Economic Management in a Hyperinflationary Environment 1st Edition by Raphael Otieno,George Kararach 9780191064708 019106470X

Chapter 1: The Political Economy and Evolution of Development Policy in Zimbabwe

1.1 Background

1.2 From Rhodesia to Zimbabwe: Statism, Destabilization, and Racialist Political Economy

1.3 Evolution of Zimbabwe´s Macroeconomic Policies, 1980-2008

1.3.1 Pre-liberalization Period, 1980-90

1.3.2 The First Phase of the Economic Structural Adjustment Programme (1991-95)

Trade `Liberalization´

Domestic Deregulation

Financial Sector and Monetary Policy Reform

Fiscal Policy and Tax Reform

1.3.3 The Zimbabwe Programme for Economic and Social Transformation

1.3.4 Millennium Economic Recovery Programme

1.4 The Pursuit of Ineffective Macroeconomic Policies

1.5 Costly Political and Policy Decisions

1.6 Structure of the Book

References

Part I: Overview of the Crisis

Chapter 2: Pre-Crisis Macroeconomic Performance and Triggers of the Economic Crisis in Zimbabwe

2.1 Introduction

2.2 Zimbabwe´s Pre-crisis Macroeconomic Performance

2.2.1 Real Economic Growth

2.2.2 Fiscal Performance

2.2.3 Money Supply Growth

2.2.4 Inflation

2.2.5 Revenue Productivity of the Tax System

2.2.6 Total Debt

2.2.7 Exchange Rates

2.2.8 Balance of Payments and International Reserves

2.2.9 Employment

2.3 Literature Review on Determinants of Economic Growth

2.3.1 Indicators of Macroeconomic Uncertainty

2.3.2 Structural, Political, and Institutional Variables

2.4 Models to Explain Zimbabwe´s Economic Crisis

2.4.1 Regression Model

Initial GDP per capita

CPI inflation

Government consumption and budget deficit (per cent of GDP)

Savings ratio

M2/GDP (lagged)

Degree of openness

Rule of law

Dummy

2.4.2 Policy Index

2.4.3 Moderation Model

2.5 Presentation of Results

2.6 Discussion

2.6.1 Economic and Economic Policy Variables

2.6.2 Structural, Political, and Institutional Variables

Rule of law

Drought

2.7 Conclusions

References

Part II: Productive Sector Performance

Chapter 3: Response of the Manufacturing Sector to the Zimbabwe Economic Crisis

3.1 Introduction

3.2 Manufacturing Sector Growth under Economic Crises: A Literature Review

3.3 The Zimbabwe Manufacturing Sector before Hyperinflation

3.3.1 Policy Framework Governing the Sector

3.3.2 Some Performance Indicators before Hyperinflation

Manufacturing sector contribution to GDP

Level of production and wages

3.4 The Advent of Hyperinflation and Implications

3.4.1 Performance Indicators under Hyperinflation

3.4.2 Manufacturing Sector Contribution to GDP

3.4.3 Capacity Utilization

3.4.4 Manufacturing Value Added Per Head

3.4.5 Manufactured Exports

3.4.6 Manufacturing Sector Output Growth

3.5 Challenges Experienced by Manufacturers

3.5.1 Lack of Foreign Currency

3.5.2 Unavailability of Raw Materials

3.5.3 Weak Domestic Demand

3.5.4 Fuel Shortages

3.5.5 Unreliable Power

3.5.6 Working Capital Challenges

3.5.7 Price Controls

3.5.8 NRZ Operational Challenges

3.5.9 Labour Laws

3.5.10 Other Challenges

3.5.11 Survival Strategies by Companies

Decentralization

Compromising on quality

Developing syndicates

Payment terms

Toll manufacturing

3.6 Comparison with Other Countries that Faced Hyperinflation

3.6.1 Germany

3.6.2 Yugoslavia

3.6.3 Other Countries

3.7 Conclusion

References

Web References

Chapter 4: The Performance of the Tourism Sector in Zimbabwe during the 2000-08 Economic Crisis

4.1 Introduction

4.2 Literature Review

4.2.1 Importance of Tourism in Economic Development

4.2.2 Tourism under Economic Crisis

4.3 Performance of ZIMBABWE´S Tourism SECTOR during the Crisis Period

4.3.1 Performance of the Tourism Sector based on the Macroeconomic Variables

Arrivals and tourism receipt trends

An analysis of operations of the establishments in the tourism industry

4.3.2 Zimbabwe´s Tourism Competitiveness 2000-10

Accommodation

Accessibility

Road networks

Airlines connectivity

Rail networks

Attractions

Rebranding of the product

Amenities and activities

4.4 Measures Adopted to Counter the Crisis in the Sector

4.4.1 Tourism Development Zones

4.4.2 Regional Cooperation

4.4.3 Infrastructure Development

4.4.4 The Look East Policy

4.4.5 Image Building Thrust

4.4.6 The One-Stop Investment Initiative

4.4.7 The Relicensing of the Hospitality Sector

4.4.8 Role Played by the Private Sector

4.4.9 Quality

4.5 Lessons and Recommendations

4.5.1 Lessons Learnt

4.5.2 Recommendations

4.6 Conclusions

References

Chapter 5: Experiences in the Zimbabwe Hotel Industry during Hyperinflation

5.1 Introduction

5.2 The Tourism Sector in Zimbabwe

5.3 Literature Review

5.4 Methodology

5.4.1 Data Analysis Procedure

5.4.2 Findings

Demographics of respondents

Customers´ experiences of hotel services during the crisis

Responsiveness

Assurance

Tangibles

Empathy

Reliability

Calculating service quality experience using the Oliva and Sterman (2001) model

5.5 Hotels´ Efficiency

5.5.1 Types of Visitor

5.6 Conclusions

References

Chapter 6: The Impact of Hyperinflation on the Agriculture Sector: Lessons from Zimbabwe, 1998–200

6.1 Introduction

6.2 Developments in the Agriculture Sector

6.2.1 FastTrack Land Reform Programme

6.3 Literature Review on Inflation

6.4 Agriculture Production and Inflation Developments

6.4.1 Correlation Analysis

6.5 Methodology of Estimating the Impact of Inflation on the Agricultural Sector

6.6 Estimation Results

6.7 Conclusions

References

Part III: Banking, Capital Markets, and Financial Services

Chapter 7: Bank Failures in Zimbabwe: Evidence and Lessons, 2000–09

7.1 Introduction

7.2 Literature Review

7.2.1 Empirical Studies on Bank Failures during the 2008 Global Financial Crisis

7.2.2 Empirical Studies in Developing Countries

7.3 Methodology

7.3.1 Impact of Macroeconomic Variables: GDP Growth

Impact of Macroeconomic Variables: Inflation and Interest Rates

Impact of Macroeconomic Variables: Balance of Payments

7.3.2 The Impact of Bank Fundamentals

Capital Adequacy

Asset quality

Management

Earnings

Liquidity

7.4 Conclusions

References

Chapter 8: Operations, Regulation, and Practices of the Zimbabwe Stock Exchange during the Hyperinfl

8.1 Introduction

8.2 Literature on the Role of Stock Markets

8.2.1 Stock Market Theories and ZSE Performance during Hyperinflation

8.3 History and Developments in the ZSE

8.3.1 Background

8.3.2 Management and Regulation of the ZSE during Hyper-inflation

8.3.3 ZSE Trading and Settlement Systems during Hyperinflation

8.3.4 ZSE Transaction Costs during Hyperinflation

8.3.5 State of Economic Conditions that the ZSE Operated Under during Hyperinflation

8.3.6 Regional Position of the ZSE during Hyperinflation

8.3.7 Why the ZSE Was Preferred by Investors during Hyperinflation

8.3.8 ZSE and Foreign Participation during Hyperinflation

Hyperinflation eroded proceeds

8.4 ZSE Performance

8.4.1 ZSE New Listings Drought Under Hyperinflation

8.4.2 ZSE Foreign Participation Rules

8.4.3 Popularity of Dually Listed Companies during Hyperinflation

8.4.4 Fund Raising by Listed Companies at the ZSE

8.4.5 ZSE Market Performance during Hyperinflation

8.4.6 ZSE Asset Price Bubble and How it Burst during Hyperinflation

8.4.7 ZSE Activity versus Excessive Monetary Growth and Hyperinflation

8.4.8 ZSE Stocks versus Fixed Income Assets

8.4.9 Investor Profile Shift during Hyperinflation

8.4.10 Share Pricing and Arbitrage Opportunities

8.4.11 ZSE Trading and Illegal Parallel Market for Foreign Exchange

8.4.12 RBZ Policy Response to the ZSE Rally during Hyperinflation

8.5 Conclusion

References

Chapter 9: Stock Market Returns and Hyperinflation in Zimbabwe, 1998-2008

9.1 Introduction

9.2 Literature Review

9.3 Methodology and Empirical Model

9.3.1 Data and Empirical Results

9.3.2 Main Empirical Results

9.3.3 Co-integration Test Results

9.4 Conclusion

References

Chapter 10: The Pension Fund Industry Experiences during Hyperinflation

10.1 Introduction

10.2 The Social Security Concept

10.2.1 Retirement Savings Model

10.2.2 State pension in Zimbabwe

10.2.3 Occupational Pension Schemes

10.2.4 Life Assurance and Savings Policies

10.3 Pension Fund Industry Stakeholders and their Roles

10.3.1 Government

The Insurance and Pensions Commission (IPEC)

10.3.2 Zimbabwe Association of Pension Funds (ZAPF)

10.3.3 Participating Employers

10.3.4 Contributing Members

10.3.5 Pensioners Receiving Pension in Payments

10.3.6 Trustees

10.3.7 Pension Fund Administrators

10.3.8 Asset Managers

10.3.9 Life Insurers

10.3.10 Other Service Providers

10.4 Pension Scheme Design

10.4.1 Defined Benefit Schemes

10.4.2 Defined Contribution Fund

10.5 Research Methodology

10.5.1 Research Design, Sampling, and Study Population

10.5.2 Sample Size and Sampling Techniques

10.5.3 Data Gathering Tools and Administration

10.6 The Impact of Hyperinflation on Pension Funds

10.6.1 Economic Environment in Zimbabwe

10.6.2 Impact on the Objectives of a Contributory Occupational Private Pension Fund

10.6.3 Effect of Hyperinflation on Pension Fund Operations

Variations to Pensionable Salary and Contributions

10.6.4 Reduction in Membership

10.6.5 Payment of Benefits

10.6.6 Impact on Pension Fund Industry Operations

10.6.7 Effect of Hyperinflation on Pension Fund Investments

Pension fund investment products

Impact of Regulation on Pension Fund Investments during Hyperinflation

Impact of Hyperinflation on Equities

Impact of Hyperinflation on Property

Impact on Government (Prescribed Assets), Corporate Bonds, Money Market, Cash, and Cash Equivalents

10.6.8 Impact on Scheme Design

Defined Benefit (DB)

Defined Contribution (DC)

10.7 The Dollarization Experience

10.7.1 Valuation of Assets

10.7.2 The Conversion Process

10.7.3 Low Values on Conversion

10.7.4 Actuarial Valuation Deficits in Hard Currency and Suboptimal Replacement Ratios

10.7.5 Suboptimal Pension Savings

10.8 Challenges Experienced Post the Conversion Process

10.8.1 Absence of Guidelines

10.8.2 Low Conversion Values

10.8.3 Industry Public Opinion Challenges

10.8.4 Outstanding Benefit Payments

10.8.5 Product Failure

10.8.6 Lack of Confidence in Pension Funds in Zimbabwe as a Retirement Saving Plan

10.9 Measures Being Taken to Address Post Conversion Challenges

10.9.1 Review of the Conversion Process

10.9.2 Review of the Investment Regulations

10.9.3 Pension Enhancements

10.9.4 Public Awareness Campaigns

10.10 Lessons Drawn

10.10.1 Investments

10.10.2 Currency Changes and Conversion of Values

10.10.3 Tax on Pension Enhancements

10.10.4 Development of Relevant New Products

10.10.5 Member Education

10.11 Conclusion

References

Part IV: Monetary Policy and Public Financial Management

Chapter 11: Zimbabwe Monetary Policy, 1998-2012: From Hyperinflation to Dollarization

11.1 Introduction

11.2 Hyperinflation in Historical Perspective

11.3 Background to the Zimbabwe Hyperinflation

Appeasing the War Veterans

The Congo War

Land Reform

Political Challenge

Winners and Losers from Inflation

11.4 The Inflation-Devaluation Spiral

Foreign Exchange Markets

Tests of Purchasing Power Parity (PPP)

Causality

11.5 The Impossible Trinity Hypothesis

11.6 The Dollarization Exit Strategy

11.7 Choice of Exchange Regime

Optimal Currency Area Policy

SADC Regional Integration and the CMA

11.8 Challenges of Dollarization

Balance of Payments

Monetary Management

Investment

11.9 Conclusions

References

Chapter 12: Relegating the Core Business: The Case of the Reserve Bank of Zimbabwe Undertaking Quasi

12.1 Introduction

12.2 Quasi-Fiscal Activities (QFAs): A Literature Review

12.3 Quasi-Fiscal Activities of RBZ: A History

12.3.1 Troubled Bank Fund

12.3.2 Productive Sector Facility

12.3.3 Basic Commodities Supply Side Intervention (BACOSSI)

12.3.4 Support to Health

12.4 Macroeconomic Impact of the Quasi-fiscal Activities

12.4.1 Increase in Inflation and Money Supply

12.4.2 RBZ Debt Ballooning

12.4.3 Dollarization

12.5 Conclusion

References

Chapter 13: Management of Public Debt in Zimbabwe During the Hyperinflationary Period

13.1 Introduction

13.2 Literature Review

13.2.1 Empirical Literature Review

13.3 Institutional and Regulatory Framework for Public Debt Management

13.3.1 The Institutional Framework

Domestic debt

External debt

13.3.2 Legal Framework for Public Debt Management

Domestic debt management

External debt

13.4 Evolution of Domestic Debt 2000-08

13.4.1 Domestic Debt Instruments

13.4.2 Domestic Debt Portfolio 2000-09

13.4.3 Evolution of Domestic Debt by Holder

13.5 Evolution of External Debt 2000-08

13.5.1 Evolution of External Debt

13.5.2 External Debt by Currency Composition

13.5.3 Public External Debt Average Loan Terms

13.5.4 External Debt Sustainability

13.5.5 Implications of the Debt and Arrears

13.5.6 Sustainable Measures to Resolving the Debt Problem

13.7 Major Challenges with the Public Debt Management

13.7.1 Summary of Key Lessons

13.7.2 Recommendations

13.8 Conclusion

References

Chapter 14: Monetary Policy Formulation and Implementation in a Hyperinflationary Environment: The C

14.1 Introduction

14.1.1 Zimbabwe´s Economic Developments

14.2 Literature Review

14.2.1 Definitions

Neutrality of Money

Price Stability

Hyperinflation

Quasi-fiscal Activities/Operations (QFAs/QFOs)

Monetary Policy

Central bank Independence and Quasi-fiscal Activities

14.2.2 Theoretical Evidence

Monetarist Theory (Monetarism)

Quantity Theory of Money

14.2.3 Empirical Literature

Long Run Neutrality of Money

High Inflation Episodes in Twenty-Four Selected Countries

14.2.4 Implications of Quasi-fiscal Activities

The Eastern European Cases

The European Union (EU) Experience

Quasi-fiscal Operations in Zimbabwe, 2004-08

14.2.5 Monetary Formulation and Implementation during Economic Crisis

Monetary Policy during the Recession of 2007-09: USA

Turkey

Angola

Mitigatory Measures

14.2.6 Lessons from international experience for Zimbabwe

Lessons from Japan´s Experiences in Economic Crisis

14.3 Research Methodology

14.3.1 Data Description

14.3.2 Empirical Data Analysis and Discussion of Results

Series Plots

Descriptive Statistics

Unit Root Test

Cointegration Tests

Residual Testing

14.4 Estimating the Price Level Equation

14.4.1 Residual Testing

14.4.2 Normality Tests of Residuals

14.4.3 Estimation of an Error Correction Model (ECM)

14.4.4 Wald Coefficient Test

14.4.5 Granger Causality Tests

14.5 Secondary Data Results and Analysis

14.5.1 Agricultural Sector Facilities

14.6 Policy Recommendations

14.6.1 Implications for Future Research

14.7 Conclusion

APPENDIX 14.1

(a) History of Reserve Bank of Zimbabwe Governors

(b) Series Plots of LM2, LCPIE, LGDP (2000Q1 2008Q2)

(c) Normality Tests of Variables

APPENDIX 14.2

(a) Zimbabwe—Key economic indicators, 2001–2009

(b) Fiscal Balance Including RBZ Quasi-fiscal Losses

(c) Zimbabwe maize production, 1994-2009

(d) Zimbabwe-Wheat production trends from 1996-2008, and forecast for 2009

(e) Zimbabwe-Cotton and tobacco production trends, 2000-2009

(f) Maize Production, Area Planted and Yield Trends

(g) Cotton Production, Area Planted and Yield Trends

(h) Soya Bean Production Trends

References

Part V: Social Dimensions of the Crisis

Chapter 15: The Impact of Human Capital Losses in Zimbabwe: A Focus on the Public Sector for the Cri

15.1 Introduction

15.2 The Brain Drain Problem

15.2.1 Background to Migration and Human Capital Losses in Zimbabwe

15.3 Zimbabwe´s Position on Labour Migration

15.3.1 The Migration Policy Framework for Africa

15.3.2 SADC Protocol on the Facilitation of Movement of Persons

15.3.3 Zimbabwe´s Labour Migration Policy Framework

15.4 Impact of Human Capital Losses in Zimbabwe

15.4.1 Impact on the Primary and Secondary Education Sector

15.4.2 Impact on Higher Education

15.4.3 Impact on Health

Health Worker Vacancy Trends

Vacancy Rates at the Medical Schools

Towards Health Worker Retention in Zimbabwe

15.4.4 Impact on the Productive Sectors

Impact on Agriculture

Impact on the Engineering Sector

15.5 The Positive Face of Human Capital Losses-Diaspora Participation in Development

15.6 Conclusion

References

Chapter 16: The Social Protection Policy Responses in the Primary and Secondary Education Sector dur

16.1 Introduction

16.2 Literature Review

16.3 GOVERNMENT OF ZIMBABWE´S Social Protection Policy Response in the Education Sector during Econ

16.3.1 The Impact of the Crisis on Zimbabwe´s Education Sector

Net Enrolment Rate for Primary Education

Primary School Dropout Rate

Primary School Completion Rate

Quality of Education

Pass Rates for Primary and Secondary Schools

Pupil to Text Book Ratio Primary Schools

Teacher to Pupil Ratio and Literacy Rates

16.3.2 Teacher Qualification and Competency

16.3.3 Supervision of Service Delivery in the Education Sector

16.3.4 Dilapidated Infrastructure at Schools

16.3.5 Investment in Education

16.3.6 Coping with the Effects of the Economic Crisis

16.4 Historical Background to Social Protection in the Education Sector

16.5 Social Protection Response to the Crisis through the BEAM Programme

16.5.1 Implementation of the BEAM Programme

16.5.2 Target Group

16.6 Policy Analysis of the BEAM Programme

16.6.1 Social Equality

16.6.2 Economic Viability

16.6.3 Administrative Viability

16.6.4 Impact

16.6.5 Sustainability

16.7 Lessons Learnt from the Implementation of the BEAM Programme

16.8 Policy Recommendations

16.8.1 Funding

16.8.2 Feeding Schemes

16.8.3 Crafting a Comprehensive National Social Protection Policy

16.9 Conclusions

References

Chapter 17: The Health Sector´s Response to the Impact of Hyperinflation: The Case of Zimbabwe: The

17.1 Introduction

17.2 The Impact of Hyperinflation on Health Sector in Zimbabwe

17.2.1 Human Capita Drain

17.2.2 Declines in Total Health Expenditure

17.2.3 Decline of Health Expenditure Per Capita; Health Expenditure Per Capita via Public Health Fun

17.2.4 Decline in Human Resources Expenditure for Health

17.2.5 Percentage of Public Health Budget Expended

17.2.6 Deterioration of Health Facility Infrastructure

17.3 Coping with Inflation in Zimbabwe

17.3.1 Staff Retention Strategies

17.3.2 Bonding of Specialized and Critical New Staff

17.3.3 Suspension of Private and Locum Work

17.3.4 Use of Strict Monitoring

17.3.5 Introduction of Results-based Management System

17.3.6 Internal Capacity Building

17.3.7 Self-Financing of Medical Services

17.3.8 Duty Exemption for Vehicle Imports

17.3.9 Donor-Ministry of Health Partnership

17.3.10 The Harmonized Human Resources Retention Scheme

17.4 Conclusion

References

Chapter 18: Social Challenges of Hyperinflation: A Case of Health and Education in Zimbabwe, 2000-08

18.1 Introduction

18.2 Literature Review

18.3 Education and Health Delivery System Performance during the Crisis Period

18.3.1 Health Sector

18.3.2 Brain Drain

18.3.3 Health Service Delivery Indicators

18.3.4 Mortality Rates

18.3.5 HIV and AIDS Prevalence and Deaths

18.3.6 Tuberculosis

18.3.7 Cholera

18.3.8 Health Financing

18.3.9 Government Intervention Mechanisms (Social Safety Nets)

18.3.10 Health Assistance Programme

18.3.11 Public Assistance Programme

18.4 Education Delivery

18.4.1 Brain Drain

18.4.2 Education Programme during Hyperinflation Period

18.4.3 Funding in the Educational Sector

18.4.4 Social Safety Nets in the Education Sector: Basic Education Assistance Module (BEAM)

18.5 Lessons Learnt

18.6 Conclusion

References

Chapter 19: Health Care Finance and Health Outcomes during Zimbabwe´s Economic Crisis

19.1 Introduction

19.2 The Industrial Organization of Health Systems

19.2.1 The Poverty-Health Finance-Health Outcome Nexus

19.3 Zimbabwe´s Health Sector and the Crisis in Perspective

19.4 Research Methods

19.4.1 Crisis Impact Assessment

Health care financing

The Health Sector Delivery Capacity

Health Outcomes

Life Expectancy at Birth

Maternal Mortality

Child Health

Disease Prevalence

HIV/AIDS

Tuberculosis

Cholera

Mental Health

Preventive Health

Increased Inequity in the Health Sector

19.4.2 The t-Test Analysis

19.5 Conclusion

References

Part VI: Concluding Remarks

Chapter 20: Development Policy and Managing Shocks in Developing Countries: Lessons on Currency Refo

20.1 Introduction

20.2 Description of the Most Recent Situation

20.2.1 The GPA-related Outcomes

20.2.2 STERP Outcomes

20.2.3 Constitutional Reforms and the 2013 Elections

20.3 Political Economy and the Evolution of Events up to Currency Reforms

20.3.1 Currency Devaluation and Other Monetary Reforms

20.3.2 Investment Climate

20.3.3 Productive Capacity, Export Performance, and Formal Employment

20.3.4 Development Co-operation and Donor Assistance

20.3.5 Summarizing the Lethal Cocktail

20.4 Some Conditions Necessary for Successful Currency Reforms

20.5 Post Currency-reform Economic Performance and Political Dynamics

20.6 Concluding Remarks