US embassy cable - 03HARARE1547

UNCLAS SECTION 01 OF 02 HARARE 001547 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR AF/S and AF/EX 
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: ECON, ETRD, EINV, PGOV, ZI 
SUBJECT: Zimbabwe's Ailing Economy: Where It Stands 
 
1. (SBU) Summary: The Zimbabwean economy has plummeted 
more than anyone thought possible, the curious tragedy of 
a place that had all the right stuff - fertile land 
packed with minerals, sophisticated infrastructure run by 
well-educated populace, high-income tourist destinations 
- now in disintegration.  As it stands in mid-2003, 
meaningful policy shift is only imaginable after 
political change.  End Summary. 
 
The Broad Picture 
----------------- 
2. (SBU) Although statistics are sketchy, the formal 
Zimbabwean economy has probably shed 40 percent, from 
approximately US$ 7 to 4.3 billion.  Inflation is 365 
percent (year-on-year), real interest rates negative-300 
percent and the Zimdollar trading at 3350:US$1 (up 200- 
fold from 17:1 in 1998).  Without Western food 
assistance, most Zimbabweans would suffer severe 
undernourishment. (U.S. food aid alone totaled US$ 115 
million last year, or about 3 percent of GDP.)  Perhaps 7- 
8 percent of the population has emigrated.  The country's 
infrastructure - education, transport, energy, 
telecommunications, law enforcement - is in shambles. 
 
What Has Sustained It? 
---------------------- 
3. (SBU) First and foremost, indirect assistance from the 
West, Libya, South Africa and emigrants has propped up a 
teetering economy.  In addition to the West's food aid, 
Libya's TAMOIL donated approximately US$ 350 million 
through fuel in 2001-02 and South Africa's ESKOM close to 
US$ 50 million through electricity since 2002 - all 
without payment, or prospect thereof.  Remittances 
account for annual inflows of US$ 500 million, according 
to the local Western Union rep. 
 
4. (SBU) Secondly, there is a vibrant informal economy 
not captured by official data.  Few companies do not 
stray occasionally into this Neverneverland.  Motorists 
now depend exclusively on informal fuel networks, and 
dealing in scarce banknotes is but one of many lucrative 
rent-seeking opportunities.  Almost everything for sale 
in Zimbabwe is technically contraband, exceeding the 
GOZ's whimsically-enforced and unrealistic price limits 
(e.g., a US$.08 bread loaf or US$.12 liter of gas). 
 
5. (SBU) Thirdly, many exporters are doing well 
exploiting Zimbabwe's low-cost environment.  In 
agriculture, this means cotton and horticulture (often 
raised by increasingly efficient small-scale farmers); in 
minerals, ferroalloys; in manufacturing, a real mixed 
bag.  We have visited plants that successfully export 
furniture, bus-windshields, khaki slacks and wooden doors 
to the U.S.  Needless to say, exporters routinely shelter 
foreign exchange earnings from the GOZ in off-shore 
accounts. 
 
The Shrinking Economy 
--------------------- 
6. (SBU) The rest of the formal economy is in dismal 
shape, however.  The cattle herd has been decimated. 
Beneficiaries of land reform, which has dispossessed 
about 4,000 white farmers, add little to the agricultural 
output. The size of this year's tobacco harvest will be 
80-90 million kgs, higher than initially expected but a 
far cry from 1999 when Zimbabwean grew 237 million kgs 
and led the world in exports.  The official press 
recently acknowledged that farmers had sent to the Grain 
Marketing Board only 33,500 out of this year's projected 
930,000 tons of maize production. 
 
7. (SBU) Zimbabwe's once strong textile producers have 
laid off 12,000 of 30,000 workers, losing countless 
contracts to AGOA-qualified countries.  JCPenney and the 
GAP have already left, and one local producer said he was 
barely holding on to Target. 
 
8. (SBU) Zimbabwe's convoluted export policies, energy 
rationing and erratic railway service have taken their 
toll on mineral production.  Coal producer Wankie 
Colliery is operating at 40 percent capacity.  Gold 
production is down 50 percent since 1999, causing 
Zimbabwe to fall from third to sixth in Sub-Saharan 
rankings.  Investment in Zimbabwe's all-important 
platinum reserves lags South Africa and Russia. 
 
9. (SBU) Finally, tourism is nearly lifeless.  Most high- 
priced safari lodges remain empty.  And even domestic 
tourism has been crippled by the gasoline scarcity. 
 
Comment 
------- 
10. (SBU) It's doubtful the paralytic GOZ can address 
more than one economic crisis at a time.  For the moment, 
the banknote squeeze gets top attention.  As for 
management of other crises, the GOZ seems confident of 
free electricity from South Africa and free food from the 
West.  In spite of GOZ's best efforts, market forces are 
resolving the fuel crisis, although conventional gas 
stations like Mobil, Caltex and BP are being squeezed out 
of the market. 
 
11. (SBU) Otherwise, there is little to cheer: 
 
- With no chance of formal employment, perhaps half the 
population has resigned itself to minimal subsistence 
dependent on food donations.  (Low-skilled jobs are 
available in cities, but salaries often do not cover 
transport and lunch.) 
 
- President Mugabe has asked ZANU-PF stalwart Charles 
Utete to oversee a land reform review, but we cannot 
easily envisage the GOZ publicizing and acting upon a 
report that spells out abuses by many cabinet ministers. 
With each passing month, it becomes less likely that a 
substantial number of the 4,000 dispossessed farmers will 
return to farms. 
 
- Sources close to the GOZ report that businessman Gideon 
Gono is front-runner for Reserve Bank President.  As 
major shareholder in a private bank and owner of the 
business newsweekly, he is a walking conflict-of- 
interest.  We would expect him to be neither independent 
nor outspoken. 
 
Only through political change, it seems, does Zimbabwe 
stand any chance of stemming its broad economic decline. 
 
Sullivan