US embassy cable - 04HARARE224

UNCLAS HARARE 000224 
 
SIPDIS 
 
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: Demand for US dollars still growing 
 
 
1. Summary: Economists, bankers and businessmen around 
Zimbabwe all ask one question:  How soon will the Reserve 
Bank (RBZ) run out of forex to fuel its new auction 
system?  End Summary. 
 
2. Eligible importers are trying to gobble up everything 
they can at the Monday and Thursday auctions, since the 
zimdollar trades on the auction floor at an overvalued 
Z$3,600:US$.  The parallel market is making a rapid 
comeback even without the participation of most banks, 
with rates heading fast toward Z$5,000:US$.  Demand at 
the RBZ's currency auctions continues to grow: 
 
Week of        Demand 
-------        ------ 
1/12            1.7 million 
1/19            8.2 
1/26           17.2 
2/2            18.7 
 
While the RBZ has been mum on incoming export receipts, 
we have not encountered a single knowledgeable observer 
who believes the portion of export receipts channeled to 
the auction floor (usually 25 percent) can cover US$20 
million of import demands each week.  In fact, the RBZ 
has kept demand for forex to a minimum by allowing banks 
to place bids only on behalf of certain importers. 
 
3. At the same time, each week the GOZ seems to face 
urgent new demands for its own forex reserves.  The 
International Air Transport Association (IATA) recently 
suspended Air Zimbabwe (preventing ticketing on other 
carriers) pending payment of US$1.3 million.  Energy 
parastatal ZESA's spokesman said both South Africa's 
Eskom and Mozambique's Hydro Caborra Bassa have been 
pressuring the GOZ to pay down arrears of US$42 million. 
(ZESA's total arrears now exceed US$400 million.) 
 
Comment 
------- 
4. By any measure (inflation, cross-border price 
comparisons, parity purchasing power), the zimdollar is 
now heavily overvalued.  With inflation continuing to 
surge, most exports are uncompetitive at the present 
blend rate of around Z$2700:US$ (exporters still must 
surrender 25 percent of proceeds at Z$824:US$).  One 
exporter wrote in the Daily News this week that the 
wholesale price of a box of locally-produced matches is 
now Z$149 plus VAT; an Indian company offered to supply 
him in (including VAT and transport to Harare) for Z$39 - 
when converted at the present auction rate.  That's makes 
Zimbabwe a four-fold more expensive manufacturer than 
India, at least in this particular case.  At some point, 
either the auction rate or a more accessible parallel 
rate will adjust for these distortions.  Until then, 
Zimbabwe will be an uncharacteristically high-cost 
environment. 
 
Sullivan