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FACULTY
DEPARTMENT
:
:
COMMERCE
ECONOMICS
RESEARCH PROPOSAL :
AN ASSESSMENT OF POVERTY LEVELS
AND IMPLICATIONS FOR POVERTY ALLEVIATIONS STRATEGIES IN
ZIMBABWE
NAME
BASKET WILBERT M
B0520905
SUPERVISORS
ABSTRACT
This research project sought to assess poverty levels in Zimbabwe and implications
for poverty alleviation strategies .
The purposive sampling technique was used were secondary data was used for the
years 2000-2006.Official statistics ,ZIMVAC, and CCZ data were used to provide
estimates as indicators .
There was triangulation of data from the three sources mentioned above.Simple
descriptive statistics aided by tables and graphs was used to analyze results
Findings indicated that poverty was worsening during the period under study .A multi
dimensional poverty assessment approach used in this research shows that poverty
continued to worsen between the year 2000 and 2006.
INTRODUCTION/BACKGROUND
This study is carried out to assess poverty levels in Zimbabwe .A set of official data
on individual private consumption, poverty data, and inflation rate, value of
agricultural output and fixed capital formation in agriculture and total fixed capital
formation is used .The data was examined by quantitative and qualitative methods in
order to assess the extent of poverty in the country. The economy of Zimbabwe has
been performing badly with an average decline in Gross Domestic Product of 4% for
the past three years (CSO 2007). The study is an interest area as it sought to explore
the impact of this decline to the people of Zimbabwe .It has also shown how the
people have suffered in the current inflationary environment.
BACKGROUND
Poverty is increasingly becoming an issue of concern in Zimbabwe .The current total
poverty level and food poverty level for an average household of five members have
risen in 2005 and 2006 from $5221.90 and $75507.51 respectively (CSO December
2006).THERE is hardly a single day that passes without an article in the local media
on hardships being faced by Zimbabweans due to deteriorating economic
conditions .The monetary premiers the Ministry of Finance ,the Reserve bank of
ZIMBABWE and indeed the Government as a whole ,have adopted many policies to
try and reign the current hyperinflation which was at 1281.1% in December 2006 and
other unfavourable economic indicators like official exchange rate of $250 to US$1,
TOTAL unemployment rate of 80% and excess capacity in most companies of 70%
(RBZ,CSO2006).The policies adopted so far include the Structural Adjustment
Programme(ESAP1991-1995),ZIMPREST 1996-2000,MERP 1999-2000,NERP
2001-2005,Macro economic policy framework 2005-06 and currently NEDPP and the
Look East Policy which was announced in 2003 .However, despite the
implementation of these policies ,the countrys inflation rate, food security and
consequently poverty seem to worsen. The international and regional declarations for
example the MDGs that seek to address the issues of poverty and sustainable
development, seem to be too high standards to be achieved in Zimbabwe given the
current inflation rates ,falling real income, decline in agricultural production and
consequently food insecurity.
Hyperinflation (1098.8% in November to 1281% in December 2006) impacted on
people in different forms, fall of output and investment in the agricultural sector due
to high cost of agricultural implements and inputs and generally food insecurity(1.4
million (17%) and cereal deficit of 91000Mt(ZIMVAC2006).Recent official statistics
from CSO show that the PDL REACHED in December 2006,to an all times high level
of $344.256 for a household of five members .The majority of Zimbabweans did not
earn that much which therefore means that most of them are deemed very poor.
Remuneration in Zimbabwe was not CPI indexed and always lagged behind the
inflation rate leading to continuing poverty and food insecurity.
The food insecurity in Zimbabwe was compounded by the current shortage of foreign
currency , and the looming sluggish pace tom find footing from the Agricultural Land
Reform .Worse still, the Zimbabwean currency has been subjected to official
devaluation and depreciation against major currencies.The exchange rate of
Zimbabwean dollar to the US$ has drastically fallen to all time low levels with a
recent exchange rate of 1US$ to Z$250.(RBZ,2007)
PROBLEM STATEMENT
HYPOTHESIS
(a)
( b)
c
H0:Private consumption has been declining
Hi:Private consumption has not been declining
(d)Ho:Output and investment has been declining in agricultural sector
Hi:Output and investment have not been declining in agricultural sector
RESEACH QUESTIONS
i)What is the impact of inflation on households food security in Zimbabwe?
ii) What has been happening to employment, consumption and other poverty
indicators in Zimbabwe?
iii) What has been happening to overall investment given the hyperinflation in
Zimbabwe?
iv) What has been the distribution of resources or the Gini coefficient like?
(v)ls the situation likely to persist or it is temporary?
AIMS
This study aims at developing an in-depth understanding of the causes of poverty
levels in Zimbabwe with a view to recommend viable solutions .lt sought to relate
poverty levels to food insecurity, hyperinflation, real income, and agricultural
production in Zimbabwe.The investigation would bring together areas of staple food
production (maize) and investment in agriculture that has been currently the subject of
a lot of attention in the country.The research would also assist to show the effects of
the inflationary environment on purchasing power and consequently total welfare of
the people .The study would also evaluate some recommendation by economists who
have recommended the indexation of income to Consumer Price Index (CPI)
OBJECTIVES
The overall objective of the study was to assess poverty levels in Zimbabwe .The
specific objectives were to :
1 To investigate changes to poverty over the years in order to better understand
factors that cause it.
2 To show the relationship between economic indicators and poverty
METHODOLOGY
The literature on poverty levels in Zimbabwe was scarce ,partly because a few people
had undertaken to write about it.There was also conflicting information about the
poverty levels in the country , and possible reasons for it to reach such levels.This
study would bridge the data gap by providing several reasons for increasing poverty
levels in the country .The study would show what has been happening to real income
and purchasing power in the inflationary environment in Zimbabwe.The relationship
between poverty and hyperinflation would also be explored.The study would also
make some recommendations on whether there was need to index all remunerations
both in the private and public sector to Consumer Price Index (CPI) in order to
protect households purchasing power.It could also be used as a basis in the
implementation of the Governments programmes whose intentions are to serve as a
framework for targeting and the design of poverty alleviation activities .The study
would also consider spatial variances in poverty and also assessed the causes of
poverty as per discussions in the data upon which this study was based .Finally the
study also sought to make some recommenadations on steps that should be followed
to safe guard the welfare of the people in general and workers in particular.
CHAPTER TWO
2.1
LITERATURE REVIEW
2.2
INTRODUCTION
The reason for compiling this literature review was twofold. It was intended to
provide theoretical background to the work carried out in this study, setting the scene
by giving an in-depth understanding of all the disciplines that would be explored in
the study. More importantly, it functioned to show how the course of research
presented here had been shaped by the outcome of previous investigations. The
overview consists of the following two sections:
provides a brief and simplistic outline of the different approaches to food security,
current issues, such as core determinants of food security. It also looks at different
assets used both tangible and intangible which hedge household from food insecurity.
It also deals with issues including different approaches used by organization to
calculate poverty lines.
Finally it
concluded with section 2.3, which is the conclusion of the whole literature review.
2.2.1
people are found to be thus deprived. The measure of multiple deprivations must be
decided on the basis of evidence about each and every sphere of the range of social
obligations. The degree of material and social deprivation relative to income is the
basis for ascertaining the threshold amount of income ordinarily required by
households of different compositions to surmount poverty (Hamelin A., Pieere H and
Beaudry M.,2000).
The Central Statistical Office (CSO, 2007) defines the food poverty line (FPL) as the
minimum consumption expenditure necessary to ensure that each household member
can (if all expenditures were devoted to food)consume a minimum food basket
representing 2 100 kilo calories. An individual whose total consumption expenditure
does not exceed the food poverty line is deemed to be very poor.
In Zimbabwe the total consumption poverty line (TCPL) which is naturally higher tha
the FPL was deprived using the data for 2000 Income Consumption and Expenditure
Survey (ICES). It was derived by computing non-food consumption expenditures of
the poor households whose consumption expenditures were just equal to the FPL.
The amount was added to the FPL, if an individual does not consume more than the
TCPL, he or she is deemed poor. The analysis uses the per capita consumption
expenditure, and an average of five persons is used based on the average size of the
households as established by the 2002 population Census. An increase in the FPL
means that an individual requires much more money to purchase food items. Over a
period of twelve months, the total consumption poverty line (TCPL) per person may
increase or fall. In case of an increase it means that an average household requires
much more money to purchase both food and non food items for them not to be
deemed poor.
The poverty lines vary by province as prices vary fro place to place. The quantities of
the commodities consumed at base year in the minimum needs basket which is
consistent with the preferences of the poor individuals and households in Zimbabwe
are fixed. The variations in the value of the basket are explained by the changes in
average prices. Although this method is plausible it has many weaknesses. The data
take a long time to be analyzed and the reports might not be reflective of the situation
on the ground. Zimbabwe is experiencing inflationary environment and calculating
data basing on 2001 reference year might be very deceitful as a lot of changes have
taken place. The survey is carried out every five years, which means the information
may be obsolete before the next survey.
Contrary to the poverty lines used by the CSO, the Consumer Council of Zimbabwe
(CCZ) uses the lower income urban earner monthly budget for a family of six (father,
mother and four children). The cost of living as depicted by the CCZs low income
urban earner monthly budget for a family of six, is calculated every month. CCZ
came up with a family budget which they update each and every month using data
collected from monthly surveys. This method of calculating poverty has the strength
that updates are done each and every month and appear more favourable to be applied
in inflationary environment like Zimbabwe.
comprehensive as a proxy of poverty analysis because the monthly budget is for urban
families only. The CCZ does not include the rural areas in their analysis of cost of
living. The analysis is also based on food consumption but does not look at family
ownership of assets. In times of distress families sell their assets and acquire food.
The Department for International Development (DFID) 2007 identifies core
components of the way in which many people understand poverty:
Food insecurity
Illiteracy
Food security exists when all people, at all times, have physical and economic access
to sufficient, safe and nutritious food to meet their dietary needs and food preferences
for an active and healthy life (FAO 2006) and the food insecure being the proportion
of people whose daily food consumption is below the minimum daily requirement that
is 2 100 kilo calories.
The core determinants of food security include the following: availability, which
means the availability of sufficient food for all people through production and
purchases. It is determined by domestic food stock, commercial food imports, food
aid and domestic food production.
The other determinant access: is determined by the household resources, household
income, intra-household distribution of income, price food, bargaining power,
environment shocks- droughts, natural disasters and conflict. The last but not least
determinant is utilization which means the appropriate use of food.
The key
determinants of utilization are feeding patterns, cooking processes, womens time and
poor health.
From the determinants of food security supply utilization accounts (SUAs) can be
produced. (SNA93)
Supply utilization accounts show how statistics on supply (production, imports and
stock changes) and utilization (exports, seed, feed, waste, industrial use, food and
other use) which are kept physically together to allow the matching of food
availability with food use.
commodities and converting the food into calories, proteins and afts (commodity by
commodity), it is possible to prepare food balance sheets (FBS). This document
promotes a particular report from the database in the form of food balance sheets.
The determinants are summarized as follows:
The Three Pillars of Food Security
The balance sheet assumes that reliable and independent information is available for
each of its elements. Alternatively, if no information is available for one of the
elements, the residual will provide an estimate. In practice, however, the construction
of balances of this type is made difficult by the absence of adequate information on
opening and closing stocks. Experience, however, that information on changes in
stocks is made more readily available than on their actual size (FAO 2003).
Adequate food availability at the national level does not automatically translate into
food security at he individual and the household levels. Researchers and development
practitioners have realized that food insecurity occurs in institutions where food is
available but not accessible because of an erosion to peoples entitlement to food.
(Anderson S. 1997) theory on food entitlement has a considerable influence in this
change in thinking, representing a paradigm shift in the way that famine were
conceptualized. Food entitlements of households derive from their own production,
income, gathering of wild foods, community support (claims), assets, migration, food
aid and other unorthodox means. Thus a number of socio-economic variables have an
influence on households access to food. In addition, worsening food insecurity is
viewed as an evolving process where the victims were not passive to its effects.
Social anthropologists observed that vulnerable populations exhibit a sequence of
responses to economic stress, giving recognition to the importance of behavioural
responses and coping mechanisms in food crisis (Campbell C. 1996). It is therefore
important that donor organizations, local governments and Non Governmental
Organizations begin to incorporate socio-economic information in their diagnosis of
food insecurity.
Recently the household food security approach emphasizes both the availability and
stable access to food. This means that food availability at the national and regional
level and stable and sustainable access at the local level were both considered
essential to household food security. Attention should be centred on understanding
householders assets ownership, agricultural production which is subject to fixed
capital formation in agricultural sector and other factors that influence the
composition of food supply and a households access to that supply overtime. It also
important to consider the nutritional aspect of any food substance consumed by any
one individual member of the household (Ayalew M. 1998).
Household food security is a necessary but not sufficient condition for nutritional
security. It was discovered that there are two nutritional security aspects. The first
deals with access to resources for food for different households. This deals with all
stages from production or income to food.
conversion of food substances into satisfactory nutritional levels (World Bank 1998).
Livelihood
DFID (2007) defines livelihood as comprising the capabilities, assets (including both
material and social resources) and activities required for a means of living.
livelihood is sustainable when it can cope with and recover from stresses and shocks
and maintain or enhance its capabilities and assets both now and in the future while
not undermining the natural resources base. In order for food security to prevail there
should be livelihood resources or assets. Livelihood resources or assets include both
tangible and intangible assets that allow house to meet their needs.
These are
This approach is
plausible since the rights based and sustainable livelihood approaches are
contemporary perspectives that seek to achieve many of the same goals; for example
empowerment of the most vulnerable and a strengthened capacity of the poor to
achieve livelihoods hence food security. This approach is holistic as it attempts to
identify the most pressing constraints faced by and comprising opportunities open to
people regardless of where these occur. The frame work helps to organize the various
factors which constrain or provide opportunities to cope with extreme poverty.
However the major problem of the approach is that it has a lot of political
implications. It can be confrontational in countries where human rights are believed
not to be observed.
The overlap between various existing perspectives
a) Social perspectives: This looks at important differences in access, power, etc
between social groups. It also looks at values attributed to different livelihood
assets and outcomes. It also promotes the need of and participation by the
poorest and the vulnerable groups
b) Economic: This deals with the economic environment in which people operate
including asset and economic prices, economic incentives, returns on different
systems and the nature of policy-making processes and the local impact of
policy.
d) Environmental: This deals with the impact of livelihood strategies on the
environment; including health, pollution, etc.
Remittances received
Migration patterns
Income by source of various household members
Access to rural resources for urban dwellers ( and vice versa)
Seasonal variation in coping strategies
Theories of inflation
the Consumer Price Index (CPI). CPI is defined as the average of the prices of a wide
range of goods purchased by an average household.
CPI is generally calculated as:
Costofamaarketbasketofproducts atcurrenty earprices
The market basket is a representative bundle of goods of the typical consumer, such as
sample of food items, clothing, other purchases, household bills, medical expenses,
education etc.
The year-on-year inflation rate is given by the percentage change in the index of the
relevant month of the current year compared with the same month in the previous
year.
The month-on-month inflation rate is given by the percentage change in the index of
the relevant month of the current year compared with the index of the previous month
in the current year.
The direction and magnitude of the rate of change in year on year inflation for a
relevant month depends on how both the numerator and the denominator (the base)
change during the same month in the current and previous year.
The Central Statistical Office (CSO) is responsible for compiling and publishing the
Consumer Price Index (CPI) and in Zimbabwe. The CPI basket weights are derived
from the Income Consumption and Expenditure Survey (ICES) and are classified in
accordance with the international guidelines. The classification is based on Individual
Consumer by Purposes (COICOP). There are 428 items in the CPI basket.
The adoption of the COICOP classification follows the harmonization project of
Consumer Prices Indices in the SADC region. The harmonization project enables
inter country comparisons of the CPI and the rate of inflation.
4. When most of the economics prices that is, interest rates, wages and goods
prices are linked to a price index and the cumulative inflation rate over three
years approaches or exceeds 100%.
The Wikipedia Free Encyclopaedia gives historical examples of countries that
experienced hyperinflation. In Germany in the early 1920s the rate of inflation hit
3.25 x 106 percent per month (prices doubled every 49 hours) and Greece during its
occupation by German troops (1941-1944) with 8.55 x 10 9 percent per month (prices
doubled every 28 hours).
Hungary after the end of World War II at 4.19 x 10 16 percent per month (prices
doubled every 15 hours). More recently, Yugoslavia suffered 5 x 10 15 percent per
month (prices doubled every 16 hours) between 1 October 1993, and in Africa,
Zimbabwe. In most case hyperinflation is associated with paper money since it is
very simple to increase the money supply with paper money. The method is simply to
add more zeros to the plates and print or even stamp old notes with new numbers.
2.2.6
The World Bank International Comparison Programme (ICP 2006) real income is
defined as nominal income adjusted for the effects of inflation. It is calculated aas
follows:
Real income =
No min alincome
x100
CurrentCPI
CPI further defines purchasing power as the value of a currency expressed in terms of
the amount of goods or services that one unit of that currency can buy. Purchasing
power is important because, all else being equal, inflation decreases the amount of
goods or services you would be able to purchase. For example, the Purchasing power
of the dollar can be determined by comparing an index of consumer prices for a given
base year to the present. If inflation rises faster than the households nominal income,
purchasing power and real income will decline.
Hyperinflation unlike inflation, which is widely considered to be normal in healthy
economy, is always regarded as destructive. It drastically reduces the purchasing
power o households real income and distorts the economy in favour of extreme
consumption and hoarding of real assets, leading to the monetary base whether specie
or hard currency to flee the country, and makes the afflicted area unfavourable to
investment. It reduces the real value of households wealth in the same way it reduces
the real value of their incomes.
According to Wikipedia Encyclopaedia, hyperinflation is obviously a monetary
phenomenon, models of hyperinflation hinges on the demand for money. According
to economists both a rapid increase in the money supply and an increase in the
velocity of money, either one or both of these pro up inflation and hyperinflation. A
dramatic increase in the velocity of money as the cause of hyperinflation is central to
the crisis of confidence model of hyperinflation, where the risk premium that sellers
demand for the paper currency over the nominal value grows rapidly. The second
theory is that there is first a radical increase in the amount of circulating medium,
which can be called the monetary model of hyperinflation. In either model, the
second effect then follows from the first either too little confidence forcing an
increase in the money supply, or too much money, destroying confidence.
In the confidence model, some event, or series events, such as defeats in battle, or a
run on stocks of the specie which back a currency, removes the belief that the
authority issuing the money will remain solvent whether a bank or a gvt.