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Cablegate: Zim Notes November 16, 2007

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TO RUEHC/SECSTATE WASHDC 2429
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RUEHUJA/AMEMBASSY ABUJA 1829
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RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK
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UNCLAS SECTION 01 OF 05 HARARE 000078

SIPDIS

AF/S FOR S.HILL
ADDIS ABABA FOR USAU
ADDIS ABABA FOR ACSS
NSC FOR SENIOR AFRICA DIRECTOR B.PITTMAN
TREASURY FOR J.RALYEA AND T.RAND
STATE PASS TO USAID FOR L.DOBBINS AND E.LOKEN
COMMERCE FOR BECKY ERKUL

SIPDIS

E.O.12958: N/A
TAGS: PGOV PREL ASEC PHUM ECON ZI

SUBJECT: Zim Notes November 16, 2007


1. The Embassy Harare Political/Economic Section began producing
Zim Notes in July, 2007 to present a perspective on current events
in Zimbabwe. Suggestions are always welcome. If you would like to
receive Zim Notes by email, as well, please contact Frances Chisholm
at chisholmfm@state.gov. Distribution is restricted to U.S.
government employees.

2. Parallel rate for cash nearly doubled to ZW$6.3 million:US$1;
the bank transfer rate fell to Z$6million vs. official exchange rate
of: ZW$$30,000:US$1
Sugar on the parallel market rose to Z$5 million/2kg vs. controlled
price of Z$247,000/2kg
Cooking oil rose to Z$9.5 million/750ml vs. controlled price of
Z$440,000/750ml
Petrol and diesel more than doubled to Z$10 million and Z$9
million/liter respectively vs. Z$60,000/liter at controlled price

-----------------------------
On the Political/Social Front
-----------------------------
3. Police Respond with Violence to "Freedom March". . . Police used
tear gas and violence to disrupt the MDC Tsvangirai factions'
"Freedom March" in Harare on January 23. On the morning of the
event, at about 4:00 am, police dragged MDC leader Morgan Tsvangirai
from his home and interrogated him at police headquarters for
several hours about plans for the march. The MDC reported 14
marchers, including MDC national organizing secretary Elias Muduzi
were arrested and released later that evening after paying a fine;
more than 15 supporters were treated for injuries. Several
political observers noted that the government's harsh response to
the march was indicative of Mugabe's true intentions in regard to
the SADC talks and the chances for free and fair elections.

The MDC had called for the march and rally to press the government
for food and jobs, free and fair elections, and a new constitution.
Police initially gave permission on January 18, but later rescinded
the approval on January 21 based on unspecified "intelligence" that
the opposition had other "sinister motives." The MDC challenged the
decision in court, and less than an hour before the planned start
time on January 23, a magistrate ruled that the MDC could hold the
rally, but upheld the denial to march citing public security
concerns. In defiance of the ban, about 200 opposition supporters
set out from MDC headquarters in the city center for the rally
location as hundreds more quickly joined in. Police descended on
the group within a few blocks with tear gas and batons. There w ere
running clashes between marchers and police over a six block area
for about 30 minutes. An estimated 1,000 supporters eventually
gathered in a field near the rally location where they sang songs,
danced, and listened to a speech from Tsvangirai. A large
contingent of riot police observed the event from a distance. The
group peacefully dispersed after about an hour. See Harare 0067 for
details.

4. Elections On Track For The End Of March. . . President Mugabe
is expected to set a date for nominations soon. Elections must be
scheduled between 21 and 45 days of that date; we assume they will
take place on March 28 or March 29. We understand that Simba
Makoni, speculated about as a possible rival to Mugabe, has told
Mugabe he will not oppose him. SADC negotiations have apparently
broken down after Mugabe rebuffed MDC demands that a new
constitution be implemented before elections and that elections be
postponed. The MDC is considering whether or not to boycott
elections, given what it sees as an unlevel playing field, but we
expect they will decide to contest. See Harare 70 and 71 for more
details.

5. Parliament Adjourns As Election Countdown Begins. . .
Parliament adjourned this week until April 8. President Mugabe will
now need to issue proclamations dissolving parliament, enacting the

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final constituency and ward boundaries and setting dates for
nominations and polling. Before adjourning, both the House of
Assembly and Senate passed the National Incomes and Prices Amendment
Bill, which extends the life of the National Incomes and Prices
Commission; the Bill now awaits presidential assent. The
parliamentary Legal Committee gave the Mines and Minerals Amendment
Bill the green light, but it did not go through both houses before
the adjournment. The Bill includes provisions to pass majority
ownership of mines to indigenous Zimbabweans. If President Mugabe
dissolves parliament for elections in March, the Bill will lapse and
need to be re-introduced and gazetted under a newly elected
parliament.

6. Supreme Court Rules On Land Seizure Case. . . The Zimbabwe
Supreme Court ruled this week against Michael Campbell, a white
farmer who was contesting the seizure of his farm. Campbell had
also appealed to the SADC Tribunal in Windhoek which issued an
interim order on December 13 enjoining the Zimbabwean government
from interference with his land until a ruling (still pending) by
the Tribunal on the merits of the case. At the time of the Tribunal
hearing, the Government of Zimbabwe pledged to abide by the
Tribunal's ultimate decision. Nevertheless, after the ruling by the
Supreme Court, Didymus Mutasa, Minister of Lands, Land Reform, and
Resettlement, said he would allow eviction of Campbell from his
farm.

7. Ambassador Visits Bulawayo. . . On his first trip to Bulawayo
(Zimbabwe's second largest city) from January 17-19, Ambassador
McGee met city leaders and heard about the worsening crisis in
delivery of essential services, especially clean water. He also met
with leading opposition political figures and civil society leaders
to gauge attitudes toward upcoming elections. A media roundtable
allowed him to articulate U.S. policy toward Zimbabwe and U.S.
principles for reengagement. In addition, he visited USAID
humanitarian assistance projects and a Self-Help funded project for
orphans and vulnerable children. He attended a reception for alumni
of the International Visitor and Fulbright Programs and a Public
Affairs Section-sponsored concert at a local high school, in
addition to meeting U.S. citizens living in the area. See Harare
0045 on the political pulse in Bulawayo

8. Flooding Continues. . . The UN and the GOZ's Civil Protection
Unit (CPU) report that 10,000 people have been affected by flooding
since mid-December. The CPU issued a flood alert for Muzarabani and
Dande communal lands in Mashonaland Central province in the
expectation of new flooding from the Zambezi River Valley caused by
the backflow of water from the Cahora Bassa dam. Flooding has
destroyed crops, with losses in Muzarabani estimated at 3000
hectares each for cotton, maize, and sorghum. Water-borne diseases
are spiking, but appear controllable. In anticipation of further
heavy rains and flooding, four stand-by rapid assessment teams have
been formed, each comprised of technical experts from government
local authorities, UN agencies and NGOs. A regional flash appeal is
being prepared for the floods. See Harare 0041.

9. Bulawayo Gets Water But Can't Treat It . . . The good news is
that heavy rainfall has filled Bulawayo's nearly dry reservoirs to
almost 75 percent capacity. The bad news is that the Bulawayo City
Council has a critical shortage of chemicals with which to treat
that water, with only two days' worth of aluminum sulphate
remaining. Stakeholders from government, local authorities, UN
agencies, NGOs, and the private sector will meet next week to
discuss the situation. Before the UNICEF-coordinated humanitarian
response can phase out, attention must focus on the provision of
water treatment chemicals and information education campaigns
regarding the safe use of untreated water at a household level.

10. USAID Begins DG Sector Assessment . . . A team led by
Professor Michael Bratton of Michigan State University began work on

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a democracy and governance (DB) sector assessment in Harare this
week. The team, including a DG specialist from USAID Washington and
political scientists from the University of Zimbabwe, will pursue
three principal areas of inquiry: 1) analysis of the current
political, economic and social issues that characterize the country,
leading to the identification of key problems relating to the
transition to democracy; 2) analysis of important political actors -
their interests, resources, and actions-leading to identification of
both allies and opponents of democratic reform; and 3) analysis of
the institutional arenas that are important to further understanding
the key democracy and governance problems and the relevant actors.
Taken together, these analytical steps will permit the development
of a democracy and governance strategy for the U.S. Mission to
address the problems identified in step one by working with the
actors and institutions identified in steps two and three.

11. Cross-Border Trading Essential For Survival. . . About 96,300
MT of maize, rice, and beans were traded across Zimbabwe's borders,
a 10% increase in the April-November 2007 period compared to the
same period last year, according to a report on Southern Africa's
food trading patterns by the Famine Early Warning System Network.
Maize accounted for 83% of this regional trade. Zimbabwe continued
importing maize this year (304,000MT) to offset poor domestic
production, and 99% of imports came from Malawi. There was very
little informal bean trade to Zimbabwe, with no changes in the
volume traded (6,733MT) in the whole region in this period compared
to the same period last season. However, data on informally traded
rice indicate that Zimbabwe was the largest importer in the period
April-November 2007, accounting for 35% of traded rice or 3,048 MT,
of which 81% was imported from Zambia.

--------------------------------------------- ----
On the Economic and Business front
--------------------------------------------- ----

12. New Twist to Cash Shortage. . . Finance Minister Mumbengegwi
and Reserve Bank Governor Gono ordered bank chief executives to
clear up queues at banks within a week or face unspecified action
from the authorities. This followed the RBZ's assertion that it was
stuck with stacks of cash that commercial banks were not collecting,
resulting in the prevailing cash shortage. According to the
authorities, banks are diverting depositors' funds into speculative
activities on the stock market and foreign currency parallel market.
Threatening to close some banks, Mumbengegwei stated that he would
not devalue the Zimbabwe dollar until speculative activities stop
and production increases. However, he did not specify how this will
be achieved with the value of the currency held constant at its
present grossly overvalued official exchange rate.

Governor Gono took the unprecedented step of conducting journalists,
bankers and the business community on a tour of the vaults to show
that cash was available. However, what he failed to tell them was
that, for banks to collect the cash from the RBZ, they need to cover
the amount with security in the form of treasury bills. Under the
current circumstances in which deposits are drying up for lack of
confidence in the banking system, the market has been characterized
by huge daily shortages averaging around Z$120 trillion over the
past two days. Banks have had to borrow from the RBZ at very high
rates to meet cash withdrawals by the public, putting some banks at
risk of failure in the medium term. See Harare 0044 for more on the
cash shortage.

13. *The Zimbabwe Dollar Takes A Battering . . . In the past week
the Zim dollar depreciated by nearly 50% on the parallel cash
market; the bank transfer rate also fell by about 20% but then
bounced back to Z$6 million:US$1. The depreciation early in the
week on both markets reflected the upturn in demand for forex
following the re-opening of businesses after the Christmas break
(see Harare 0044). However, Reserve Bank Governor Gono's statement

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on January 23 that the RBZ had installed an electronic system to
monitor currency movements in both local and offshore accounts also
frightened people out of the transfer market, resulting in the
appreciation of the transfer rate to well below the cash rate. We
learned from a senior RBZ official that the monitoring system is not
new; it has been in operation in Zimbabwe for some time now to
monitor large transfers. As this information filters into the
market, we expect the transfer rate to depreciate to above the cash
rate once again.

14. Regional Power Blackout Underlines Zimbabwe's Power Woes. . .
Power blackouts across the region this week have underlined the
precarious state of Zimbabwe's regional and domestic power supply.
South Africa no longer exports power to Zimbabwe, according to the
Zimbabwe Electric Supply Authority (ZESA); supply from the DRC is
erratic; HCB in Mozambique is holding Zimbabwe on a tight leash, and
Zimbabwe must meet its new power export obligation to Namibia.
Domestically the Hwange thermal plant continues to struggle with
coal supply and the national grid is increasingly subject to
vandalism. The short- and medium-term outlook for meeting
Zimbabwe's power needs, even in the face of a sharply contracting
economy, is gloomy. See Harare 0073 for details.

15. Air Zimbabwe Raises Fares Again... Hardly two months after
more than doubling its fares, Air Zimbabwe raised them again by an
average of 300% with effect from January 23. A round trip economy
class ticket to Beijing, for example, went from Z$1,145,400,000
(about US$200 at the parallel market) to Z$4,515,400,000 (about
US$750). With domestic airfares 800 percent below cost, it had
become cheaper to fly business class than travel by bus, according
to Air Zimbabwe's CEO, with tax payers meeting the difference
through subsidies. As a result, the parastatal was operating at an
unsustainable loss. The new fares are still about 50% below those
of other regional airlines. We predict another increase just around
the corner.

16. Hunyani Holdings Ltd Hurting. . . Symptomatic of the state of
industry, paper and packaging giant Hunyani Holdings Ltd released a
set of disappointing results for the year ended October 31, 2007.
Its turnover (up 15,455%) failed to keep pace with the rate of
inflation. Analysts attributed the poor performance to Zimbabwe's
fixed and overvalued foreign exchange rate, regulated prices, and
hyperinflation. Moreover, the deteriorating macroeconomic
environment weakened domestic demand for corrugated products while a
lower tobacco crop in Malawi added to the negative effect of the
overvalued Zimbabwe dollar on exports. The flexible division did
not do well either, due to the shortage of foreign exchange for
inputs and boiler problems at the mill which reduced timber
throughout. Output declined by 18% during the year under review and
the company did not declare a dividend.

17. Ambassador Begins Outreach to Business Community... Ambassador
McGee challenged the business community to be more energetic in
bringing about peaceful change in Zimbabwe in a speech to the
American Business Association of Zimbabwe (ABAZ) on January 17. See
Harare 0047 for details.

18. Embassy Stretched Thin In Service Delivery... The free-fall in
Harare's public service delivery is severely taxing the embassy's
ICASS budgets and staffing, which State Department workload data
show to be the leanest in Africa despite Harare's unprecedented rate
of peacetime collapse. This week's prolonged power outage left
Public Affairs' shared high-rise offices without water or
electricity, requiring emergency set-up of temporary PAS offices on
our cramped chancery compound. All other embassy facilities have
stand-alone generators, many of which run 24/7. Most of the
embassy's water is now supplied from wells on our properties,
although many of the wells have gone dry as more Harare residents
tap into the water table at an estimated rate of 100 new wells per

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week. Our fuel and water trucks are now in operation seven days a
week, 12 hours a day.

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