Debt Crisis And Economic Underdevelopment In Zimbabwe (Research Proposal Sample)

RESEARCH PROPOSAL
DEBT CRISIS AND ECONOMIC UNDERDEVELOPMENT IN ZIMBABWE: INFANT INDUSTRY PROMOTION AS A PANACEA IN THE AFTERMATH OF THE GOVERNMENT OF NATIONAL UNITY (GNU).
PRINCE .T. KURUPATI
A PROJECT SUBMITTED TO THE DEPARTMENT OF POLITICS AND PUBLIC
MANAGEMENT
FACULTY OF SOCIAL SCIENCES
MIDLANDS STATE UNIVERSITY
30 SEPTEMBER 2014
INTRODUCTION
BACKGROUND OF THE STUDY
At independence in 1980 Zimbabwe inherited us$700 million debt from the Rhodesian government: a problem brought about by constant borrowing by the smith regime after the United Nations (UN) sanctions. This inherited debt was as a result of a short term loan with a high interest rate thus after the attainment of independence in 1980, the new government was faced with a large repayment burden. This repayment burden was further compounded by the fact that in the early 1980s especially 1982, the country was hit by a severe drought which forced the government to seek financial aid in the form of grants and loans to alleviate the local food shortages with imports. During these early years, the country’s large debt was created. By the end of the decade, debt repayments equaled 25 percent of Zimbabwe’s exports and 25 percent of government revenue.
In the early 1990s, Zimbabwe adopted the IMF and World Bank structural adjustment program which came in hand with financial loans which were directly linked to conditionality’s like cuts in government spending , trade liberalization, deregulation of prices, devaluation f the exchange rate and removal of labor laws. In 1992, Zimbabwe was hit by another major drought. Poverty, inequality and debt all rapidly increased. The structural adjustment program was a dismal failure and economic growth fell from averaging 4.5% in the 1980s to 2.9% between 1991 and 1997 and further downwards between 1998 and 2008. A report by the, World Bank (2004) found that “in the 1990s, efforts to accelerate growth through better fiscal management and market liberalization largely failed. Social progress flawed, per capita incomes declined and poverty increased.” Estimates suggest that us$750 million of Zimbabwe’s debt comes directly from loans by the Breton woods institutions namely the World Bank and the IMF.
By 1997, widespread protests emerged all over major towns and cities at the worsening economic situation. At this time the ZANU (PF) government sought to maintain itself in power through unbudgeted spending. For instance, it paid war veterans gratuities and joined in a costly war in the democratic republic of Congo. In November 1997 there was a huge devaluation of the Zimbabwean dollar. The unbudgeted spending and devaluation led to a cycle of rapid rise of inflation and massive economic deterioration. In 2000, the rapidly increasing size of Zimbabwe’s debt led the government to default. The hyperinflation caused by the continued unbudgeted spending and printing of money destabilized the economy. By July 2008, monthly inflation had reached 231 million %. Since 2009 and the complete replacement of Zimbabwe’s currency with the us dollar and the South African rand, the economy has
been recovering. The one remaining source of foreign loans is the Chinese government for example in 2011; Zimbabwe borrowed us$100 million for the construction of the defense college.
From the above, one can note the severe debt and economic underdevelopment facing Zimbabwe and the research is going to look at infant industry promotion as an alternative domestic panacea to the eradication of the debt burden and as an economic growth accelerator of the Zimbabwean state in the post government of national unity (GNU) era.
STATEMENT OF THE PROBLEM
Zimbabwe since independence has been suffering under the huge external debt burden resulting into a retrogressive economic growth and development, Bornstein (2005). The debt crisis which is the combination of accumulated debt and difficulty servicing has imposed several burdens on the Zimbabwean economy. This is reflected in the fall in real growth rates, investment rate and export earning since 1980. Even after the signing of the Global Political Agreement (GPA), Zimbabwe continued to experience deficit in its economic operations thereby creating a resultant effect of acute underdevelopment due to a series of resource mismanagement and high levels of corruption that characterize the whole spectrum of the Zimbabwean economy.
However, the proposed strategies that the country had put in place both pre and during the government of national unity to try and reduce the debt burden and ensure economic boom in the form of adoption of external economic policies, foreign direct investment (FDI) and formation of public-private partnerships failed dismally and further exacerbated the already fragile environment. On the eve of the 2013 harmonized elections Spiegel (2009) concluded that the economic woes in the country were getting worse and worse by the day. This therefore has left a gap in which domestic remedies have to be empirically tested in order to see if they can solve the debt burden and the economic challenges that have been bedeviling Zimbabwe.
Therefore, the main interest of this study is to examine infant industry promotion as a feasible strategy in tackling Zimbabwe’s debt crisis and pave way for the country’s economic development.
RESEARCH OBJECTIVES
The aims and objectives of the study are to:
* Examine the surrounding issues of underdevelopment caused by the debt crisis in independent Zimbabwe.
* Identify the causes and effects of the external debt burden on economic growth and development of Zimbabwe.
* Examine the relative feasibility of infant industry promotion as a way of easing the country’s debt crisis and economic underdevelopment.
WORKING ASSUMPTIONS
1. The debt crisis contributed immensely to the continued economic underdevelopment of Zimbabwe,
even during the government of national unity period.
2. External solutions and policies have immensely failed in addressing the country’s debt crisis and
economic underdevelopment.
3. Domestic economic strategies are the most effective in addressing local economic challenges.
SIGNIFICANCE OF STUDY
This work will serve as a material to other researchers and in practical it will serve as a tool to the government, guiding them on implementation of policies, these policies shall serve as a guide to Zimbabwe’s development.
This research, prescribes how Zimbabwe can move past its debt challenges and focus more on the development of the country and this will determine the relevance of the existing government policies.
RESEARCH QUESTIONS
For the purpose of this study, the following questions were addressed:
1. The extent and impact of the debt crisis and economic underdevelopment in Zimbabwe.
2. The number of possible alternative strategies to solve the debt burden and economic
underdevelopment.
3. Why infant industry promotion is the most feasible and effective strategy in tackling the debt crisis
and economic underdevelopment in the aftermath of the government of national unity era.
As part of this study, investigation included one research hypothesis:
1. Economies of developing states grow more rapidly if domestic strategies and policies are adopted and
implemented.
METHODOLOGY
RESEARCH DESIGN
The research design is largely qualitative rather than quantitative as it is mainly based on intensive analysis of secondary sources like books and journals with a few interviews from a randomly selected few interviewees. As the research is a case study, it is going to be a longitudinal study starting from the period just after the end of the government of national unity in August 2013 to the present day. The research is a quasi-experiment meant to draw up conclusions from small population which would equate to the reality on the ground in the whole country. Also, as a prospective research it is going to expose some of the benefits and challenges that the country may face in the wake of implementing the infant industries promotion.
This research design will serve the purpose of the research well because it’s a feasible that serves both later researchers and government officials of the policies to adopt and implement with their proven results.
THEORETICAL FRAMEWORK
In this study, the Infant Industry Theory as espoused by Hamilton (1790) is going to be used.
According to Hamilton (1790), Infant Industry Theory promotes an economic policy that protects young domestic industries in less developing economies until they become established, financially stronger and capable of withstanding competitive pressures. Infant Industry Theory recognizes that a level playing field (free trade) provides benefit to the stronger competitor and that may not always be beneficial to infant domestic industries. Using protective tariffs and taxes adds cost for the foreign competitor sales process and while it may give the infant industry a chance to get started, it also tends to disrupt the economics of production and pricing as the industry grows. At the same time, if tariffs are left in place too long, similar protectionist trade policies may be instituted by foreign governments thereby limiting opportunities for growing firms to expand into those markets. As a result, as alluded to by Mill (1848),
Infant Industry Theory recognizes that these protections must be scaled back so that these new industry adopts itself to produce, compete and survive on a level playing field in the international market.
The Infant Industry Theory as a theoretical framework for this study is predicated on the notion that all economically developed states have adopted this theory first before moving on to other theories like trade liberalization to further their economic dominance ...