How the loss of property rights caused Zimbabwe’s collapse

The economic collapse of Zimbabwe was caused by land reforms that ignored property rights and the rule of law, says Craig J. Richardson, associate professor of economics at Salem College.

Although unconstitutional, Zimbabwe President Robert Mugabe's government authorised the seizure of nearly all of the 4,500 commercial farms between 2000 and 2003. By 2003, the economy was imploding with increasing speed, at 18 per cent per year. Inflation was running at 500 per cent, and Zimbabwean dollars lost more than 99 per cent of their real exchange value.

Since 2000:

Financial investors fled, worried other businesses might be seized next; foreign direct investment fell to zero by 2001, and the World Bank's risk premium on investment in Zimbabwe rose from 4 per cent to 20 per cent that year.

Commercial farmland lost an estimated three-quarters of its aggregate value between 2000 and 2001 as a result of lost property titles; Richardson estimates that one-year loss was US$5.3 billion – more than three and a half times the amount of all foreign aid given by the World Bank to Zimbabwe since 1980.

By the end of 2001, 700 companies had closed; industrial production declined by 10.5 per cent in 2001 and 17.5 per cent in 2002.

Richardson estimates the independent effect of land reforms, after controlling for rainfall, foreign aid, capital and labour productivity, led to a 12.5 per cent annual decline in gross domestic product (GDP) growth for each year between 2000 and 2003.

Richardson says the lesson learned here is that well-protected private property rights are crucial for economic growth and serve as the market economy's linchpin.

Source: Craig J. Richardson, How the Loss of Property Rights Caused Zimbabwe's Collapse, Cato Institute, Economic Development Bulletin, No. 4, November 14, 2005.

For text: http://www.cato.org/pubs/edb/edb4.pdf

For more on International: http://www.ncpa.org/pi/internat/intdex1.html

FMF Policy Bulletin/ 13 December 2005