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Cablegate: Export Slump Reaches Crisis Proportions

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 000456

SIPDIS

SENSITIVE

STATE FOR AF/S AND AF/EX
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER
USDOC FOR AMANDA HILLIGAS
TREASURY FOR OREN WYCHE-SHAW
PASS USTR FLORIZELLE LISER
STATE PASS USAID FOR MARJORIE COPSON

E. O. 12958: N/A
TAGS: ECON EINV ETRD PGOV ZI
SUBJECT: Export Slump Reaches Crisis Proportions

Ref: Harare 361

1.(SBU) Summary: After surviving multiple economic red-
alerts, Zimbabwe is again up to its jowls in a self-
imposed imbroglio. Exporters have slowed operations to a
near-standstill, depriving importers of their main forex
source. We see no relief until the Reserve Bank (RBZ)
Governor Gono allows the zimdollar to devalue
significantly or eliminates the GOZ's quasi-tax on one-
quarter of export proceeds. Gono's challenge is winning
President Mugabe's approval, perhaps - as in the recent
past - by couching changes for the stubborn octogenarian
in face-saving, distortive phraseology. End summary.

String of Set-Backs
-------------------
2. (SBU) Zimbabwe has passed through recurring economic
crises in recent years, each exacting its toll on gross
domestic product. We have seen corporate invasions
(2001), commercial farm seizures (2002), fuel shortages
(2002-03), sub-market price controls (2003), cash
shortages (2003) and national strikes (2003).
Concurrently, we have endured hyperinflation, drought,
brain drain, political stalemate, dilapidating railway
and repeated electricity outages. At one point in late-
2002/early-2003, many businessmen feared - mistakenly, as
it turned out - Zimbabwe was heading for economic
meltdown. Even so, the economy contracted between 13-14
percent last year and has shed about 40 percent since
1997, making it one of the world's worst performing.

3. (SBU) On some fronts, the Government has made
progress. It halted corporate intrusions, deregulated
the fuel price, scrapped price controls and printed
larger banknote denominations. Accommodatingly, nature
has brought back the rains. In other respects, however -
farm expropriations, inflation and poor
railway/electricity services - there is no advance. On
balance, local UN, World Bank and IMF economists feel
negative growth will slow modestly in 2004, but still
come in at 5-10 percent.

End of Exports?
---------------
4. (SBU) The auction crisis is at least as serious as its
precursors. The GOZ's narrow and selective crackdown on
corporate corruption has scared most firms away from
parallel currency trading. At the same time, few can
access forex through the auction's limited supply. The
only lasting solution: more exports. Yet exporters
cannot boost or even maintain output so long as they must
sell 25 percent of revenue to the GOZ at a fractional one-
sixth of the market exchange rate - and 50 percent at the
sub-market auction rate. Many have frozen operations.

5. (SBU) Indeed, this year's export outlook for
Zimbabwe's "big four" - agriculture, mining,
manufacturing and tourism - is bleak. The quasi-
governmental Tobacco Industry Marketing Board (TIMB)
forecasts a tobacco harvest of just 45 million kgs this
year, down from 83 million in 2003 and a record 237
million in 2000. For a crop that traditionally accounts
for one-third of export revenue, this is a devastating
drop. Meanwhile, miners and manufacturers tell us they
are scaling back operations until conditions improve and
the GOZ reaffirms export processing zone privileges
(ref). Tourism Board President Shingi Munyeza confirmed
for us last week that international arrivals are down
seventy percent from 2000 with no sign of recovery. (His
firm, ZimSun, is investing aggressively in other African
countries.)

Comment
-------
6. (SBU) Several RBZ oversight board members tell us
Governor Gideon Gono recognizes the problem and hopes to
resolve it in a late-March/early-April address. He may
elevate the GOZ-rigged auction rate, offer exporters
right of refusal or abolish the mandatory 25 percent
exchange requirement. Still, Gono has to convince
Mugabe, perhaps by characterizing the changes in
misleading, Orwellian terminology. This was the means,
in 2003, for devaluing the zimdollar in January,
eliminating price controls in May, creating larger
banknotes in October and deregulating fuel tariffs in
November. (At one point, we are told, Mugabe's handlers
only had him driven on certain routes in Harare, lest he
witness increased market-driven fuel prices.) In this
sense, RBZ Governor Gono's next policy statement may be
more important and far-reaching than his first on Dec 18.

Sullivan

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