US embassy cable - 04HARARE361

UNCLAS HARARE 000361 
 
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, EMIN, EINV, ETRD, PGOV, ZI, Mining 
SUBJECT: Miners Still Glum 
 
 
1. Summary:  Mining industry representatives told us the 
Reserve Bank of Zimbabwe (RBZ)'s new monetary policy has 
menaced their tattered businesses.  Between an overvalued 
zimdollar and overpriced electricity, they are barely 
staying afloat.  The GOZ still does not appreciate that 
its 6-year recession will end only when miners and other 
exporters enjoy a more hospitable business environment. 
End summary. 
 
2. Ambassador Sullivan held a roundtable on Feb 26 with 
the chiefs of eight of the country's large mining groups. 
The mining sector has been in rapid retreat since 1997, 
with gold production falling from $268 to 150 million, 
ferroalloys from $178 to 67 million and nickel from 71 to 
39 million.  Only platinum appears on the increase. 
Roundtable participants represented African Associated, 
Casmyn, Independence Gold, Rio Tinto, Zimasco, Zimplats 
as well as the Chamber of Mines.  Miners were keenly 
interested in the U.S. take on Zimbabwe's political 
stalemate and debated energetically among themselves 
whether the sector should adopt a more overtly political 
stance. 
 
No room for profit 
------------------ 
3. Miners, possibly Zimbabwe's purest exporters, complain 
they still must surrender 25 percent of earnings for 
exchange at the official exchange, just one-sixth of the 
market rate.  They convert the rest of earnings at the 
artificially low auction rate.  But before any of this 
takes place, the GOZ demands a 15 percent royalty on 
minerals extracted, regardless whether the firms net a 
profit.  Furthermore, the GOZ has raised the rate of duty 
on imports by a whopping 73-fold since December 1. (It 
used to peg import duties for miners to the former 
official rate of Z$56:US$.) 
 
4. Worse still, parastatal ZESA now compels exporters to 
pay more for electricity than counterparts elsewhere in 
the region.  Heavy-energy consuming mining companies pay 
an average of US 4.5 cents/KW hr, versus 1.7 in South 
Africa, 1.8 in Namibia, 2.1 in Mozambique, 2.2 in Zambia 
and 2.6 in Botswana.  It appears the GOZ is trying to 
subsidized retail customers by overcharging exporters. 
 
Comment 
------- 
5. As we have pointed out before, only Zimbabwe's 
exporters can lead a recovery.  Until the GOZ allows 
exporters to retain more of earnings, they will not 
produce more.  But even under RBZ Governor Gideon Gono's 
more innovative monetary policy, the GOZ has not come to 
terms with this.  The Zimplats rep joked that a high GOZ 
official recently expressed bemusement that platinum 
output is rising while production of all other minerals 
is plummeting.  The Zimplats chief retorted, of course, 
that only his company was exempted from the draconian 
exchange requirements that affect the rest of the sector. 
Invariably, the GOZ's shoots itself in the foot through a 
stalwart habit of pretending the zimdollar is worth more 
than the market determines.  In mining, the stakes are 
high.  Given that post-land reform agriculture is still 
in chaos, it is probably mining that will lead a 
recovery, perhaps eventually displacing agriculture as 
the country's main forex earner. 
 
Sullivan