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Cablegate: Zimbabwe's Ailing Economy: Where It Stands

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 HARARE 001547

SIPDIS

SENSITIVE

STATE FOR AF/S and AF/EX
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER
USDOC FOR 2037 DIEMOND
PASS USTR FLORIZELLE LISER
TREASURY FOR ED BARBER AND C WILKINSON
STATE PASS USAID FOR MARJORIE COPSON

E. O. 12958: N/A
TAGS: ECON ETRD EINV PGOV ZI
SUBJECT: Zimbabwe's Ailing Economy: Where It Stands

1. (SBU) Summary: The Zimbabwean economy has plummeted
more than anyone thought possible, the curious tragedy of
a place that had all the right stuff - fertile land
packed with minerals, sophisticated infrastructure run by
well-educated populace, high-income tourist destinations
- now in disintegration. As it stands in mid-2003,
meaningful policy shift is only imaginable after
political change. End Summary.

The Broad Picture
-----------------
2. (SBU) Although statistics are sketchy, the formal
Zimbabwean economy has probably shed 40 percent, from
approximately US$ 7 to 4.3 billion. Inflation is 365
percent (year-on-year), real interest rates negative-300
percent and the Zimdollar trading at 3350:US$1 (up 200-
fold from 17:1 in 1998). Without Western food
assistance, most Zimbabweans would suffer severe
undernourishment. (U.S. food aid alone totaled US$ 115
million last year, or about 3 percent of GDP.) Perhaps 7-
8 percent of the population has emigrated. The country's
infrastructure - education, transport, energy,
telecommunications, law enforcement - is in shambles.

What Has Sustained It?
----------------------
3. (SBU) First and foremost, indirect assistance from the
West, Libya, South Africa and emigrants has propped up a
teetering economy. In addition to the West's food aid,
Libya's TAMOIL donated approximately US$ 350 million
through fuel in 2001-02 and South Africa's ESKOM close to
US$ 50 million through electricity since 2002 - all
without payment, or prospect thereof. Remittances
account for annual inflows of US$ 500 million, according
to the local Western Union rep.

4. (SBU) Secondly, there is a vibrant informal economy
not captured by official data. Few companies do not
stray occasionally into this Neverneverland. Motorists
now depend exclusively on informal fuel networks, and
dealing in scarce banknotes is but one of many lucrative
rent-seeking opportunities. Almost everything for sale
in Zimbabwe is technically contraband, exceeding the
GOZ's whimsically-enforced and unrealistic price limits
(e.g., a US$.08 bread loaf or US$.12 liter of gas).

5. (SBU) Thirdly, many exporters are doing well
exploiting Zimbabwe's low-cost environment. In
agriculture, this means cotton and horticulture (often
raised by increasingly efficient small-scale farmers); in
minerals, ferroalloys; in manufacturing, a real mixed
bag. We have visited plants that successfully export
furniture, bus-windshields, khaki slacks and wooden doors
to the U.S. Needless to say, exporters routinely shelter
foreign exchange earnings from the GOZ in off-shore
accounts.

The Shrinking Economy
---------------------
6. (SBU) The rest of the formal economy is in dismal
shape, however. The cattle herd has been decimated.
Beneficiaries of land reform, which has dispossessed
about 4,000 white farmers, add little to the agricultural
output. The size of this year's tobacco harvest will be
80-90 million kgs, higher than initially expected but a
far cry from 1999 when Zimbabwean grew 237 million kgs
and led the world in exports. The official press
recently acknowledged that farmers had sent to the Grain
Marketing Board only 33,500 out of this year's projected
930,000 tons of maize production.

7. (SBU) Zimbabwe's once strong textile producers have
laid off 12,000 of 30,000 workers, losing countless
contracts to AGOA-qualified countries. JCPenney and the
GAP have already left, and one local producer said he was
barely holding on to Target.

8. (SBU) Zimbabwe's convoluted export policies, energy
rationing and erratic railway service have taken their
toll on mineral production. Coal producer Wankie
Colliery is operating at 40 percent capacity. Gold
production is down 50 percent since 1999, causing
Zimbabwe to fall from third to sixth in Sub-Saharan
rankings. Investment in Zimbabwe's all-important
platinum reserves lags South Africa and Russia.

9. (SBU) Finally, tourism is nearly lifeless. Most high-
priced safari lodges remain empty. And even domestic
tourism has been crippled by the gasoline scarcity.

Comment
-------
10. (SBU) It's doubtful the paralytic GOZ can address
more than one economic crisis at a time. For the moment,
the banknote squeeze gets top attention. As for
management of other crises, the GOZ seems confident of
free electricity from South Africa and free food from the
West. In spite of GOZ's best efforts, market forces are
resolving the fuel crisis, although conventional gas
stations like Mobil, Caltex and BP are being squeezed out
of the market.

11. (SBU) Otherwise, there is little to cheer:

- With no chance of formal employment, perhaps half the
population has resigned itself to minimal subsistence
dependent on food donations. (Low-skilled jobs are
available in cities, but salaries often do not cover
transport and lunch.)

- President Mugabe has asked ZANU-PF stalwart Charles
Utete to oversee a land reform review, but we cannot
easily envisage the GOZ publicizing and acting upon a
report that spells out abuses by many cabinet ministers.
With each passing month, it becomes less likely that a
substantial number of the 4,000 dispossessed farmers will
return to farms.

- Sources close to the GOZ report that businessman Gideon
Gono is front-runner for Reserve Bank President. As
major shareholder in a private bank and owner of the
business newsweekly, he is a walking conflict-of-
interest. We would expect him to be neither independent
nor outspoken.

Only through political change, it seems, does Zimbabwe
stand any chance of stemming its broad economic decline.

Sullivan

© Scoop Media

 
 
 
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