Hyperinflation in Zimbabwe

Zimbabwe was for a long time known as « the jewel » of Africa. It was rich in raw materials and productive farmland. It was able to produce enough food to feed the population and could export the rest. There were two types of land in Zimbabwe: commercial lands and communal lands. Before the year 2000, most of the commercial lands were owned by about 4'500 white families and 840'000 black farmers tried to live thanks to communal lands. There was a huge difference between these two types of lands. Commercial lands were big, well irrigated and very productive whereas communal lands were crowded together, lacked of water and therefore not very productive. This difference is simply explained by a disparity in property rights. Indeed, commercial lands had secure property titles, which gave farmers an incentive to take care of their land and to make loans in order to have good machinery. Conversely, communal lands didn't have any property titles, which created fights because of land use rights between village residents and the village chief.

When the president Robert Mugabe was elected in 1987, he had the idea of seizing white-owned farmland and redistributing it to traditional black farmers. However, seizure of land without proper compensation was forbidden by Zimbabwe's constitution. Moreover, in early 2000, Mugabe's attempt to broaden the state's confiscatory powers was rejected in a voter referendum. Furthermore, during this same period, the Reserve Bank of Zimbabwe (Central Bank) sent a confidential memo to the president informing him that going forward with farmland seizures would result in a pullout of foreign investment, defaults on farm bank loans, and a massive decline in agricultural production. However, in 2000, Robert Mugabe established a (violent) land reform that consisted in confiscating lands to white people and redistributing it among Zimbabweans. Eventually, lands were separated in thousands of small lands and distributed to members of the government, army officers, high ranking policemen… The problem was that these people didn't have sufficient agricultural skills to manage efficiently these lands. As a result, predictions of the Central bank became true and production suffered from a tremendous fall producing starvation and famine. Mostly lands used to export suffered a lot. As an example, Zimbabwe was the world's 6th largest producers of Tobacco in 2001. It produces nowadays less than 1/3 of the amount produced in 2000, the lowest amount in 50 years.

This country that was once an exporter became an importer without any money. As a result, the government ordered the Central bank to print money in order to finance their spending and debts towards the IMF. Consequently, the inflation rate started to grow intensely. In 2001, the inflation rate was 112.1% and the highest inflation rate was recorded in July 2008 with 231'150'888.87%. These numbers make Zimbabwe the second country with the highest hyperinflation after Hungary.

The redistribution of land and the hyperinflation created extreme shortages of food and fuel. Moreover, capital inflows fell dramatically as there was too much risk for countries and companies to invest in Zimbabwe. On February 2006, the governor of the Reserve Bank of Zimbabwe, Gideon Gono, announced that the government had printed 21 trillion Zimbabwean dollars in order to buy foreign currency to pay off debts towards the IMF. In May, the government printed again ZWD 60 trillion in order to finance the 300% increase in salaries for soldiers and policemen and 200% for other civil servants. In August 2006, the Zimbabwean government issued new currency and asked citizens to turn in old notes; the new currency (issued by the central bank of Zimbabwe) had three zeroes took off from it. The bank note with