US embassy cable - 04HARARE456

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, Economic Situation 
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