US embassy cable - 02HARARE2809

UNCLAS HARARE 002809 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR AF/S AND AF/EX 
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER 
USDOC FOR 2037 DIEMOND 
PASS USTR ROSA WHITAKER 
TREASURY FOR ED BARBER AND C WILKINSON 
USAID FOR MARJORIE COPSON 
 
E. O. 12958: N/A 
TAGS: ECON, EPET, EFIN, ETRD, AMGT, ZI 
SUBJECT: Almost No Fuel 
 
Ref: Harare 2544 
 
1. (U) Summary:  Short of foreign exchange and shunned by 
Libya, this country is virtually running on empty. 
Doggedly patient Zimbabweans wait days in mile-long fuel 
lines that meander over and around city blocks.  The 
roads have lost 75 percent of normal traffic, as the 
Government cannot muster the daily US$ 1 million it needs 
to meet fuel demand at present pricing levels.  We 
believe the world's worst performing peacetime economy is 
lurching toward meltdown.  End Summary. 
 
Negotiations with Libyans fall through 
-------------------------------------- 
2. (SBU) Zimbabwe has entered a cycle of recurring fuel 
shortages each 2-3 weeks, with every successive crisis 
more punishing than the last.  The Government has scant 
export earnings to draw upon, the consequence of an 
official exchange rate that overvalues the Zimdollar by 
30-fold, land redistribution that has destroyed a robust 
farm sector, tax policies that siphon nearly 100 percent 
of company earnings, and price controls that induce 
critical shortages.  Negotiations with Libyan parastatal 
Tamoil, provider of most Zimbabwean fuel this year, broke 
down on Saturday.  Reportedly, the Libyans now want hard 
currency rather than theoretical stakes in theoretical 
assets.  A U.S. company rep told us the GOZ is trying to 
avoid purchasing fuel again from Kuwait-based IPG, which 
specializes in high-risk customers and has been charging 
the GOZ 20-40 percent over the international price.  More 
conventional suppliers are cheaper but demand full 
prepayment from the credit-poor GOZ. 
 
What Now? 
--------- 
3. (U) President Mugabe has few options.  He can: 
 
a) implore Libya not to let a fellow-African nation that 
has challenged the West go under. 
 
b) sell or trade remaining national assets for hard 
currency. 
 
c) print a fresh supply of Zimdollars to exchange for 
hard currency on parallel markets, causing the Zimdollar 
to resume its free-fall. 
 
d) stop subsidizing fuel by over 90 percent. 
 
e) unshackle the export sector by devaluing the official 
exchange rate, reversing land redistribution or reducing 
taxes. 
 
(a-c) are quick fixes that win Mugabe no more than a few 
weeks breathing room; (d) will prove unpopular and 
trigger hyperinflation; (e) may be ideologically 
unpalatable. 
 
The Threat to U.S. Interests 
----------------------------- 
4. (SBU) At the weekend's party conference, Mugabe said 
he might nationalize foreign oil companies, a contingency 
we have warned of (ref) but one that, at the end of the 
day, does not address the forex/fuel problem.  U.S. 
companies believe the GOZ will channel an increasing 
share of the subsidized fuel to indigenous operators, 
eventually pressuring multinationals into asset fire 
sales.  At present, indigenous operators have 7 percent 
of distribution capacity but are receiving 30 percent of 
incoming fuel. 
 
Comment 
------- 
5. (U) Even Zimbabwe's still-vibrant informal economy 
cannot run without fuel.  Unless the GOZ modifies its 
scorched-earth policies, the economy will continue to 
retract by over 1 percent per month, its foreign exchange 
shortfall growing more pronounced at every turn. 
 
Sullivan