GOZ Still Scapegoats Exporters

UNCLAS HARARE 002149 SIPDIS SENSITIVE STATE FOR AF/S NSC FOR SENIOR AFRICA DIRECTOR JFRAZER USDOC FOR 2037 DIEMOND TREASURY FOR OREN WYCHE-SHAW PASS USTR FLORIZELLE LISER STATE PASS USAID FOR MARJORIE COPSON ¶E. O. 12958: N/A TAGS: ECON EINV PGOV ZI SUBJECT: GOZ Still Scapegoats Exporters Ref: Harare 2140 ¶1. (SBU) Summary: The GOZ continues to blame export firms for its foreign exchange shortage. If today's lead story in the official press is a curtain-raiser for the November 20 budget speech, the Mugabe administration may kill what's left of Zimbabwe's once hearty export sector. End summary. The "Root Cause" of Economic Problems -------------- ¶2. (U) Today's Herald announces that the GOZ is forming a forex taskforce to account for leakage of export taxes. The GOZ believes "the root cause of [present] economic problems [is] the unaccountability of foreign currency by exporters." GOZ hardliners are angered that so many exporters are failing to remit 50 percent of revenue to the Reserve Bank for exchange at the official rate, currently one-seventh of the market rate. The article argues that better policing of exporters will bring more forex to the Reserve Bank, enabling energy parastatal ZESA and oil parastatal NOCZIM to acquire forex from the Reserve Bank at the official rate. "Rather than having the two companies depend on the parallel market," the article continues, "there is a growing feeling in Government that managing to get foreign currency at the official rate is the solution." Finally, the article takes a few obligatory swipes at the Reserve Bank for failing to collect forex from exporters. Information Minister Jonathan Moyo and Agriculture Minister Joseph Made - both hardliners - are on the new taskforce. Tellingly, the Reserve Bank has been left off. Comment -------------- ¶3. (SBU) We have no doubt that many exporters are sheltering earnings from the GOZ's oppressive tax regime - and that Reserve Bank is turning a blind-eye to this practice. Reserve Bank officials realize that rigid enforcement of the 50 percent exchange requirement saddles firms with an outrageous inefficiency, further crippling an export sector that has shrunk from US$2.2 billion to 1.4 billion since 2000. The GOZ's own data contradict an assertion of the article's unnamed GOZ spokesman that "all available evidence indicates that this economy is generating more foreign currency today than it did three years ago." (Tobacco revenue, the largest forex earner, is down about two-thirds, according to GOZ statistics.) The Herald's heavy-fisted story signals that hardliners - who favor interventionism and distrust the private sector - are trying to gain the upper hand against moderates, part of a widening schism in GOZ economic philosophy (ref). Both hardliners and moderates want to shape the upcoming November 20 budget speech. (The Herald reports that the new taskforce will release its findings in three weeks, just in time for the 2004 budget.) Sullivan