Zimbabwe's Ghost Exports: The Case of Fertilizer

UNCLAS HARARE 000492

SIPDIS

SENSITIVE

STATE FOR AF/S
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER
USDOC FOR 2037 DIEMOND
PASS USTR ROSA WHITAKER
TREASURY FOR ED BARBER AND C WILKINSON
STATE PASS USAID FOR MARJORIE COPSON


E. O. 12958: N/A
TAGS: ETRD ECON EINV ZI
SUBJECT: Zimbabwe's Ghost Exports: The Case of Fertilizer


1. (SBU) Summary: Top executives of Zimbabwe's sole
ammonium nitrate producer charge GOZ officials and others
are illegally exporting fertilizer, triggering shortages
on the domestic market. End summary.

A Trail of Illegal Exports
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2. (SBU) Although Sable Chemicals is producing 30 percent
less ammonium nitrate than in 1999, the firm's CEO and
production manager told us the quantity should be
sufficient to cover present fertilizer needs of
Zimbabwean farmers. Since recently dispossessed
commercial farmers used to account for 70 percent of
fertilizer sales, demand has dropped precipitously. Like
many price-controlled items, however, much of the
country's fertilizer is being illegally exported to
neighboring countries.


3. (SBU) The Sable officials said they started to track
large amounts of Zimbabwe-produced fertilizer in Zambia
after the GOZ took over the market in mid-2002. The
Government buys all domestic fertilizer at the controlled
price of Z$ 30,000/ton, a net loss for the industry, then
sells or distributes it on retail and commercial markets.
The GOZ claims it became the country's fertilizer broker
to ensure product availability for newly-resettled
farmers. But Zimbabwe is suffering an acute shortage
while domestic fertilizer is showing up abroad. In
Zambia, for example, it fetches ZS 170,000/ton, almost 6-
fold the controlled price.

Comment
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4. (SBU) Ironically, the Sable reps say they could earn a
handsome profit exporting ammonium nitrate to Zambia.
(Owing to "shortages," the GOZ does not allow the company
to export.) They estimate the fertilizer cost for
Zambian farmers would run Z$ 100-120,000/ton, versus Z$
170,000 for clandestine exports. And by earning foreign
exchange through exports, Sable would be able to boost
production.


5. (SBU) This textbook case illustrates why price
controls invariably lead to profiteering for the few and
shortages for the many. Fertilizer, of course, is but
one of many leakages through Zimbabwe's robust informal
sector.

Sullivan