GOZ hikes fuel price again

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