US embassy cable - 04HARARE1498

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, Agriculture 
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