The Effects of Hyperinflation on the Zimbabwean Construction Industry
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The Effects of Hyperinflation on the Zimbabwean Construction Industry Admire Moyo Submitted in fulfilment of the requirements for the Degree of Master of the Built Environment in Project Management in the Faculty of Engineering, the Built Environment and Information Technology Promoter: Dr Gerrit J. Crafford 8 January 2010 STATEMENT The data used in the compilation of this treatise was taken from both primary and secondary sources. The secondary sources used in this treatise, as well as the help acquired, have been duly acknowledged. I certify that this treatise is my own work and that it has not been plagiarized or submitted to another university before. Admire Moyo Date i DEDICATION This treatise is dedicated to the Moyo and White families for their unending love and support. ii ACKNOWLEDGEMENTS I would like to express my sincere gratitude to the following people: • Dr Gerrit Crafford for his invaluable time, effort, guidance and insight in supervising the research; • The Nelson Mandela Metropolitan University for their financial assistance, and • My family and friends for their enduring love and support. iii ABSTRACT Less than two decades ago, Zimbabwe was a symbol for the rest of the world of what Africa could become (Dell, 2005). DiSilvio (2007) contends that independent Zimbabwe was an economic success on route to attaining status of the most “developed country” in Africa. Contrary to expectations, by 2003 the Zimbabwean economy was shrinking faster than any other economy in the world at 18% per year (Richardson, 2005). Reports indicate that the Zimbabwean economy is in crisis and has since been set back by more than 50 years (Matikinye, 2005). This phenomenon necessitated the need for an investigation to ascertain its cause in Zimbabwe. As a result, the research identifies and presents hyperinflation as the root cause of the crisis in Zimbabwe and illustrates the validity of this assertion with a focus on the Zimbabwean construction industry. As part of the research inquiry, a review of related literature was conducted. The literature review illustrated the generic effects of hyperinflation as well as the effects of this phenomenon in action in Zimbabwe. The literature study was followed by a questionnaire survey. The questionnaire was completed by 23 contractors and 7 clients from a census of contractors and clients in Zimbabwe. The questionnaire consisted of a number of variables, which the respondents were asked to rate vis-à-vis the effects of hyperinflation in the construction industry. In summary, the questionnaire sought to determine the causes of hyperinflation in Zimbabwe, its specific effects on the construction industry and how respondents thought the phenomenon could be mitigated so as to revive the Zimbabwean construction industry. The techniques of re-scaling, in conjunction with descriptive and inferential statistics, ranking and quadrant analysis were applied to the data. Results from these analyses revealed a high degree of agreement among respondents vis-à-vis the effects of hyperinflation on the Zimbabwean construction industry. The interpretation of the results further revealed that hyperinflation has undoubtedly led to the collapse of the Zimbabwean construction industry. In conclusion, the research, applying the interpretations of iv the survey findings, prescribes a number of ways in which the Zimbabwean construction sector may be resurrected. Among the recommended prescriptions, there are a number of debatable issues that arise that the researcher proposes should be subject to future study. Keywords: Effect, Hyperinflation, Construction Industry v Table of Contents STATEMENT ............................................................................................................................ I DEDICATION .......................................................................................................................... II ACKNOWLEDGEMENTS ...................................................................................................... III ABSTRACT ............................................................................................................................. IV TABLE OF CONTENTS .......................................................................................................... I CONTENTS OF THE STUDY ................................................................................................ V LIST OF TABLES .................................................................................................................. VI LIST OF FIGURES ............................................................................................................... VII 1.1 CHAPTER ONE .............................................................................................................. 1 1.1.1 INTRODUCTION TO THE PROBLEM AND ITS SETTING ................................................................ 1 1.1.2 THE ZIMBABWEAN SETTING ........................................................................................................ 1 1.1.3 THE CAUSE OF ZIMBABWE’S PROBLEM ..................................................................................... 4 1.1.4 THE CONSTRUCTION INDUSTRY .................................................................................................. 9 1.5 OBJECTIVES ............................................................................................................................... 11 1.6 STATEMENT OF THE PROBLEM ................................................................................................. 11 1.7 SUB–PROBLEMS ......................................................................................................................... 11 1.8 HYPOTHESES .............................................................................................................................. 12 1.8.1 DELIMITATION ............................................................................................................................. 12 1.8.2 DEFINITION OF TERMS ............................................................................................................... 12 1.9 ASSUMPTIONS ............................................................................................................................. 14 1.9.1 THE IMPORTANCE OF THE STUDY ............................................................................................. 15 2.1 THE REVIEW OF THE RELATED LITERATURE .................................................. 17 2.1.1 INTRODUCTION ........................................................................................................................... 17 2.1.2 THE CONSTRUCTION INDUSTRY ................................................................................................ 17 2.1.3 THE NATURE AND FORM OF THE CONSTRUCTION INDUSTRY ................................................ 18 2.1.4 THE MULTIPLIER CONCEPT ....................................................................................................... 20 2.1.5 THE CONSTRUCTION INDUSTRY MULTIPLIER .......................................................................... 20 2.1.6 THE MARKET .............................................................................................................................. 21 2.1.7 THE CONSTRUCTION INDUSTRY MARKET ................................................................................ 21 2.1.8 RELEVANCE OF PRICES AND PRICE STABILITY IN CONSTRUCTION ....................................... 22 2.1.9 PRICING IN THE CONSTRUCTION INDUSTRY ............................................................................. 22 2.1.10 CONSTRUCTION GOODS AND BUYER-SELLER RELATIONSHIPS .................................... 23 2.1.11 THEORY OF DEMAND ......................................................................................................... 24 2.1.12 THE LAW OF DEMAND ....................................................................................................... 25 2.1.13 THEORY OF SUPPLY ........................................................................................................... 25 2.1.14 THE ROLE OF MONEY IN DEMAND AND SUPPLY............................................................. 26 2.1.15 THE QUANTITY THEORY OF MONEY, AND THE DEMAND AND SUPPLY INTERLINK ...... 26 2.1.16 APPLICABILITY OF ECONOMIC THEORY IN CONSTRUCTION ........................................... 28 2.1.17 OVERVIEW OF THE ZIMBABWEAN CONSTRUCTION INDUSTRY ...................................... 28 2.1.18 IMPORTANCE OF THE ZIMBABWEAN CONSTRUCTION INDUSTRY ................................... 29 2.1.19 MAJOR LIMITATIONS OF THE ZIMBABWEAN CONSTRUCTION INDUSTRY ...................... 29 2.1.20 CURRENT DEMAND AND SUPPLY OF CONSTRUCTION ACTIVITY IN ZIMBABWE ............ 30 2.1.21 THE ZIMBABWEAN CONSTRUCTION SECTOR CRISES .................................................... 30 2.1.22 THE BASIS OF THE ZIMBABWEAN CONSTRUCTION SECTOR CRISES ............................ 31 2.1.23 IMPACT OF INFLATION ON THE ZIMBABWEAN CONSTRUCTION SECTOR ....................... 31 2.1.24 INFLATION CONSEQUENCE IN ZIMBABWE ....................................................................... 32 2.1.25 SUMMARY ........................................................................................................................... 33 2.2 INFLATION ................................................................................................................... 34 2.2.1 INTRODUCTION ..........................................................................................................................