Causes of high unemployment in Zimbabwe

Introduction:The unemployment rate is the proportion of the economically active population that is unemployed and actively looking for employment. In 1990, Zimbabwe embarked on a programme of Economic Reforms popularly known as Economic Structural Adjustment Programme (ESAP) and 1991-1992 saw one of the worst droughts. With close to 70% of the population living in the rural areas (CSO 1992) and dependent on agriculture for their livelihood, this constituted a major disaster. One result of these events was increased migration to the urban areas by people in search of employment.A further drought in 1995-1996 compounded the effect.Worsening economic conditions plus ever increasing corruption and crime have been the norm since 1995. Unemployment is currently soaring and the current rate stands at 70%. This has been from retrenchments, business closures e.t.c. According to EMCOZ survey, about 6000 jobs in the different sectors of the economy were lost by the end of 2001. The figure for 2002 was much higher as a result of the worsening business environment as the government fails to create opportunities to stimulate industrial expansion.Causes of UnemploymentUnemployment is Zimbabwe has been caused by quite a number of factors. Most of these are mainly because of political reasons. The following are some of the factors that are causing unemployment:Sluggish investment and growthWeak export performancePoor macroeconomic policy environmentThe investment/business climate is unfriendlyPopulation growth rate/age structureThe growth path – reliance on primary products – is suboptimalGeography (proximity to South Africa, no direct access to the sea)Tertiary EducationThese are now explained below:Sluggish investment and growthThe investment and growth of the Zimbabwe Economy has been shrinking of late.This has had a significant impact on the Zimbabwean companies. In the past 3 years, over 500 companies closed operations because of prohibitive operational conditions characterized by high input costs, hard currency shortages, high levels of interest rates, inflationary levels as well as the uncompetitive export market. Both the company and the government has been failing to effectively invest and thereby slowing growth. As a result, this has resulted in massive unemployment.Weak export performanceUsually governments and exporters worry most about the foreign elasticity of demand for the exports. But in Zimbabwe today the most important is undoubtedly the domestic elasticity of supply of exports. This is reflected in the export volume numbers. In 2003, tobacco prices are still virtually unchanged from last year and higher than in previous years, but volumes are down by two-thirds. This then means that if we have very few goods that we are exporting, no we end up having a weak generation of foreign currency which we direly need for all our imports. This has significantly impacted on most organizations who eventually resort to the black market for the foreign currency.Poor macroeconomic policy environmentThe role of monetary policy is crucial because macroeconomic policy affects the REAL economy, largely through the credit and capital markets. At the start of the 21st century monetary policy is the most powerful weapon that governments have at their disposal. Monetary policy influences interest rates (directly) and exchange rates (indirectly). It also influences investment, and thereby economic growth and employment. It has major implications for the financial markets – bonds and equitiesAnd today, its most important role is that of ensuring price stability. All this seem to have been ignored in the Zimbabwean scenario, where the macroeconomic policies are arm twisted just for the sake of political expediency. As a result, many sectors have been affected, and no jobs were created and thus an increase in unemployment.The investment/business climate is unfriendlyThe more profitable and attractive the business investment climate, the more firms will want to raise new money to expand and the more they will issue bonds. During a business boom or upswing the supply of bonds rises. The investment climate in Zimbabwe is not sufficiently favorable to attract the type of Foreign Direct Investment needed to transform exports. There are so many regulations concerning capital repatriation and profit/dividend remittability. This discourages investment and hence at the same time increasing unemployment.