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Cablegate: Tobacco Output Off 72 Percent

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

UNCLAS HARARE 001498

SIPDIS

STATE FOR AF/S
USDOC FOR AMANDA HILLIGAS
TREASURY FOR OREN WYCHE-SHAW
PASS USTR FLORIZELLE LISER
STATE PASS USAID FOR MARJORIE COPSON

SENSITIVE

E. O. 12958: N/A
TAGS: ECON ETRD EINV PGOV ZI
SUBJECT: Tobacco Output Off 72 Percent

-------
Summary
-------
1. Zimbabwe's three auction floors have concluded the
2004 tobacco season. Once the world's number one
exporter of tobacco, shrinking harvests have translated
into less export revenue and less foreign exchange for
the central bank's official currency auctions. Cotton is
currently rapidly overtaking tobacco as Zimbabwe's main
cash crop.

------------------
Tobacco's Decline
------------------
2. Zimbabwe should export about 67 million kgs of tobacco
this year, down 72 percent from the banner 238-million kg
harvest four years ago. At that time, Zimbabwe was the
world's number one tobacco exporter and number three
producer. Since 2001, tobacco output has been hard hit
by the GOZ's fast-track land reform. We expect that
cotton, a successful crop for small growers in Zimbabwe,
will now overtake tobacco as a revenue-producer. The
Zimbabwe Tobacco Association expects a 40-50 million kg
tobacco harvest in 2005, rivaling the worst since the
1950s. (Farmers lay seedbeds for irrigated tobacco about
18 months in advance, facilitating early forecasts.) By
contrast, the cotton harvest for 2005 should be roughly
230,000 metric tons, having gradually risen from 193,000
metric tons since 2002.

-----------------------------
What It Means for the Economy
-----------------------------
3. The GOZ estimated exports would drop to US$1.2 billion
this year (down from $1.4 billion in 2003 and a pre-
recession US$2.4 billion in 1997). Judging from the
Finance Minister's speech last December, the GOZ based
its forecast on a 100-million kg tobacco harvest. While
tobacco now only accounts for 10 percent of exports, 33-
million fewer kgs still adds up to a loss of US$50-70
million in exports.

4. As the sole official supplier of foreign exchange to
non-exporters, the RBZ's job is not getting easier.
There are too few exports to satisfy forex demand, and it
is nearly impossible for arrears-laden Zimbabwe to
finance its external deficit through borrowing. The RBZ
may sell just US$900 million to the private sector this
year, a serious constraint on trade and a paltry amount
for a country that once imported US$2.7 billion annually.

-------
Comment
-------
5. The Zimbabwean economy is not only in freefall, it is
also in transition. Given the country's move toward
smaller-scale farms, it is unlikely a capital- and labor-
intensive crop like tobacco will ever regain past
prominence. Buyers tell us their companies have already
compensated for the loss of Zimbabwean flue-cured tobacco
through expanded purchases in China and Brazil. Land
equitability aside, tobacco was an enormously efficient
crop for Zimbabwe. It was the country's largest employer
and accounted for 30 percent of export revenue while
using only 3 percent of arable land.

Dell

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