US embassy cable - 05HARARE295

C O N F I D E N T I A L HARARE 000295 
 
SIPDIS 
 
AF/S FOR BNEULING 
 
EB/IFD FOR FCHISHOLM 
 
NSC FOR SENIOR AFRICA DIRECTOR C. COURVELLE, D. TEITELBAUM 
 
TREASURY FOR OREN WYCHE-SHAW 
 
DEPT PLEASE PASS TO ALL AFRICAN DIPLOMATIC POSTS 
 
ALSO PASS TO USAID FOR MARJORIE COPSON 
 
E.O. 12958: DECL: 12/31/2009 
TAGS: ETRD, PGOV, ZI, ECON, EINV, Economic Situation 
SUBJECT: TYCO TRUCK SALES OFF 90 PERCENT IN ZIMBABWE 
 
Classified By: Ambassador Christopher Dell for reason 1.4 b/d 
 
1. (C) Summary: The head of U.S. firm Tyco,s local 
subsidiary told Econoff on February 10 that truck sales 
plummeted 90 percent from 1999 to 2004.  On a brighter note, 
Tyco now sells three times as many parts as in 1999, since 
transport firms are trying to lengthen the lifespan of each 
vehicle.  Still, the Tyco representative asserted that the 
country's aging truck fleet makes Zimbabwe's roads 
increasingly hazardous.  End Summary. 
 
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Currency Auctions a "Joke;" Sales Plummet 
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2. (C) Tyco General Manager John Stuart told us his firm,s 
local sales of new and used trucks in Zimbabwe peaked at 300 
in 1999, then dropped in each of the subsequent four years. 
Sales fell to a mere 24 in 2004.  Stuart blamed the most 
recent drop on the Reserve Bank (RBZ)'s currency auctions and 
higher taxes.  At the auctions, which RBZ Governor Gideon 
Gono introduced in January 2004, Stuart said too many buyers 
are chasing too little foreign exchange.  Tyco's potential 
truck buyers came up empty repeatedly in a process Stuart 
disparaged as a "joke." 
 
3. (C) Stuart said Gono's decision to peg import duties to 
the auction rather than the former official rate also 
discouraged vehicle imports by raising the end-price of the 
trucks, as duty on the trucks rose approximately 80-fold on 
December 1, 2003.  Finally, Gono tacked on a new 15-percent 
value-added tax (VAT) to vehicle sales in January 2004.  As 
Tyco,s customers tried to come to terms with these new rules 
and tariffs, the company did not sell a single truck during 
2004's first six months, according to Stuart. 
 
4. (C) By July 2004, however, Stuart recalls that many of his 
clients gave up on RBZ currency auctions and became 
accustomed to acquiring foreign exchange through the parallel 
market.  Sales picked up and averaged six trucks per month 
for 2004's second half.  Stuart said he knows of cases where 
competing dealers that sell non-Tyco trucks have bribed 
customs officials in order to escape payment of duty and VAT. 
 Dealers that resort to these measures often avoid long 
delays for incoming new trucks at border stations, which in 
Tyco's case are often six weeks, Stuart said. 
 
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Unsafe Roadways 
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5. (C) While sales of imported new and used trucks have 
suffered, Stuart noted that Tyco's parts sales are booming. 
The company turned over its parts stock three times in 1999, 
but eight times in 2004.  Stuart said transport firms are 
apparently using older and older trucks, which is making 
Zimbabwe's roads more dangerous.  Stuart said the country's 
Vehicle Inspection Department no longer spot-checks trucks 
for safety compliance and only requires each transporter 
bring its fleet to inspection points once each year.  The 
Tyco general manager knows of instances where truckers 
swapped parts among vehicles to obtain annual certification 
for the largest number of trucks. 
 
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Comment 
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6. (C) As Tyco's case demonstrates, the RBZ,s managed and 
overvalued exchange rate has not only hurt the country,s 
exporters, who became less competitive during 2004, but also 
importers, such as Tyco's customers, who are unable to 
purchase foreign exchange through official RBZ channels. 
Moreover, when and if these importers brave the parallel 
market, they pay a heavy premium and risk GO