ZIM NOTES 7-18-2008

UNCLAS SECTION 01 OF 03 HARARE 000623 AF/S FOR S.HILL ADDIS ABABA FOR USAU ADDIS ABABA FOR ACSS NSC FOR SENIOR AFRICA DIRECTOR B.PITTMAN TREASURY FOR J.RALYEA AND T.RAND STATE PASS TO USAID FOR L.DOBBINS AND E.LOKEN COMMERCE FOR BECKY ERKUL SIPDIS E.O.12958: N/A TAGS: PGOV PREL ASEC PHUM ECON ZI SUBJECT: ZIM NOTES 7-18-2008 -------------- ¶1. SUMMARY -------------- Topics of the Week: - MOU on Hold - UN Briefs Donors on Re-Opening NGO Operations, Return of IDPs - Zim Delegation Walks out of SADC Tribunal Hearing - EU to Widen Sanctions - South Africa Continues Deporting Zimbabweans - ZBC Bans Politically Incorrect Programs - The Zimbabwean Crippled under New Tax - Mugabe Launches Commodities Supply Program - RBZ Concedes Inflation in the Millions - Hyperinflation Raises Demand for Cash; Shortages Expected - Air Zim Fares Swing from Cheap to Exorbitant - Penury and the Police - China Cleared to Purchase Zimbabwe Ivory - Corrigendum -------------- -------------- ¶2. Price Movements-Exchange Rate and Selected Products -------------- -------------- Parallel rate for cash doubled to Z$90billion:US$1 against inter-bank average of Z$28 billion:US$1. Bank transfer rate more than trebled to Z$450 billion:US$1; official rate: Z$$30,000:US$1. Bread on the parallel market more than doubled to Z$120 billion vs. controlled price of Z$400 million. Sugar rose to Z$300 billion/2kg vs. controlled price of Z$8 million/2kg. Cooking oil inched up to Z$100 billion/750ml vs. controlled price of Z$9.3 million/750ml. Petrol and diesel more than doubled to Z$120 billion/liter vs. controlled price of Z$60,000/liter. -------------- On the Political/Social Front -------------- ¶3. MOU on Hold - ZANU-PF, the MDC, and South African mediators drafted an MOU last week that establishes a framework for negotiations between ZANU-PF and the two MDC factions. A July 16 signing had been planned, but MDC president Morgan Tsvangirai indicated he would not sign unless an AU mediator was present with South African president Thabo Mbeki in the negotiations. AU commission chairperson Jean Ping was due in South Africa today to discuss the negotiations with Mbeki and a possible role for the AU. Once the MOU is signed, negotiations are contemplated by the MOU to last two weeks. With ZANU-PF insisting it lead a government of national unity, and the MDC insisting on a transitional government led by Tsvangirai, there is scant room for optimism. See Harare 621, 607, 605. ¶4. UN Briefs Donors on Re-Opening NGO Operations, Return of IDPs - The UN briefed donors this week on its strategy to persuade the GOZ to lift the blanket suspension on NGO operations and resume humanitarian assistance. On the internally displaced persons crisis, government officials have impeded teams sent to assess whether areas of IDP origin were propitious for return. Nevertheless, the UN expected it could facilitate return for most of HARARE 00000623 002 OF 003 the IDPs. Looking ahead, protecting humanitarian interventions from political manipulation could grow increasingly difficult. See Harare 615. ¶5. Zim Delegation Walks out of SADC Tribunal Hearing - On July 17, the Zimbabwe delegation walked out of the politically charged SADC Tribunal in Windhoek after failing to prevent the Tribunal from agreeing to hear the white farmer's contempt charge against the GOZ. The charge is based on the GOZ's failure to comply with an Interim Relief Order issued by the Tribunal in December 2007 prohibiting the GOZ from evicting any farmers involved until the Tribunal ruled on the merits of the case. Since the June election, violence by ruling party thugs against farmers involved in the case has increased. The Tribunal has adjourned to consider its judgment. ¶6. EU to Widen Sanctions - European Union countries are expected to agree on July 22 to widen sanctions on Zimbabwe, including more travel bans, measures against companies propping up the regime, and asset freezes on persons involved in election violence. ¶7. South Africa Continues Deporting Zimbabweans - On July 11, the UN High Commission for Refugees implored the South African government to halt the deportations of Zimbabweans, many of whom would seek asylum if they could reach the asylum office in Pretoria. In the 40 days prior, South Africa had deported some 17,000 Zimbabweans. Since 2000, South Africa has only granted asylum to 710 Zimbabweans, while rejecting over 4,000; 62,000 cases are pending. ¶8. ZBC Bans Politically Incorrect Programs - Independent film producers got a slap in the face on July 15, when Zimbabwe Broadcasting Holdings Acting CEO Happison Muchechetere told them the state broadcaster will not accept politically incorrect programs. In a meeting with the producers, Muchechetere also said ZBC would shun advertisers who were seeking a political agenda. ZBC violated SADC Principles and Norms on Democratic Elections by failing to provide news and current affairs coverage of the opposition MDC in the run up to the June presidential election, an omission noted by the election observers. ¶9. The Zimbabwean Crippled under New Tax - The 40 percent "luxury tax" on foreign newspapers imposed by the GOZ last month is crippling the UK-based and strongly pro-opposition The Zimbabwean newspaper. Editor and Publisher Wilf Mbanga said taxes now amount to 70 percent of the total cost of the newspaper. Mbanga said the newspaper is paying the GOZ Sterling 37,000 (about US$75,000) every week in taxes. -------------- On the Economic and Business Front -------------- ¶10. Mugabe Launches Commodities Supply Program - President Mugabe formally launched the Basic Commodities Supply Enhancement Program on July 15 with an assortment of locally produced and imported goods for distribution at a subsidized price. The Herald reported that the imports were financed with the help of Russian/Ukrainian investors and a Namibian company. National Foods provided trucks and warehouses for the goods. Having apparently learnt nothing from the disastrous effects of last year's price controls, Mugabe promised no more price increases and threatened offenders with imprisonment. In a rare admission of the unsustainability of the importation program, RBZ Governor Gono, who bankrolled the initiative, stated that local producers will be financed to produce goods. Since Gono is likely to create the money for the exercise, there is no end in sight to hyperinflation in Zimbabwe. ¶11. RBZ Concedes Inflation in the Millions - RBZ Governor Gono HARARE 00000623 003 OF 003 revealed this week that the annual rate of inflation, already the highest in the world, hit 2.2 million percent in June. The GOZ had not announced any inflation figures since putting the rate at around 165,000 percent for February. The GOZ's flawed methodology uses the controlled prices of goods, but because the goods cannot be found at those prices, the rate sharply lags private sector estimates that take actual transaction prices into account. ¶12. Hyperinflation Raises Demand for Cash; Shortages Expected - Hyperinflation has rendered the use of debit cards and checks almost irrelevant as point of sale systems can't cope with trillions and merchants are charging commissions of up to 50 percent on checks that take time to clear. Barter trade is increasing and cash-rich businesses have begun to offer notes at a 10-20 percent premium. The Z$100 billion (just over a US$1) daily bank withdrawal limit is artificially drying up the cash supply--our bank contacts tell us that the RBZ is still meeting all their daily cash requirements. Nevertheless, retailers are anticipating a cash shortage also due to the disruption in supply of bank note paper to Zimbabwe. One supermarket chain told us their revenue ratio of cash to checks and debit cards had shifted recently from 65/35 to 20/80. To cope, some retailers are unveiling in-store debit cards to ease transactions and get faster access to funds. ¶13. Air Zim Fares Swing from Cheap to Exorbitant - Usually lagging inflation for weeks if not months in its airfares, Air Zimbabwe caught up last week, and with a vengeance. The round trip airfare to London shot from Z$21 trillion on July 13 (about US$420 at the time) to Z$150 trillion the next day (US$2,500 on July 14, but US$1,600 today),all fees included. In comparison, South African Airways cheapest return fare on the same route is about US$1,400. Air Zimbabwe introduced international fares payable only in foreign currency a few months ago, but reversed the policy within two weeks under accusations that it violated exchange control laws. ¶14. Penury and the Police - A police Assistant Inspector and Embassy contact told us that his take home salary in June was Z$180 billion. That's worth US$2 today and was about US$35 in mid June on the parallel market. ¶15. China Cleared to Purchase Zimbabwe Ivory - A meeting of the Convention for International Trade in Endangered Species (CITES) agreed that China could bid for up to 108 tons of ivory collected from culls and natural deaths and offered for sale by Botswana, Namibia, South Africa and Zimbabwe. CITES judged that China had put sufficient measures in place to regulate sales and crack down on the illegal domestic trade. ¶16. Corrigendum - Contrary to our Zim Note of last week that ZANU-PF's campaign of violence had reportedly resulted in the deaths of two MDC parliamentarians-elect, no MPs-elect have been confirmed murdered. DHANANI