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Thirty-seven years ago Robert Mugabe inherited a well-diversified economy with potential to become one of sub-Saharan Africa’s best performers. Today, Zimbabwe is the region’s basket case, with real per capita incomes down 15 per cent since 1980.

“The economy is in very bad shape,” said Welshman Ncube, a businessman and prominent opposition politician, who said that the economic crisis and the difficulty the government had in paying soldiers and civil servants formed part of the background to last week’s military takeover. “Even if I have $10,000 in the bank, my bank can only give me $20 a day. The liquidity crunch is severe.”

The queues to withdraw precious dollars from ATMs hours after the army’s intervention last week were just the latest example of a need for hard currency, reflecting grinding economic difficulties that go back years.

In 2009, Zimbabwe was forced to abandon its currency — which had gone up in an inferno of hyperinflation — and to adopt the dollar as its principal means of exchange. The enforced dollarisation stabilised the economy and led to an initial 40 per cent rebound in incomes, though these have since flatlined. With no local currency, money supply became entirely dependent on inflows of dollars, in effect depriving the authorities of control over monetary policy.

In a desperate measure to introduce liquidity, the government introduced “bond notes” in 2016. These were theoretically backed by hard currency but have quickly deteriorated in value. Money supply has surged 36 per cent in the past year and the notes plunged 80 per cent on the parallel market, threatening yet higher inflation.

At annualised rates, inflation is running at more than 14 per cent and the budget deficit is 12 per cent of gross domestic product. In spite of export subsidies of $175m, the trade deficit exceeds 10 per cent of GDP. At some point, the new administration — whatever form it takes — is likely to have to reintroduce a local currency, with potentially painful consequences.

Although in the early days after independence the Mugabe government was theoretically committed to Marxism-Leninism, it never paid more than lip service to the concept. It did, however, set up a plethora of state-owned enterprises, almost all of which are bankrupt today. The government compounded its problems by rebuffing foreign investors and borrowing heavily, partly to expand social services, especially education.

By the early 1990s, in the wake of the collapse of the Soviet empire, a reluctant Mr Mugabe was shoehorned by the World Bank and western donors into a poorly designed and ineptly managed structural adjustment programme. Its designers believed that market and financial liberalisation, plus civil service and public enterprise reform, would drive economic growth, with manufacturing as the lead sector.

Many of the public sector reforms were stillborn, however, and deindustrialisation instead accelerated. Industrial output today is less than 10 per cent of GDP, against a peak in the early 1990s of 25 per cent.

Non-farm employment at about 850,000 is unchanged from the late 1980s, while the number of industrial jobs has fallen from more than 200,000 to 90,000. Today, the public sector excluding the military — mostly teachers, health workers and civil servants — accounts for more than 40 per cent of formal employment.

Far from stimulating the economy as the donors and multilateral institutions promised, market reforms deepened the economic crisis, forcing Mr Mugabe into ever more desperate measures. These included unbudgeted payouts to war veterans, compounded by Zimbabwe’s military foray into the Democratic Republic of Congo in 1998 to support the Kabila dynasty. Together, they helped precipitate the slide into currency collapse and hyperinflation of the early 2000s.

The war veterans were the vanguard of the chaotic land redistribution policy launched in 2000 ahead of elections in which many analysts insist Morgan Tsvangirai’s reformist Movement for Democratic Change won the vote but lost the count.

Land reform accelerated economic decline exponentially, with real GDP plunging 45 per cent in the decade to 2009. Farm production collapsed and by 2008 output volumes were two-thirds below their peak levels in 2000. Although there has been a subsequent recovery, production is still down at least a quarter even after a bumper harvest last year.

Nevertheless, Tendai Biti, who was finance minister from 2009 to 2013, said the economy could quickly recover if it could attract foreign investment and reinsert itself into the international economy. “Look at the way we bounced back in the government of national unity,” he said referring to the recovery from hyperinflation after 2009. “We can build a $100bn economy in under 15 years and have a growth rate of 7 per cent per annum.”

Emmerson Mnangagwa, the sacked vice-president who is Mr Mugabe’s most likely successor, has worked behind the scenes to support the aborted Lima process, through which the government had hoped to clear up longstanding debt arrears, opening the way to new multilateral funds and, potentially, more foreign investment.

The military that took over last week has tried to present itself as business friendly. In a press release last week, the Zimbabwe Defence Forces, which is now in effect running the country, emphasised what it said was the support of the business community and said it wanted to create “a peaceful, united investor friendly and prosperous Zimbabwe”.

For that, the country will need some kind of international rescue package and to attract new investor inflows. “You will not be able to make a dent in this economy,” said Mr Ncube, “without international support.”

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