Air Zimbabwe allowed to charge fares in forex

With inflation reported to be around 531 billion percent, the national airline Air Zimbabwe was allowed to charge business class fares in forex in October 2008 to raise funds for spares and fuel.

Air Zimbabwe had introduced fares in forex a year earlier but had been forced to reverse the decision yet 90 percent of its operational expenses were in forex.

Full cable:

Viewing cable 08HARARE905, ZIM NOTES 10-03-2008

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VZCZCXRO9386

RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN

DE RUEHSB #0905/01 2801421

ZNR UUUUU ZZH

R 061421Z OCT 08

FM AMEMBASSY HARARE

TO RUEHC/SECSTATE WASHDC 3536

RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE

RUEHUJA/AMEMBASSY ABUJA 2091

RUEHAR/AMEMBASSY ACCRA 2338

RUEHDS/AMEMBASSY ADDIS ABABA 2456

RUEHRL/AMEMBASSY BERLIN 0970

RUEHBY/AMEMBASSY CANBERRA 1734

RUEHDK/AMEMBASSY DAKAR 2089

RUEHKM/AMEMBASSY KAMPALA 2510

RUEHNR/AMEMBASSY NAIROBI 4942

RHEHAAA/NSC WASHDC

RHMFISS/EUCOM POLAD VAIHINGEN GE

RUEHGV/USMISSION GENEVA 1605

RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK

RHEFDIA/DIA WASHDC

RUEAIIA/CIA WASHDC

UNCLAS SECTION 01 OF 03 HARARE 000905

AF/S FOR B. WALCH

ADDIS ABABA FOR USAU

ADDIS ABABA FOR ACSS

NSC FOR SENIOR AFRICA DIRECTOR B. PITTMAN

TREASURY FOR D. PETERS

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 10-03-2008

———–

¶1. SUMMARY

———–

Topics of the week:

– Negotiations Stalled over Ministries…

– Food Situation Bleak…

– Tsvangirai and UNDP Discuss Plans…

– Will State Universities Open?…

– Global Fund Audit Begins…

– Tsvangirai Still Without Passport…

– Former Soccer Star in Barracks…

– Bank Transfers Suspended…

– New Bank Notes Issued…

– Food Inflation – A Trillion Percent…

– Air Zimbabwe Charges Business Fares In Forex…

– RBZ Issues 570 Foreign Exchange Licenses to Shops…

– Exporters’ Forex Retention Rate Increased…

– Timber Company Hit by Labor Shortage…

– Plummeting Production in Cement and Gold Industries…

——————————————— ———-

¶2. Price Movements-Exchange Rate and Selected Products

——————————————— ———-

Parallel rate for cash more than quadrupled to Z$4,500:US$1

Bank transfer rate increased fivefold again to Z$1,200,000:US$1

against inter-bank average of Z$154:US$1

Bread on the parallel market more than doubled to Z$4,000

Sugar shot up ninefold to $9,000/2kg

—————————–

On the Political/Social Front

—————————–

¶3. Negotiations Stalled over Ministries… MDC and ZANU-PF continue

to disagree on the division of ministries, with finance, home

affairs, local government, and foreign affairs still outstanding.

The principal sticking point appears to be home affairs. ZANU-PF is

concerned that MDC leadership of home affairs could result in

investigations and prosecutions of ZANU-PF officials for corruption

and other misdeeds. Mugabe and Tsvangirai met briefly after Mugabe

returned from New York on Monday; the two were unable to overcome

the impasse. The MDC appealed to SADC to become re-involved in

mediation and the new South African government has given former

president Mbeki its support to continue as mediator. See Harare 889,

890, and 895.

¶4. Food Situation Bleak… National assessments show this year’s

maize yield is the lowest on record and the sorghum yield was only

60 percent of last year’s. In addition, there is a critical

shortage of seeds and fertilizer. It is already too late to

procure, ship, and distribute these inputs that are needed by the

end of October for planting with the first rains.

¶5. Tsvangirai and UNDP Discuss Plans… This week, UNDP unveiled a

230-page economic recovery plan to diplomats and World Bank

officials. This came after Tsvangirai shared his priorities with

members of the Multi-Donor Trust Fund on September 26. Separately,

Tsvangirai discussed his 100-day plan, which has not yet gone

public. See Harare 894 and 895.

¶6. Will State Universities Open?… After initially delaying

classes indefinitely, UZ now says classes will start on October 6.

HARARE 00000905 002 OF 003

However, there is no agreement with lecturers on pay, only parts of

the campus have water, and power outages are routine. At the

National University of Science and Technology in Bulawayo the Vice

Chancellor told us they did not have enough money to start classes.

The only universities operating normally are three private schools.

This is just the latest blow to Zimbabwe’s once highly-regarded

education system.

¶7. Global Fund Audit Begins… This week the Global Fund’s Office

of the Inspector General began a three-week audit mission to

evaluate the operations of the Principal Recipients and their

interactions with the Country Coordinating Mechanism, Local Fund

Agent, Fund Manager, and the Sub-Recipients. Approximately $6

million of Global Fund resources have been tied up in the Reserve

Bank of Zimbabwe since November 2007.

¶8. Tsvangirai Still Without Passport… More than three months

after filing an application, Tsvangirai continues to wait for a new

passport. Subsequent to the power-sharing agreement, he applied for

a diplomatic passport. In recent months, he traveled in the region

using two separate emergency travel documents with unusually short

validity. Reportedly, the responsible office claimed it ran out of

materials to produce passports, but senior officials working there

said hundreds of passports have been issued in recent months. In

2004, Olympic swimmer Kirsty Coventry was given a diplomatic

passport after winning three medals in Athens.

¶9. Former Soccer Star in Barracks… Masimba Dinyero, Zimbabwe’s

best footballer at the pinnacle of his soccer career in 1989, was

ordered to police barracks for three weeks. During a casual

discussion with fellow policemen, Dinyero allegedly criticized

President Mugabe for continuing to cling to power while police

officers starve.

———————————-

On the Economic and Business Front

———————————-

¶10. Bank Transfers Suspended… In an apparent belief that

skyrocketing prices are based on the galloping foreign exchange rate

for inter-bank transfers, the RBZ suspended inter-bank transfers

with effect from October 3, 2008. The suspension is likely to

result in a logjam in Zimbabwe’s payment system as cash is also not

readily available.

¶11. New Bank Notes Issued… With mind boggling inflation and

growing public disgruntlement over the inability of the Reserve Bank

to supply the market with enough cash, the Reserve Bank introduced

new Z$10,000 and Z$20,000 bank notes on Monday to match the new

withdrawal limit of Z$20,000 (roughly US$4 at the street rate). The

paper quality and level of security features, especially on the

larger note, are poor as the RBZ scrambles to replace high-quality

secure paper from Germany. Bank lines were in the thousands on

Monday and Tuesday as Zimbabweans waited to withdraw their cash and

police maintained order. Despite some scuffles, most bank lines

were calm and orderly. By week’s end, the lines were returning to

“normal.”

¶12. Food Inflation – A Trillion Percent… As we observe prices

from bus fare to food rising in the course of a single day, one

private sector report put the year-on-year rate of flood inflation

in September at 1.1 trillion percent and the month-on-month rate at

26,385%. A new hyperinflation index developed by Prof. Steve Hanke

of The Johns Hopkins University puts the current rate of inflation

at 531 billion percent. See www.cato.org/zimbabwe

¶13. Air Zimbabwe Charges Business Fares In Forex… In yet another

move toward dollarization, AirZim announced that it would charge

HARARE 00000905 003 OF 003

business class fares in foreign currency to raise funds for spares

and fuel, as 90% of the company’s operational expenses are in

foreign exchange. Air Zimbabwe introduced fares in forex a half

year ago, only to be forced to revert to local currency soon after.

¶14. RBZ Issues 570 Foreign Exchange Licenses to Shops… Removing

the main stumbling block to the opening of foreign exchange shops,

the RBZ is allowing licensees 90 days to pay the US$20,000 license

fee. The first supermarkets in upscale Harare neighborhoods shifted

to mostly forex-priced goods this week.

¶15. Exporters’ Forex Retention Rate Increased… Typical of RBZ

Governor Gono’s policy pendulum swings, he raised to 75% the foreign

exchange that exporters are allowed to retain, effective September

1, after having lowered it to 55% on August 1. The Confederation of

Zimbabwe Industries welcomed the move, stating that it was long

overdue.

¶16. Timber Company Hit by Labor Shortage… An acute shortage of

labor vexed Border Timbers Ltd in the year ending June 30, 2008, as

the Mutare-based company bled labor to illegal gold panning and

diamond digging. Frequent power outages also plagued the company

and illegal settlers continued to set timber plantations on fire to

clear land to grow maize. Exports improved somewhat, but the

overvalued exchange rate will likely erode profitability.

¶17. Plummeting Production in Cement and Gold Industries…

Domestic production of cement fell 26% in the first half of 2008 and

export volume declined 56% at Lafarge Cement due to power cuts and

shortages of spares and key raw materials. Gold production at

Falcon Gold fell 71% in the nine months to end-June 2008.

——————

Quotes of the Week

——————

¶18. MDC Spokesman Nelson Chamisa on the current impasse in talks:

“We want to share power. But Mugabe wants to swallow the MDC. We

will not allow that. He wants all the key ministries – finance, home

affairs, defense, information, foreign affairs, justice and even

women and youth.” The Guardian, Tuesday October 30.

¶19. Robert Mugabe on the talks: “We had to have these talks

because when we went to vote in March, some of you remained in bed

instead of going out to vote. Some of you voted wrongly.” Harare

Tribune, Monday September 29.

DHANANI

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