Zim Notes February 1, 2008

UNCLAS HARARE 000092 SIPDIS SIPDIS C O R R E C T E D COPY TEXT PARA 14 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 E.O. 12958: N/A TAGS: PGOV PREL ASEC PHUM ECON ZI SUBJECT: Zim Notes February 1, 2008 ¶1. The Embassy Harare Political/Economic Section began producing Zim Notes in July, 2007 to present a perspective on current events in Zimbabwe. Suggestions are always welcome. If you would like to receive Zim Notes by email, as well, please contact Frances Chisholm at chisholmfm@state.gov. Distribution is restricted to U.S. government employees. ¶2. Price Movements-Exchange Rate and Selected products: Parallel rate for cash: ZW$6.2 million:US$1; Bank transfer rate: Z$7million; Official rate: ZW$$30,000:US$1 Sugar steady at Z$5 million/2kg vs. controlled price of Z$247,000/2kg Cooking oil rose to Z$13 million/750ml vs. controlled price of Z$440,000/750ml Petrol and diesel steady at Z$10 and Z$9 million/liter respectively vs. Z$60,000/liter at controlled price -------------- On the Political/Social Front -------------- ¶3. Elections Set For March 29 As Parliament Dissolves... President Mugabe declared March 29 as the election date in a Presidential Proclamation issued on January 24. Mugabe, who had ignored calls by the opposition and c)[)\AQgKFQMarch. Mugabe's unilateral declaration comes as a slap in the face to President Mbeki's mediation effort to resolve the political impasse between the ruling party and opposition. ¶4. Public Universities Closed Until After Elections... In a move to impede the organizing capabilities of the politically active student movement heading into elections, the government has ordered public universities throughout the country, including University of Zimbabwe, Midlands State University and National University of Science and Technology, not to reopen until after elections scheduled for March 29. The Universities were set to start the new term in early February. ¶5. U.S. Treasury Hits Two More Regime Insiders With Sanctions... Treasury's Office of Foreign Assets Control (OFAC) announced on January 30 that ZANU-PF MP Leo Mugabe, the nephew of President Mugabe, and Central Intelligence Organization (CIO) Director Happyton Bonyongwe were added to the financial sanctions list for their roles in "aiding Mugabe's efforts to cripple Zimbabwe, including through violence and intimidation." OFAC also added ZIDCO Holdings, a ZANU-PF financial holding company, as well as ZANU-PF's publishing arm, Jongwe Printing and Publishing Company, aka Printflo. The action means that any bank accounts or other financial assets found in the U.S. belonging to these individuals or entities may be seized. In addition, U.S. citizens are forbidden from doing business with them. ¶6. Removal Of The Post Of Executive Mayor Signed Into Law... President Mugabe has signed into law the Local Government Laws Amendment Act which effectively eliminates the post of Executive Mayor. Since the post was created in 1995 the MDC has won the mayoral seats in most urban areas. Many of these mayors have found it difficult to operate effectively due to interference from the central government. The new law is a move to reduce MDC influence in urban areas while at the same time creating greater ZANU-PF presence. ¶7. Simon Mann Loses Appeal Against Extradition Order... Zimbabwean High Court Judge Justice Rita Makarau dismissed an appeal by Briton Simon Mann to stop his extradition to Equatorial Guinea to face charges of plotting a coup. Mann, who denies the charges, argued that he would face severe torture and not be afforded a fair trial in Equatorial Guinea. Mann, who has finished serving his full sentence after he was convicted in 2004 for breaching Zimbabwe's immigration and firearms laws, will now lodge an appeal against this ruling to the Supreme Court. ¶8. Can You Hear Me Now?... Widespread power outages temporarily shut down GOZ-owned NetOne and privately-owned Econet mobile providers last week. Both company's cellular towers have backup generators or batteries to cover short-term brownouts, but the duration and frequency of rolling power blackouts have been exceeding their battery and diesel storage capacity. Landline service by GOZ-owned TelOne also frequently collapses when power cuts shut down entire exchanges. This week Harare's Highlands exchange ran out of fuel after running on generator for five days, disrupting fixed-line service to thousands of residences and businesses. Embassy staff is not immune to the trouble; 25 to 30 percent of Embassy personnel haven't had reliable residential phone service for weeks or months. ¶9. Information Blackout Threatens As Elections Approach... Access to information in the run-up to the election is likely to be severely hampered by a worsening shortage of newsprint owing to production challenges at Mutare Board and Paper Mill. The newsprint monopolist has not been producing to full capacity since a fire in June 2007. Recent power outages and forex shortages add to the woes. This week newspapers reduced their print run and copy size in reaction; the Financial Gazette, for example, received only one third of its required newsprint. Publishers of the opposition Zimbabwe Independent and The Standard told PAS that they had enough newsprint in stock to last until late February and they have begun approaching donors for assistance. The independent press fears that government intervention may be geared towards ensuring that only government-controlled media remain operational. -------------- Economic and Business News -------------- ¶10. Gono Presents Monetary Policy Statement... Highlights of RBZ Governor Gono's MPS of January 31 were: a 10 percentage point reduction in statutory reserves; the effective devaluation to Z$525,000:US$ from Z$270,000 on the retained 32.5% portion of exporters' proceeds (the official exchange rate remains unchanged); an increase in the RBZ's overnight accommodation rate to 1,200% and 1,600% for secured and unsecured lending; and a tenfold increase in the gold support price. Gono said that year-on-year inflation stood at 26,470% in November; broad money supply (M3) was growing at 24,463% in October compared with 1,638% in January, 2007; and he recommended that the National Income and Pricing Commission (NIPC) confine its operations to the three controlled and 16 monitored products, and not concern itself with tourism products, air travel, entertainment, beer and other product prices. He said NIPC should exercise "extreme caution" to ensure price control does not "degenerate into yet another unintended catastrophic blitz exercise." ¶11. Looming Bank Liquidity Crisis... Zimbabwe's banking sector is facing a liquidity crisis that has arisen out of a patchwork of misguided monetary policies and their disastrous consequences: onerous statutory reserve requirements, punitive overnight accommodation rates, hyperinflation, rapid informalization of the economy and the accompanying erosion of banks' deposit base and customer confidence, and, most recently, a breakdown in the bank transfer system that has ground real-time transfers to a crawl. In addition, the RBZ's deeply concessionary facilities have dried up banks' commercial lending lines and driven some of them into non-traditional and illegal activities that have begun to catch up with them. For details, see Harare 0091. ¶12. Bubble Bursts On Zimbabwe Stock Exchange... After a year of spectacular performance in real terms, the ZSE bubble has burst under heavy selling by profit takers. Most counters have suffered heavy losses. In addition to profit taking of the past three weeks, the cash shortage as well as breakdown of the bank transfer system has meant that most buying and selling orders through brokers could not be executed. In addition, as noted above, some errant banks that had taken positions on the ZSE with the aim of boosting returns found themselves in liquidity trouble and had to sell under pressure from the RBZ. These factors, together with the rise in short-term money market interest rates, have resulted in a significant decline in trading. The industrial and mining indices fell by 25.1% and 8.5% respectively from January 4-25. ¶13. Civil Servants Get Another Raise, Some Teachers Continue Strike... In what will be the second increase in less than a month, the GOZ has agreed to raise civil servant salaries by 120%. (They got a 1,000% increase in January.) Although the agreement is not yet public, the lowest paid teacher reportedly will now earn a total package of ZW$550 million (about US$88) up from ZW$250 million (about US$40). The new salary is less than one-third of the ZW$1.7 billion that the Progressive Teachers' Union of Zimbabwe has demanded. A PTUZ rep told us that a stay-away called on January 24 has been hampered by a circular from the "governmen4w jYQQQ(As Expected)... Government promises of a record crop yield this summer will not be met, Agriculture Minister Rugare Gumbo admitted on January 25. In October, the GOZ had declared "the mother of all agricultural seasons" that would reverse the record of poor food production, break the economic crisis, and restore economic prosperity. "The season has not been as spectacular as we had expected," Gumbo admitted last week. He conceded for the first time that the GOZ had failed to supply enough fertilizer to farmers, but he also blamed heavy rains. He urged farmers to use traditional fertilizers - cattle dung and the soil of anthills - in place of imported fertilizer. ¶15. Government To Go After Economic Saboteurs... Industry and International Trade Minister Obert Mpofu said last week that the Zimbabwe Development Corporation (ZDC) will be used to seize control of private businesses engaging in "economic sabotage." Mpofu tasked the newly appointed ZDC board to select "a few entities, which will need to be (taken over and) resuscitated on a sustainable basis." Mpofu said that a number of companies which were currently under parastatals, would fall under ZDC. Olivine Industries, until recently majority-owned by HJ Heinz, would immediately fall under ZDC from the Industrial Development Corporation (IDC). ZDC will also within the next 40 days open People's Shops countrywide after cabinet last week approved the concept. The People's Shops will provide basic commodities aimed at very low-income earners and disadvantaged groups. MCGEE