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Cablegate: Barely Coping in Zimbabwe,S Economic Meltdown

VZCZCXRO8197
PP RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSB #0982/01 3031515
ZNR UUUUU ZZH
P 291515Z OCT 08
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC PRIORITY 3637
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHUJA/AMEMBASSY ABUJA 2111
RUEHAR/AMEMBASSY ACCRA 2396
RUEHDS/AMEMBASSY ADDIS ABABA 2516
RUEHBY/AMEMBASSY CANBERRA 1792
RUEHDK/AMEMBASSY DAKAR 2147
RUEHKM/AMEMBASSY KAMPALA 2572
RUEHNR/AMEMBASSY NAIROBI 5000
RUEAIIA/CIA WASHDC
RUEHGV/USMISSION GENEVA 1665
RHEHAAA/NSC WASHDC
RHMFISS/JOINT STAFF WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEFDIA/DIA WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RUZEHAA/CDR USEUCOM INTEL VAIHINGEN GE

UNCLAS SECTION 01 OF 04 HARARE 000982

SENSITIVE
SIPDIS

AF/S FOR B. WALCH
AF/EPS FOR ANN BREITER
NSC FOR SENIOR AFRICA DIRECTOR B. PITTMAN
STATE PASS TO USAID FOR L.DOBBINS AND E.LOKEN
TREASURY FOR D. PETERS
COMMERCE FOR BECKY ERKUL
ADDIS ABABA FOR USAU
ADDIS ABABA FOR ACSS

E.O. 12958: N/A
TAGS: ECON PGOV ASEC PHUM EAID ZI
SUBJECT: BARELY COPING IN ZIMBABWE,S ECONOMIC MELTDOWN

REF: A. HARARE 904
B. 07 HARARE 504

-------
SUMMARY
-------

1. (SBU) Zimbabweans are coping under hyperinflation and in
the face of a near worthless currency by tightening their
belts, relying on food aid, seeking informal work
opportunities within the distortions and contradictions of
the economy, and through emigration and remittances. Over
4/5 of all jobs in Zimbabwe are now in the informal economy,
where people scratch out a generally meager income under poor
working conditions. Informal trading in food, goods, and
foreign exchange is on the rise, but formal employment as
well, especially at the low end of the pay scale, often
offers the opportunity to "make deals" on company time and
get a free meal and other non-cash perks. Formal employment
also presents opportunities to pilfer and, in some
businesses, conclude shady deals for kickbacks. In this
starkly deteriorating economic situation, the willingness to
make ends meet by any means, legal, ethical, or not, is
increasingly common. When things finally come right in
Zimbabwe, a new reform-minded government will face the
considerable challenge of overturning this woeful legacy of
the waning years of the Mugabe regime and inculcating anew
respect for the law. END SUMMARY.

---------------------------------------
Still "Making a Plan" - Belt Tightening
---------------------------------------

2. (U) One and a half years ago we reported (Ref B) the ways
in which Zimbabweans' "make a plan" mentality was cushioning
the population from economic freefall. Today variations of
belt tightening, income augmentation, and external support
are still the main coping mechanisms, but in a much harsher
economic environment.

3. (SBU) Labor economist Godfrey Kanyenze, Director of the
Labor and Economic Development Research Institute of
Zimbabwe, described to us some of the austerity measures that
people are imposing on themselves. Thousands of people in
Harare's high-density outlying neighborhoods, for example,
depart home on foot or, if they are lucky, by bicycle, for
both formal and informal employment as early as 3 a.m. to
save bus fare. The shortest commute by bus costs the
equivalent of nearly USD 50 cents one way, which would
consume an entire day's wage at the low end of the pay scale.
Eating only one meal a day of traditional food (boiled maize
meal and green vegetables, occasionally with beans) has
become common in urban as well as rural areas. The macabre
joke is to speak of being on the "0-0-1" diet, i.e. no
breakfast, no lunch, only dinner.

4. (SBU) For rural households, the FAO Agriculture
Coordination Working Group reported on September 25, 20008
coping by gardening, cross border trading, barter trading
(but on worsening terms of trade for maize grain), vending,
gold panning, providing casual labor that is compensated with
maize grain or other cereals, and by selling small livestock.
In a survey of nutrition carried out in July 2008, the local
Food and Nutrition Council found that one third of households

HARARE 00000982 002 OF 004


were eating only one or less meals per day. People in rural
areas were increasingly subsisting on wild fruits, roots and
caterpillars, which econoff observed during a visit to a
mining area 50 km south of Zvishavane in Midlands province
earlier this month. While there are certainly limits to the
resiliency of the poorest segments of the rural and urban
population, and Zimbabwe might be close to fully exploiting
that resiliency, Kanyenze reminded econoff of the
population's record of innovativeness in the face of extreme
adversity. He recalled how during the war in the 1970s many
Zimbabweans were forced to subsist for years in "protected
villages."

5. (U) A further critical coping mechanism for the destitute
is humanitarian assistance in the form of food aid. We
estimated (Ref A) that about 50 percent of the population of
Zimbabwe will receive food aid over the next eight months.

--------------------------------------------- -----
Income Augmentation - The Growing Informal Economy
--------------------------------------------- -----

6. (SBU) Kanyenze commented that the economy's very
distortions and contradictions also created new survival
opportunities, primarily in informal employment. He referred
to two ILO issues papers (Nrs. 32 and 33) on employment in
Zimbabwe published this year that found that just over 4/5 of
all jobs in Zimbabwe were in the informal economy. The jobs,
in general, provided extremely low cash income and poor
working conditions, and did not offer adequate social
protection. Consistent with the fact that over half of
Zimbabwe's population lives in rural areas, the ILO found
that about 78 percent of informal workers toiled in
agriculture.

7. (SBU) Along with the spike, especially in urban areas, in
the number of informal vendors who, for example, sit
patiently along a roadside behind a small pyramid of tomatoes
or a bottle of cooking oil, or exchange money in downtown
Harare, the formally employed generally also work informally
while on the job, or moonlight in second jobs. A crucial
factor in staying at a poorly paid job is often the access it
affords to a functioning telephone or to internet access at
company expense, and the wide circle of contacts to whom to
sell and barter goods during the work day. John Battershell
of Cargill Cotton Zimbabwe told us despairingly that most of
his staff in Harare spent more time managing personal
business than working for Cargill.

8. (SBU) Albert Katsande, Chief Operating Officer of the OK
Zimbabwe supermarket chain, told us the only reason his
company's lowest paid workers showed up for work was the
perks of the job and the opportunity to "make deals." For
example, OK served its employees a free meal, which was
generally their main or only meal of the day. It also
allowed staff to buy 10kg of sugar a month on credit, which
they "spun and burned" (as in burning CDs) into more worth
through sale and barter, often during work hours. They
repaid the debt in deeply depreciated Zimbabwe dollars.
Katsande said that highly tradable goods, such as diapers and
cigarettes, were the first products to disappear off the
supermarket shelves, bought by employees, only to be resold
on the black market. Such trade was also a means of gaining
foreign exchange to pay residential rents, nearly all of

HARARE 00000982 003 OF 004


which, in both high- and low-density neighborhoods of Harare,
are now payable solely in hard currency. Rent for a single
room in a high-density area of Harare ranges between R100 and
R200 (roughly US$10-20).

9. (SBU) Many employers top up the minimum wage with food
packs. Shepherd Chinyerere, a manager at Southern Roses,
Zimbabwe's largest rose exporter, told econoff that the
company paid laborers less than the equivalent of US$1/day
but gave them free on-site accommodation, free transport into
the city, and monthly packs of food staples.

------------------------
Survival Trumps Scruples
------------------------

10. (SBU) Kanyenze added that crime, ranging from petty to
hard core, had become another survival tactic. Formal
employment, for example, offered a worker the opportunity to
pilfer. At the high-income end, Edgar Nyamupingidza, Head of
Group Risk at Kingdom Financial Holdings Ltd, told us that
controlling white-collar crime at the bank had become an
unprecedented challenge in the face of contracting real
salaries. Pressure on professional staff to support large
extended families was immense and driving more and more
employees to undertake shady bank deals for kickbacks. Spar
Marketing Director Andy Holderness told us how friendly bank
contacts could provide certain favored corporate and private
customers with deeply negative short-term loans on days when
the bank ended in surplus and faced the alternative of having
the surplus locked away at zero percent interest for 90 days.
With the right bank contact, and using one's home as
collateral, one could earn thousands of U.S. dollars in a
cycle of short-term borrowing, exchanging for forex, and
repaying in depreciated local currency.

11. (SBU) To preserve value, Zimbabweans quickly exchange
their local earnings for food, goods or tradable assets, or
for foreign currency cash as a reliable store of wealth. The
local stock exchange, which has risen several hundred
trillion percent this year, serves, for now at least, as
another income preserving inflation hedge, especially in
light of the low cash withdrawal limit. Further illustrating
the innovative bend of Zimbabweans in coping with
hyperinflation, CABS CEO Kevin Terry explained to econoff how
depositors had been exploiting the immense difference between
the foreign exchange rate for cash and for electronic
transfers (RTGS). When Terry explained the scheme to us on
October 6, the cash rate was Z$4,500 and the RTGS rate was
Z$1.2 million:USD, presenting a huge arbitrage opportunity.

12. (SBU) A further scheme making the rounds as a way to
bypass the strict daily cash withdrawal limit of less than
US$1 equivalent is to get certified by a medical doctor as
having a serious ailment that requires an urgent and
expensive prescription, and then apply to the Reserve Bank
for approval to withdrawal enugh cash to pay for the
prescription. Why a physician might be persuaded to certify a
fake illnessbecame clear when a government-employed
obstetriian-gynecologist shared with us her October pay stub
showing a take home pay of Z$76,000*the equivalent today of
about US$1.50. Kanyenze commented that in Zimbabwe
"corruption out of greed8 had evolved into "corruption out
of need.8

HARARE 00000982 004 OF 004

------------------------------------------
Emigration and the Lifeline of Remittances
------------------------------------------

13. (SBU) Emigration has been a further coping mechanism and
social safety valve throughout the last decade of economic
decline and political turmoil. The last census of 2002 put
the population at 11.6 million, but some observers estimate
that it could be as low as 8 million today, primarily due to
emigration. Kanyenze said that the ensuing flow of
remittances from emigrants was crucial to sustaining
households. Echoing Nyamupingidza's observation of the
pressure on the gainfully employed, he said it was a crime in
Zimbabwe culture not to support one's extended family,
whether as one of the lucky few to earn a fair salary in
country or from the Diaspora. It is widely thought that
about half the households in Zimbabwe have direct access to
remittances. The supermarket chains are taking a close look
at the extent of foreign currency in circulation in Zimbabwe
as they judge the foreign exchange spending power of their
customers and consider how many outlets to dollarize (for a
steep forex fee). Against that background, Katsande
estimated that Zimbabweans in South Africa sent home
R300-500/month (roughly US$30-50), or, from the U.K., the
U.S. dollar equivalent of about Sterling 50/month (approx
US$78). In his view, the preponderance of small notes
changing hands indicated that remittances averaged less than
US$100/month per transfer.

-------
COMMENT
-------

14. (SBU) As the ILO studies indicate, as the economy tips
from formal to informal, the vast majority of Zimbabweans may
have "made a plan," but the living that this docile
population is eking out is increasingly miserable. What
alarms us particularly in comparing today's coping mechanisms
with those that we reported 1 1/2 years ago, is Zimbabweans'
growing disdain for the law. From the low-level criminality
of Kanyenze's "corruption out of need," to the "corruption
out of greed" looting at the top of the pyramid, unscrupulous
behavior pervades this previously remarkably law-abiding
society. A new reform-minded government will face the
challenge of turning the clock back on this particularly
lamentable aspect of the Mugabe legacy and inculcating anew
respect for the law.

MCGEE

© Scoop Media

 
 
 
 
 
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