US embassy cable - 03HARARE752

UNCLAS HARARE 000752 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR AF/S 
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER 
USDOC FOR 2037 DIEMOND 
PASS USTR FLORIZELLE LISER 
TREASURY FOR ED BARBER AND C WILKINSON 
STATE PASS USAID FOR MARJORIE COPSON 
 
E. O. 12958: N/A 
TAGS: EPET, ECON, EINV, ETRD, ZI 
SUBJECT: GOZ hikes fuel price again 
 
 
1. (U) Summary:  In an attempt to alleviate severe 
shortages, the GOZ has approximately tripled gas and 
doubled diesel prices.  Economic impact will be 
substantial.  End Summary. 
 
2. (U) Leaded petrol's controlled price rises Z$ 145 to 
450 and diesel Z$ 119 to 200.  It was a politically- 
charged act that Zimbabwe's business community has 
lobbied hard for.  Since the Zimdollar began a steep 
slide and Libya halted fuel deliveries in late 2002, 
Zimbabweans have grown accustomed to waiting days, even 
weeks, for subsidized fuel.  Nearly all serious 
businesses and organizations already import fuel at 
international rates. 
 
3. (U) Time will tell if today's price hikes shrink fuel 
queues.  Pent-up demand is enormous.  At Z$ 450 (US$ 
.33)/liter, some Zimbabwean motorists will be unable to 
afford fuel.  To assist commuter vans and lessen residue 
on poorer Zimbabweans, the GOZ left diesel at the highly- 
subsidized rate of Z$ 200 (US$ .15)/liter. 
 
4. (SBU) Comment:  With today's decision, the GOZ 
continues its slow-footed steps toward economic 
liberalization.  It's the latest in a series of recent 
positive moves, but - in isolation - too little to stem 
the country's rapid economic descent.  We will continue 
to analyze the repercussions as the dust settles, but 
offer a few initial observations: 
 
- The GOZ is still unwilling to get out of the fuel- 
subsidy business, a practice it can no longer afford.  At 
Z$ 600-650, the industry estimates that Zimbabwean 
consumers will pay international rates.  At the new 
prices, at least, the GOZ can subsidize a greater amount 
of fuel or divert resources to food and energy. 
 
- The increase will yank Zimbabwe's 228 percent inflation 
rate upward.  The GOZ's oft-stated goal of double-digit 
inflation by the year's end is further out of reach. 
 
- Mounting inflation will make it even harder for 
producers to sell at controlled prices.  The GOZ will be 
under heavier pressure to relax price controls. 
 
- Although people here will find these prices hard to 
stomach, President Mugabe has provided no leadership 
through public appearances or statements to guide the 
country through this painful transition.  Economic 
distortions, such as the fuel subsidy, conceal 
Zimbabweans' impoverishment.  Each time the price of a 
commodity nears international norms, Zimbabweans 
appreciate more fully how their wealth has plummeted. 
This realization may cause them to turn on the Government 
that brought this about, possibly translating into 
support for the opposition Movement for Democratic 
Change's recent calls for mass action. 
 
Sullivan