Air Zimbabwe planes were worth US$260 million

Shedding more public assets in garage-sale fashion was probably the only way for Zimbabwe to stave off unbearable shortages, the United States embassy said more than a decade ago.

With the government reportedly having exchanged assets for Libyan oil, the sale of Air Zimbabwe’s five planes remained a potential source of revenue.

The embassy said an executive from a US ground support equipment supplier believed that equity in Air Zimbabwe’s five planes- two Boeing 767s and three Boeing 737s- was US$260 million on the open market.

Although Air Zimbabwe almost collapsed last year and stopped operations for more than a year, it has not sold any aircraft.

A bid to sell one of its profitable subsidiaries, National Handling Services, was stopped by the workers.

Full cable:

Viewing cable 02HARARE2820, Keeping the Lights On in Zimbabwe

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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 002820

SIPDIS

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

DEPARTMENT PASS USAID FOR MARJORIE COPSON

¶E. O. 12958: N/A

TAGS: ECON EPET EFIN ETRD ZI

SUBJECT: Keeping the Lights On in Zimbabwe

¶1. Summary:   The GoZ will need to spend over twice its revenue

to meet appropriation goals in 2003, according to our

calculations. It will react to this bleak predicament by

printing money, enduring shortages and relinquishing national

assets. End Summary.

¶2. In spite of its veneer of transparency, the GoZ does not

disclose foreign exchange transactions. This is quite an

omission, since they now comprise most GoZ spending. We

integrated domestic and foreign accounts into the following

matrix for 2003, converting the domestic transactions into U.S.

dollars at the present parallel rate of Z$ 1580:1:

EXPENDITURES

a. Critical :

Food Imports             $ 140,000,000

Fuel Imports             $ 330,000,000

Energy Imports           $ 110,000,000

Civil Service Salaries   $ 169,000,000

Critical Infrastructure $   26,000,000

Total Critical Expenditures   $ 775,000,000

b. Ordinary:

Other External Payments $ 426,000,000

Budgeted Expenditures   $ 293,000,000

Total Ordinary Expenditures   $ 719,000,000

Total Expenditures           $1,494,000,000

REVENUE

Foreign Exchange Inflows     $ 350,000,000

Tax Revenues                 $ 342,000,000

Privatizations               $   13,000,000

Total Revenue                 $ 705,000,000

SHORTFALL                     $ (789,000,000)

¶3. A few notes on our methodology:

a.) We accepted GoZ estimates for domestic expenditure and

revenue at face value, although past years have shown that

overruns are common.

b) For foreign accounts, we relied on industry estimates as well

as an internal Reserve Bank working paper of Oct 4.

c) Due to the high political cost of reductions, we counted civil

service salaries and benefits as a critical expenditure.

d) Critical infrastructure includes what it costs to keep air

traffic, police, power stations, etc., in operation.

e) Forex inflows mostly reflect GoZ expectations from a 40

percent withholding of export earnings, which is subsequently

exchanged at the official rate (3 percent of market value).

After increasing the withholding to 50-100 percent in the 2003

budget, the Government now forecasts that revenue will grow while

most economists believe it will move in the other direction. We

left earlier projections unchanged.

f) “Critical” levels of fuel and energy cited above probably

reflect over-consumption at controlled or subsidized prices.

Fuel is often purchased at Zimbabwe service stations solely for

resale abroad.   If the GoZ allows these subsidized prices to

rise toward market-determined levels, demand will fall.

Comment

———–

¶4. This is a very grim picture. Still, the many variables make

it extremely difficult to develop a model that demonstrates what

Zimbabwe must spend each day or month to forestall economic

meltdown. The GoZ will have to make a number of unpleasant

decisions during 2003.

¶5. We do not see any way the GoZ could begin again to service

external debt next year, in spite of Finance Minister Murerwa’s

budget statements that Zimbabwe “cannot continue to default on

[its] external debt commitments . . . [and the Government is]

determined to initiate a

credible program to reduce these arrears.”   We expect the GoZ to

expand money supply aggressively and spend substantially less on

food, fuel and energy imports that it would like. Although

shedding more public assets in garage-sale fashion would be a

blow to national pride, perhaps even more so than an orderly

privatization with foreign bidders, the GoZ may decide that this

is the only way to stave off unbearable shortages. The GoZ has

already reportedly exchanged assets with Libya for oil, and the

internal Reserve Bank document suggests the GoZ may need to lease

or sell Air Zimbabwe’s planes as a potential source of revenue.

(An executive from a U.S. ground support equipment supplier

believes equity in Air Zimbabwe’s 2 767s and 3 737s would be

worth US$ 260 million in the open market.)   Perhaps the GoZ’s

only consolation may be that even subsidized energy consumption

should fall in an economy that is deindustrializing.

Sullivan

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