US embassy cable - 05HARARE1356

C O N F I D E N T I A L SECTION 01 OF 03 HARARE 001356 
 
SIPDIS 
 
AF/S FOR B. NEULING 
SENIOR AFRICA DIRECTOR C. COURVILLE 
 
E.O. 12958: DECL: 09/30/2015 
TAGS: ECON, ENRG, PGOV, PREL, ZI, Economic Situation 
SUBJECT: ZIMBABWE RUNNING ON EMPTY 
 
REF: A. REF A: HARARE 1346 
     B. REF B: HARARE 1292 
     C. REF C: HARARE 1269 
 
Classified By: Ambassador Christopher Dell for reasons 1.5 b/d 
 
1.  (C) Summary.  Fuel supplies in Zimbabwe are at critical 
levels as a result of the GOZ,s gross economic 
mismanagement, forcing commuters and business to rely on the 
black market if they want to remain mobile.  Zimbabwe has 
faced period fuel crunches for several years, but in the past 
month supplies of the vital fluid have all but disappeared 
from the formal market.  Government attempts to revive fuel 
deliveries have proved fruitless, with average commuters and 
farmers paying the price.  Nonetheless, Harare,s relatively 
busy rush hour and the number of fuel hawkers testifies to 
the resiliency of Zimbabwe,s black market.  End Summary. 
 
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Forex Squeeze Triggers Fuel Shortages 
------------------------------------- 
 
2.  (SBU) Zimbabwe has faced period fuel shortages for 
several years, but the situation appears to have worsened 
recently with the state-owned fuel distributor, National Oil 
Company of Zimbabwe (NOCZIM), reportedly failing to deliver 
fuel to the private sector for the past two months.  Lines at 
gas stations have lengthened in the past month, as drivers 
begin to queue following even the slightest rumor of an 
expected fuel delivery.  Groups that had enjoyed special fuel 
facilities supplied by NOCZIM have even run dry; most 
recently Embassy contacts report the facility for medical 
doctors ran out of fuel on September 28. 
 
3.  (SBU) The only gas stations with reliable supplies are 
those owned by Caltex that sell fuel in exchange for hard 
currency-denominated coupons.  Under this scheme, Zimbabweans 
with access to hard currency purchase the coupons at a rate 
of US$0.90 per liter and then redeem them at eight special 
Caltex stations nationwide.  This system is frequently used 
by Zimbabweans in the diaspora, who pay for the coupons and 
then have relatives in Zimbabwe retrieve the vouchers.  A 
less reliable source of fuel are five stations nation-wide 
allowed by the GOZ in July to sell fuel directly for hard 
currency.  These stations operate on a cash basis and lack 
access to credit, making their supply stream haphazard. 
Average stations that sell gas in local currency at the 
official price of Z$23,300 per liter of diesel have probably 
no hope of securing supplies in the foreseeable future, 
despite the GOZ,s more than 100-percent price hike in early 
September. 
 
4.  (C) While NOCZIM is widely viewed as one of the GOZ,s 
worst-managed parastatals, the recent fuel crisis appears to 
have been caused by the Reserve Bank,s recent squeeze on 
foreign currency to pay $120 million to the IMF to avert 
expulsion from that body.  Like other oil importers, 
Zimbabwe,s ability to import fuel is directly linked to its 
export and foreign currency-generating potential.  The 
Reserve Bank,s theft of foreign currency accounts (ref C) 
and maintenance of an overvalued exchange rate have caused 
the present crisis, but an abysmal tobacco harvest and dim 
prospects for turn-arounds in the agriculture and tourism 
sectors suggest that recurrent fuel crises are likely to 
continue indefinitely.  The spokesman for the Petroleum 
Marketers Association of Zimbabwe was recently quoted in the 
press as saying, &the bottom line is that there is no 
foreign currency and the situation is extremely bad.8 
 
5.  (C) The government, meanwhile, appears unable to address 
either the short or long-term causes of the fuel crunch. 
Incredulously, Mugabe told a group a war veterans on 
September 28 that the fuel situation would improve in the 
next few days, according to media reports.  The GOZ appears 
to be counting on securing bank credit to import fuel. 
Embassy contacts report that the local Renaissance Bank has 
agreed to finance 3 million liters of fuel to be delivered 
within the next week.  (N.B. Based on US Department of Energy 
statistics for 2002, the 3 million liters will only satisfy 
Zimbabwe's demand for less than three days.)  Meanwhile, 
negotiations with South Africa,s Rand Merchant Bank have 
stalled over the GOZ's inability to provide collateral for 
the loan, according to independent media reports.  Recent GOZ 
pronouncements in favor of seizing land and firms owned by 
whites (ref A and B) further highlight the long road ahead to 
revive exports. 
 
------------------------ 
Sucking the Economy Dry( 
------------------------ 
 
6.  (SBU) The old adage that oil is the lifeblood of an 
economy proves apt amidst Zimbabwe,s severe economic 
contraction.  The fuel shortages and price hikes for those 
with access to fuel have been passed on to businesses and 
ultimately consumers.  Inflation, already officially clocked 
at an annualized rate of 265 percent in August, is likely to 
climb even more unless fuel prices are put in check.  Local 
economist John Robertson forecasts that annualized inflation 
could peak at more than 1,000 percent in the second quarter 
of next year unless the foreign currency shortage ) and 
presumably the associated fuel shortages ) eases. 
 
7.  (SBU) No longer able to secure fuel at a preferential 
government facility, commuter bus operators have begun to 
pass along fuel price hikes to commuters.  According to press 
reports, bus fares have risen in lock-step with the GOZ,s 
announced fuel price hike; fares from the high-density suburb 
of Chitungwiza to the city center jumped from Z$11,000 to 
Z$25,000 in early September.  (N.B.  The official exchange 
rate is currently about Z$26,000:US$, while the parallel rate 
continues to slide to about Z$85,000.)  Some commuters unable 
to afford the new rate have been stranded.  The GOZ has 
responded to these fair price hikes by forbidding transport 
operators from increasing rates; according to a September 21 
article in the Herald, police have fined some 770 bus drivers 
for increasing fares without government approval. 
 
8.  (SBU) Agriculture is probably the sector most critically 
affected, potentially sowing the seed for another failed 
planting season and necessitating continued high levels of 
donor assistance over the coming season (septel).  With rains 
expected to start in mid-October, now is traditionally the 
time that farmers prepare their fields for planting and 
purchase inputs to help their crops grow throughout the 
season.  The fuel crisis, however, has prevented some 
distributors from transporting seed and fertilizers ) two 
commodities also in short supply due to the lack of hard 
currency ) to farms. 
 
9.  (SBU) Critical local services have also been affected by 
the lack of fuel.  Harare municipal clerk, Nomutsa Chideya, 
told a parliamentary committee in mid-September that NOCZIM 
had not delivered fuel to the city council in the past month, 
according to press reports.  Consequently, he reported that 
the city had only enough fuel for one fire truck and that 
&we have to pray there will not be a crisis.8  Officials in 
Zimbabwe,s second city, Bulawayo, are also without fuel. 
The opposition MDC Mayor Japhet Ndabeni-Ncube told reporters 
on September 22 that the city,s entire fleet of municipal 
vehicles was stranded and that only five of the city,s 12 
ambulances were fueled. 
 
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(And Driving Black Market 
-------------------------- 
 
10.  (C) Nonetheless, there is no shortage of vehicles on 
Harare,s streets, testifying to the resiliency and 
pervasiveness of Zimbabwe,s black market; the Harare city 
council has even publicly admitted to sourcing fuel on this 
technically illegal market.  Touters signaling fuel with the 
&peace8 sign and young men carrying jerry cans abound on 
certain Harare streets.  Information compiled from local 
Embassy staff paints a picture of how Harare residents are 
coping with and even making a living off the country,s fuel 
shortage.  Recognizing the profit opportunities in this 
shortage, local pundits have developed the term &individual 
profit opportunities8 or IPOs to refer to money-making 
schemes associated with fuel and other goods. 
 
11.  (C) The secondary market for Caltex fuel coupons appears 
to be the most secure and sure way for small and medium-scale 
peddlers to get fuel on the black market.  In this scheme, 
Zimbabwe,s enterprising residents ask family or friends 
abroad to buy the coupons at US$0.90 per liter.  The coupon 
recipient can either purchase and resell the fuel on the 
parallel market, or, if he does not want to deal with jerry 
cans, trade the coupons for cash at more than Z$80,000 per 
liter.  By getting fuel coupons, the entrepreneur is no 
longer forced to take receipt of foreign exchange funds from 
abroad at the official exchange rate and thus almost triples 
the local currency value of the transfer.  Embassy contacts 
report the market is flush with counterfeit Caltex coupons, 
which only compound the shortage. 
 
12.  (C) Another, albeit less reliable, money-making scheme 
is to use one of Zimbabwe,s six stations designated to 
accept foreign currency ) no questions asked.  With foreign 
currency bought on the parallel market at about Z$85,000:USD, 
an informal fuel trader can tank up at one of these stations 
at a price of one US$ per liter (US$ 3.78 per gallon).  The 
newly minted entrepreneur can resell the fuel on the street 
for as much as Z$150,000 per liter ) almost seven times the 
newly increased official price of Z$23,300 per liter of 
diesel - turning a profit of up to US$0.75 per liter on the 
parallel market. 
 
13.  (C) Larger-scale farms and business, however, have more 
complex ways of securing fuel, which involve ZANU-PF and 
NOCZIM insiders, according to Embassy contacts.  Under these 
schemes, station owners with licenses to import fuel ) or 
more commonly connections to someone with a license ) import 
oil tankers from South Africa at a rate of US$0.32 per liter 
at the border.  These bulk dealers presell the fuel in large 
volumes at a rate of Z$90-100,000 per liter, giving them a 
profit margin of as much as US$0.85 per liter at the current 
parallel market exchange rate. 
 
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COMMENT 
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14.  (C) There is no end in sight to Zimbabwe,s recurrent 
fuel crisis.  The solution to intermittent fuel shortages 
lies in overall economic turnaround, which is highly unlikely 
given the GOZ,s refusal to reform.  The GOZ, meanwhile, may 
have a cynical reason to perpetuate the fuel shortage. 
Access to fuel at cut-rate prices is almost certainly one of 
ZANU-PF,s patronage tools; Policy Implementation Minister 
Shamu, for instance, reportedly owns an indigenous oil 
distribution company.  The crippling fuel shortages only 
reinforce the fact that ZANU-PF is the only game in town and 
that defection means losing access to valuable patronage.  As 
with GOZ manipulation of the exchange rate, the fuel sector 
is subject to perverse incentives.  Preferential fuel rates 
only divert effort to rent-seeking activities and give those 
lucky enough to benefit a vested interest in maintaining 
counterproductive economic policies. 
 
15.  (C) Testifying to Zimbabwean,s renowned passivity and 
the GOZ,s heavy-handedness, the populous has trudged onward 
with little overt protest against fuel shortages. 
Nevertheless, the lack of fuel is an issue that impacts most 
segments of society ) even soldiers and police have to queue 
for ever longer periods of time to find transport.  MDC 
leader Morgan Tsvangirai has attempted to highlight the 
GOZ,s shortcoming on this issue (septel), but it remains to 
be seen if the gas shortages will ignite the populous's 
latent discontent against the regime. 
DELL