This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 02 HARARE 001547
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.
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.