion
Growing Policy Challenges
in 1981-82
Trying to meet rising black expectations while main-
taining rapid economic growth is beginning to present
the Mugabe government with harder policy choices.
In making these choices, the government will continue
to be inconsistent, trying to accommodate the various
economic interest groups while attempting to proceed
along more socialist lines. This course portends con-
tinuing uncertainty for all groups involved
The pace at which Salisbury institutes its socioeco-
nomic and political policies and the staying power of
the business community will be critical in determining
the course of the economy in the coming years. The
economy must grow about 6 percent annually to keep
unemployment, now almost 15 percent, from rising
over the foreseeable future. Mugabe's recognition of
the importance of nurturing the strong capitalist base
around which his country's economy is structured is a
positive first step. He needs the cooperation of com-
mercial farmers, industrialists, and mining companies
to guarantee tax payments, direct investment, tech- 25X1
nology transfer, and job creation, and to fulfill his
goals of better living standards for blacksC
Any quick moves aimed at meeting growing black
expectations through greatly increased land redis-
tribution and social services could be counterproduc-
tive. Strained public finances and a sufficiently fright-
ened business community would prevent the kinds of
growth-generating investments needed to keep the
15-percent unemployment rate from rising. The task
of limiting further unemployment takes on even
greater dimensions as the 25,000 men to be de-
mobilized from the national army and the additional
thousands of workers expelled from South Africa
swell the normal annual increment of 80,000 to the
labor force.
The complex burden of coping with the multitude of
social and economic problems is prompting a more
compromising government stance toward domestic
parochial interests, foreign business, and the financial
community. Some concessions recently have been
made, primarily to calm fears in the white com-
munity. One of the new tax measures, designed to
eliminate mining depletion allowances and reduce
capital expenditures credits, has been delayed until
April 1982; it had been slated to be retroactive to
April 1981. Health Minister Herbert Ushewokunze, a
more radical cabinet minister who was objectionable
to the white community, was recently fired
The groundwork is being laid to alleviate transport
bottlenecks. About 25 technicians recruited from
India and Pakistan to help operate and maintain the
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Confidential
rail system have already arrived. Sixty new locomo-
tives are on order from the United States and Canada
and will start arriving in early 1982. Subministerial-
level meetings with Pretoria have resulted in South
Africa's agreement to provide 26 locomotives and to
help ease the fuel situation
At the same time, the government's increased political
posturing in recent months is undermining its more
cautious approach on the economic front. The tone of
speeches by Mugabe and other leaders, designed to
renew revolutionary zeal, deepened concern among
blacks and whites alike, as the Prime Minister ac-
cused opponents from both races of colluding with
South Africa to subvert his government. The arrival
in August of about 100 North Korean military advis-
ers also added ammunition for Mugabe's foreign and
domestic critics. Perhaps the most disturbing prob-
lems have been the increase in accusations of white
racism by various ministers, and cfiticism by the
Minister of Justice and Constitutional Affairs of the
provision in the constitution which reserved 20 parlia-
mentary seats for whites.
Against this background, time for revitalizing the
pivotal private sector is growing short. The stepped-up
rhetoric and a hardening of racial attitudes can
exacerbate labor shortages and government inefficien-
cy. White emigration has risen from a monthly
average of 1,400 in 1980 to nearly 1,800 at the
beginning of 1982. With transport problems now
costing Zimbabwe about $8 million per week in lost
foreign exchange, a continuing loss of transport tech-
nicians would be especially detrimental. Similarly, the
worsening personnel shortages, transport difficulties,
worn plant and equipment, and foreign exchange
shortages in the manufacturing and mining sectors
require faster policy responses
Differences of opinion within the government contin-
ue to preclude a well-defined set of rules for foreign
investment. Moderates in the government prefer de-
ciding each case separately to forestall setting down
an investment code that would set the stage for a
major political battle with more radical elements. A
likely result of such a debate would be a restrictive
code that would require joint ventures with majority
local equity ownership and might severely limit profit
repatriation. The absence of a clearly defined invest-
ment policy, however, will dampen investor enthusi-
asm almost as much as a restrictive code, with foreign
businessmen continuing to "wait and see" before
committing themselves 25X1
25X1
The government's decision to take over the mineral
marketing function is compounding business uncer-
tainty. Suspicious that the companies are underinvoic-
ing exports and that they want to exert more control
over Zimbabwe's resources, the government last June
announced plans to set up a state Minerals' Market-
ing Authority (MMA). Despite protests from the
Chamber of Mines, as well as demarches from various
governments, Salisbury's plan won easy legislative
approval early this year. The MMA will act as the
sole marketing agent for all minerals, collect unspeci-
fied commissions, and have the authority to limit
producers' stockpiles. This legislation is far more
sweeping than the minerals firms had expected-they
had wanted a board that would track sales but not 25X1
interfere in day-to-day operations. As a result, while it
is unlikely that any disinvestment will take place, the
firms will reevaluate their expansion plans
25X1
While commodity price rises to producers have some-
what alleviated anxieties among white farmers about
Mugabe's intentions, many white farmers remain
concerned about possible confiscation of their proper-
ty. Their fears are not unjustified. To achieve the
government's goals of increasing the peasant sector's
contribution to total agricultural output and resettling
some 250,000 landless families would require drastic
changes in the present system of land distribution
The latest round of government-mandated hikes in 25X1
the minimum wage threatens to dampen investor
enthusiasm even more and risk a slowing of job 25X1
creation across the board. Monthly minimum wages
for industrial and commercial workers rose 25 per-
cent, to $150, at the start of 1982, and salaries over
$28,000 annually were frozen. Minimum wages for
farm and domestic workers increased almost 70 per-
cent, to $70 a month. Higher earnings and the passing
of cost increases to consumers will cushion the impact
on manufacturers. The mining sector will not be as
lucky, however. Some of the 70,000 workers-7 per-
cent of the labor force-stand to lose their jobs if
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unprofitable mines, already squeezed by higher taxes
and falling earnings, are forced to close. Service and
farm workers-30 percent of all workers-are even
more vulnerable. Many employers already are consid-
ering cuts in household labor or shifts to such labor-
saving crops as corn
Despite these discouraging actions, the government
continues to be supported by a cadre in the local
business and farm community as well as foreign
investors now in place. Many in these groups feel that
the recent upsurge in rhetoric will cool and that they
have only to wait it out. Although there is a supposed
thin line between government intervention and out-
right nationalizations and confiscations, most within
these groups remain confident that the former course
is the most. they will have to worry about
domestic interest rates closer to international levels to
bolster domestic savings. The Fund also insisted on a
$150 million or 5-percent cut in government outlays
aimed at consumer subsidies. Although the govern-
ment has tentatively agreed to reduce subsidies, it is
buying time to forestall political opposition
Beyond IMF help and the support it would engender
from international bankers, the government's ability
to carry on its reconstruction and development plans
will largely depend on the generosity of Western
donors. The Zimbabwe Conference on Reconstruction
and Development (ZIMCORD) held in March 1981
yielded pledges of $1.8 billion, mainly from the
collective European Community, the United King-
dom, and the United States. Of the ZIMCORD
money, $1.1 billion is earmarked for land resettlement
and rural development, $300 million each for refugee
resettlement and manpower training.
Mugabe's perceived need both to maintain socialist
rhetoric and periodically to backslide on economic
pragmatism when political costs become too heavy
could, however, negatively affect future donor sup-
port. Moreover, the prolonged recession in the indus-
trialized countries could threaten foreign aid. Even
making effective use of donor funds will depend on
the government's ability to strengthen its managerial
and technical base. This will be difficult at a time
when skilled workers continue to leave the country
and increases in spendin for education are limited by
budget constraints
Medium-Term Prospects
Even if Mugabe continues to take a middle course on
economic policy while talking a revolutionary line,
external factors work against Zimbabwe's achieving
annual economic growth beyond the 3- to 4-percent
range through 1985. Demand by developed countries
for Zimbabwe's primary and processed minerals will
remain depressed at least through early 1983. More-
over, the drawdown of substantial stockpiles of ferro-
chrome and chromite, especially in South Africa, will
cause local output to lag for six months or so after
world demand rebounds. Against this background,
depressed mineral sales are unlikely to recover until
mid-1983 at the earliest. Sluggish export earnings, in
turn, already are dictating cuts in foreign currency
allocations to selected industries of as much as 40
percent, and these will begin to take effect fully this
year. Continued foreign exchange rationing will se-
verely pinch economic expansion, while inflation and
unemployment probably will rise sharply.
The land resettlement task will proceed only on a
limited scale. In the absence of significant political
pressures, the government's determination to mini-
mize disruptions in commercial agriculture dictates
the pace at which it will seek to satisfy land-hungry
Zimbabweans. More important, even if all arable land
were made available, there would not be enough to go
around. The large tracts of underutilized land belong-
ing to whites, however, give Salisbury some room to
maneuver in satisfying land hunger among blacks
without creating disruptions. The plans already under
way will resettle about 8 percent of those eligible on
land purchased mainly from absentee landlords. Prog-
ress, however, has been slow and will continue to be
Although decisive and consistent economic measures
to restore business confidence are not assured, Salis-
bury's reaction to recent pressures by the Inter-
national Monetary Fund (IMF) is promising. Mount-
ing foreign payments strains and conservative debt
management policies prompted the government to
turn to the IMF in late 1981 for $126 million in
compensatory financing to cover immediate balance-
of-payments needs. Salisbury readily met two of the
three IMF criteria by restricting imports and raising
25X1
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limited by the absence of the infrastructure and skills
necessary to launch and properly manage even this
token effort
Problems in bilateral relations with South Africa will
be especially nettlesome because Zimbabwe will not
be able to reduce substantially its economic depend-
ence on Pretoria any time soon. Transport bottlenecks
will continue to plague Zimbabwe, and efforts to
refurbish and repair the alternative routes will be
hampered by lack of sufficient money, skills, and
regional stability. Pretoria will continue to flex its
economic muscle to reinforce Zimbabwe's dependence
and to keep Mugabe in line
Mugabe fully understands the need to maintain eco-
nomic relations with South Africa. Although he has
not personally appealed to the Botha government to
help ease Zimbabwe's economic problems, as Pretoria
would wish, contacts have been made and meetings
have been held on transport and other contentious
issues. South Africa has indicated a willingness to
negotiate a new preferential trade agreement, even
though its terms will be less generous than those of
the old treaty with the Smith regime. Arrangements
have also been made to reschedule a $42 million loan
payment to South Africa, originally due at the end of
1981. Any agreement on these issues will depend,
however, on Salisbury's continued willingness not to
allow anti-South African insurgents to operate from
or through Zimbabwe and on a cooling of Zimbab-
wean anti-South African rhetoricE _J
On the positive side, because national elections will
not be held until 1985, Mugabe probably still has
political breathing space to take the actions necessary
to get the economy on course. By then the prerequi-
sites for rapid growth in Zimbabwe-a rebound in
Western demand for its principal exports, solutions to
the transport problem, and newly educated and
trained blacks to take the place of emigrating
whites-is expected to be in place. Should any of
these prerequisites fail to evolve before election time,
however, the present government might incur heavy
costs. Frustrated with rising inflation and a perceived
lack of economic progress, Zimbabweans would be-
come more restive and more sympathetic to critics
calling for more radical change
Implications for the United States
Zimbabwe's stability is important to US interests in
southern Africa. Most crucial to these interests is 25X1
stability that will enhance Western access to the
entire region as well as to deny the Soviet Union
opportunities for adventurism. A viable black govern-
ment capable of maintaining its economic legacy will
also have an important demonstration effect on Nami-
bia and South Africa. Of lesser importance is contin-
ued access to minerals and the relatively small ($20025X1
million) direct US investment.
Mugabe is pragmatic enough to realize that maintain-
ing strong Western ties is the only way he can 25X1
accomplish his government's social goals. Additional-
ly, he distrusts the Soviets because of Moscow's
military assistance to Joshua Nkomo during the civil
war. Mugabe would prefer to lead his country along
the lines of Yugoslav-type socialism, but he fully
appreciates that capitalism will provide the means-
through the generation of new jobs, foreign exchange
creation, and skills training-to improve living stand-
ards. Having learned from the mistakes of Mozam-
bique and Angola, he is not likely to allow government
relations with the business communit to deteriorate
seriously.
25X1
Should Mugabe fail, or be perceived to fail by the
population at large or by members of his party, the
alternatives could be much more damaging to West-
ern political and economic interests. Radicals within
his party who could challenge Mugabe's hold on 25X1
power would probably be less tolerant of the private
business sector and more likely to develop ties with
the Soviet Bloc. Just as plausible is the possibility that
Mugabe himself will become radicalized-out of frus-
tration or in an attempt to silence his critics-with the
same adverse implications for the private sector. In
neither case, however, would Salisbury be in a posi-
tion to deny the West access to mineral supplies
because of foreign exchange needs. They probably
would, however, be more disposed to allow anti-South
African insurgents to operate from within Zimbabwe,
which could pave the way for South African-Zimbab-
wean military confrontation and greater instability in
the area
25X1
25X1
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drought years
Appendix
Past Economic
Problems and Adaptations
Adjustments to Sanctions
In the 1970s, Rhodesia's economy was encumbered,
first by international sanctions that followed Salis-
bury's Unilateral Declaration of Independence (UDI)
in 1965, and then by the escalation of guerrilla
activity to a full-fledged civil war in the period of
1974-79. Following the first full year of sanctions, the
Rhodesian economy performed well under stress for
almost a decade. Real GDP growth averaged 6.5
percent annually between 1965 and 1974; below-
average economic performance occurred only in
and salaries.
serious economic disruptions. In addition, UN-
mandated sanctions effectively barred Rhodesia from
obtaining numerous specialized products. Shortages
of imported body kits disrupted automobile assembly,
and Rhodesian Airways was unable to purchase new
planes. Where the point of origin was easier to
conceal, other goods were readily obtainable, how-
ever. 25X1
On the export side, only agricultural exports suffered
badly during the sanctions period. The embargo crip-
pled tobacco sales, Rhodesia's single largest foreign 25X1
exchange earner. This was because tobacco was too
easily traced to the source and could not, therefore, be
passed through foreign middlemen to the world mar-
ket. The sharp decline in tobacco earnings, as well as
a need to reduce dependence on imported food, caused
the government to encourage growers to switch to
corn and wheat production. 25X1
To achieve this pace, the government took a greater
role in the economy through a formidable array of
organizations and controls.
? Development corporations were set up to provide
financing and technical expertise for industrial,
mining, and agricultural enterprises.
? Efforts both to find new export markets and to
evade sanctions were centralized.
? The Rhodesian Government assumed extensive
powers in resource allocation and control of wages
Import substitution flourished and contributed to the
economic resiliency. By 1970, manufacturing had
replaced agriculture as the leading nonservice sector,
owing to a 50-percent overall growth over the five-
year period. As a result, virtually all essential con-
sumer goods and some intermediate and capital
equipment needs were supplied domestically, thereby
saving Rhodesia valuable foreign exchange. Indeed,
import volume did not match or exceed the 1965 level
until 1973 and 1974.
Rhodesia depended heavily on South Africa to expe-
dite the supply of those imports that could not be
produced locally. Essential oil purchases via the pipe-
line from Mozambique had been effectively cut off
after 1965. Only South African exports, Rhodesia's
sole oil source until independence in 1979, prevented
Sanctions mildly hurt chromium, Rhodesia's second-
largest export earner. Despite the sharp downturn in
output during the late 1960s, the US decision to end
its embargo-the Byrd Amendment-and the skirting
of trade impediments by other Western countries, 25X1
allowed production to outstrip presanctions levels by
1972.
Other nonagricultural exports generally held their
own with the help of Portuguese and South African
middlemen. Copper and pig iron sales, for instance,
were hurt little by sanctions because of new markets
in Western Europe and transit that permitted South
African bills of lading. The majority of Rhodesia's
nondurable manufactures were sold to South Africa
and were not affected
25X1
Following the unilateral declaration of independence,
an involuntary boost in domestic investment and
South African funds allowed Rhodesia largely to
replace traditional sources of capital. With remit-
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Canadian parent companies prohibited by the Smith
government, profits had to be reinvested rather than
repatriated. As a result, total domestic investment
surged from 13 percent of GDP in 1964 to an annual
average of 20 percent during the first half of the
1970s
In addition to the reinvested earnings, some $500-750
million in new foreign investment flowed in, mostly
from South Africa. Adherence to the boycott by
international bankers and foreign donors made Salis-
bury almost totally dependent on South Africa for
these and other financial flows. Concessional aid and
access to Pretoria's private capital markets enabled
the Rhodesian Government to finance its small
budget deficits.1
The Civil War Years
Beginning in 1975, Rhodesia was beset by a new
round of troubles that wreaked economic havoc. The
main factors were an escalation of the protracted civil
war and the Zambian and Mozambican closure of
their borders with Rhodesia. The ensuing uncertainty
and the erosion of the middle class market because of
white emigration weakened the investment climate.
Moreover, international demand for Rhodesian com-
modities sagged with the recession in Western mar-
kets. The economic downturn that began in 1975
persisted for five years. With the real economic
decline averaging 3 percent annually, per capita
income had tumbled 24 percent by 1979.
Government reactions to the war also had profound
implications, as the mounting diversion of resources
into defense undercut economic growth. The defense
portion of the budget rose from 19 percent in 1975 to
a peak of 32 percent in 1979, pushing the overall
budget deficit from $4 million in 1975 to over $700
million in 1979. The stimulative effects of rising
defense expenditures was more than offset by the
reduction in producer and consumer subsidies, the
boost in personal income taxes, and the mandatory
purchase of war bonds to help cover these deficits.
Moreover, the shift of scarce foreign exchange to
military-related purchases reduced financial resources
for local businessmen, even as the diversion of skilled
white manpower from industry and agriculture
worsened an already bad labor situation
External factors also undermined the embattled econ-
omy. Zambia had closed its borders in 1973, thereby
depriving Salisbury of transshipping fees, but, by
itself, this had only limited adverse impact. Even more
serious was the decision in 1976 by the new Machel
government in Mozambique to close its borders with
Rhodesia. This action forced a rerouting of trade
through South Africa that increased Rhodesia's
freight payments about 50 percent annually
25X1
25X1
Beyond the internal and regional forces, the deterio- 25X1
rating international economy also took a heavy toll.
Demand by developed countries for most of Rhode-
sia's exports slumped as world oil prices soared. Trade
sanctions caused Rhodesia to suffer disproportionate-
ly, as buyers switched to more dependable supplies. In
addition, largely because of technology changes, Rho-
desia was unable to replace the US chrome market
lost to it after the 1977 repeal of the Byrd Amend-
ment
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