Downward or reverse multiplier in Zimbabwe

If there an injection of new demand into the economy a multiplier effect will result. An injection of new income into an economy leads to more spending. The increase in spending leads to an increase in national income and consumption greater than the initial amount spent. The multiplier effect refers to the increase in final income arising from any new injection of spending. It is important to remember that when income is spent, it becomes someone else’s income, and so on. I will use remittances in this instance to explain the multiplier effect in Zimbabwe. Recipients in Zimbabwe receive money from their relatives abroad, they in turn spend this money on goods and services locally. When they spend the money at the local tuck-shop in Kuwadzana for instance, this money becomes the tuck-shop owner’s income, remember they also sell at profit. Spending the money leads to more income which creates more income, i.e. if the tuck shop owner realise more income, they will also spend more, on whatever they buy for their household. In another respect the tuck-shop owner will go to the wholesaler to replenish their stocks, the same money becomes the wholesaler’s income. The wholesaler may use the money to pay salaries, that is it becomes their employee’s income. In this case lam analysing Zimbabwe's most wholesalers get their goods from South Africa. The money initially sent by the diaspora to relatives by someone living and working in United Kingdom will eventually become the income of a South African manufacturer. 

Income is withdrawn through three ways in an economy that through savings, taxation and imports. Zimbabwe’s problem of withdrawals is mainly through imports. The fall of demand in Zimbabwe due to falling incomes and job losses ever since 2013 led to downward multiplier effect on the rest of the economy. A withdrawal of income from the circular flow will lead to a downward multiplier effect. The negative balance of payments Zimbabwe has been experiencing because we are importing more than we are exporting has led to withdrawals in our economy. The rise of import spending lead to a potential downward multiplier effect on the rest of the economy. The multiplier effect in Zimbabwe is lacking because government does not have funds to invest in activities such as building of a new motorway and there is no increase in exports because our local industry is dead. What we are experiencing in Zimbabwe is called a downward or reverse multiplier. If an investor comes and establishes a factory in Zimbabwe, people will get jobs (get incomes) and indirectly the new factory will stimulate employment in restaurants and other service industries within the locality, that’s why we need foreign direct investment (FDI). Will bond notes incentives to exporters stop the reverse multiplier?.