Air Zimbabwe lost 30 percent of capacity in two years

The Reserve Bank of Zimbabwe at one time planned to lease Air Zimbabwe planes to raise scarce foreign currency. The plan was to be presented to the Ministry of Finance for vetting.

At the time, the national airline, which had been slated for privatisation, had lost 30 percent of capacity in two years.

Full cable:

Viewing cable 02HARARE2296, Zimbabwe Exporters May Bear Heavier Burden

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This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 HARARE 002296

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

USAID FOR MARJORIE COPSON

¶E. O. 12958: N/A

TAGS: ECON ETRD EFIN ZI

SUBJECT: Zimbabwe Exporters May Bear Heavier Burden

Sensitive but unclassified.

¶1. (U) Summary: Zimbabwe’s Reserve Bank will soon propose

measures that would further punish the country’s

exporters, increasing an indirect revenue tax from 37 to

47 percent. End Summary.

¶2. (SBU) The Embassy has acquired the Reserve Bank’s

Foreign Exchange Task Force report, the GoZ’s latest

attempt to address its foreign currency shortfall. We

understand the working paper will soon move to the

Finance Ministry for vetting. The paper advocates

stricter fiscal and monetary restraint, but its more

specific prescriptions are either counterproductive or

too meek to have an impact.

The indirect export tax

———————–

¶3. (SBU) The plan would raise from 40-to-50 percent the

portion of revenue subject to mandatory conversion at the

official rate. At present, exporters must exchange 40

percent of earnings at this rate, which is just one-

fifteenth of the parallel rate. The exchange requirement

amounts to a crippling 37 percent indirect tax on

revenue, not profit, in addition to Zimbabwe’s more

conventional taxes and royalties. For example, it means

Zimbabwean gold miners earn just US$ 175/ounce versus a

world price of US$ 318. Plagued by this comparative

disadvantage, exporters — the country’s traditional

forex earners — have already cut production to bare

bones. The new plan would raise this exchange rate “tax”

from 37 to 47 percent.

¶4. (SBU) In addition, the plan would:

– increase the exchange rate for imported luxuries from

300-400 percent, raising by one-third the value subject

to import duties. (Many Zimbabweans purchase cars while

in South Africa.)

– offer to sell Zimdollars to expatriate Zimbabweans as

well as Harare’s diplomatic missions at a 320:1 rate.

(The USG has been buying Zimdollars in the U.S. at

860:1.)

– restrict foreigners to fuel purchases at designated gas

stations. (Foreign truckers frequently enter Zimbabwe to

load up on heavily-subsidized fuel.)

– advocate a fuel conservation campaign. (The paper

suggests that “there might be a need to adjust tariffs.”)

– suspend non-essential foreign travel for GoZ and

parastatal officials.

– lease some of Air Zimbabwe’s planes. (The managing

director tells us that the airline, once slated for

privatization, has lost 30 percent of capacity since

2000.)

– reduce Zimbabwe’s foreign missions.

– scale down GoZ shares in several parastatals (without

relinquishing a controlling interest).

Comment

——-

¶5. (SBU) The proposal to raise the exchange requirement

indicates that the GoZ still believes it can print, tax

and expropriate its way to larger revenues. While

several other measures gingerly challenge official

policy, there are no bold recommendations for floating

exchange rates, dollarized accounts, unsubsidized fuel or

genuine privatizations. Saddled with steeper indirect

taxes, exporters will likely produce even less. The GoZ

ends up with a larger slice of a smaller pie and no

appreciable balance-of-payments or forex gains.

¶6. (SBU) This is reason for concern in a country whose

export and manufacturing sectors are crumbling. Since

the late-1990s, tobacco exports — once tops in the world

— may be down from US$ 400 to 105 million by next year;

gold mining falling 29 to just 14 tonnes; manufacturing

off 34 percent. In spite of this tumble, the Reserve

Bank paper suggests that statist solutions still dominate

GoZ thinking, probably dashing hopes that the 2003 budget

will bring relief to producers.

Sullivan

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