Cheaper to fly than travel by bus

Air Zimbabwe was allowed to hike its fares by an average of 330 percent at the beginning of 2008, barely two months after the last increase, but domestic fares were reported to be 800 percent below cost, making it cheaper to fly than travel by bus.

A round trip economy class ticket to Beijing, for example, went from Z$1.1 billion (about US$200 at the parallel market) to Z$4.5 billion (about US$750).

Air Zimbabwe said it be had become cheaper to fly business class locally than to travel by bus with tax payers meeting the difference through subsidies.

The new fares were still about 50 percent below those of other regional airlines.

Full cable:

Viewing cable 08HARARE78, Zim Notes November 16, 2007

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E.O.12958: N/A

TAGS: PGOV PREL ASEC PHUM ECON ZI

SUBJECT: Zim Notes November 16, 2007

¶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. Parallel rate for cash nearly doubled to ZW$6.3 million:US$1;

the bank transfer rate fell to Z$6million vs. official exchange rate

of: ZW$$30,000:US$1

Sugar on the parallel market rose to Z$5 million/2kg vs. controlled

price of Z$247,000/2kg

Cooking oil rose to Z$9.5 million/750ml vs. controlled price of

Z$440,000/750ml

Petrol and diesel more than doubled to Z$10 million and Z$9

million/liter respectively vs. Z$60,000/liter at controlled price

—————————–

On the Political/Social Front

—————————–

¶3. Police Respond with Violence to “Freedom March”. . . Police used

tear gas and violence to disrupt the MDC Tsvangirai factions’

“Freedom March” in Harare on January 23. On the morning of the

event, at about 4:00 am, police dragged MDC leader Morgan Tsvangirai

from his home and interrogated him at police headquarters for

several hours about plans for the march. The MDC reported 14

marchers, including MDC national organizing secretary Elias Muduzi

were arrested and released later that evening after paying a fine;

more than 15 supporters were treated for injuries. Several

political observers noted that the government’s harsh response to

the march was indicative of Mugabe’s true intentions in regard to

the SADC talks and the chances for free and fair elections.

The MDC had called for the march and rally to press the government

for food and jobs, free and fair elections, and a new constitution.

Police initially gave permission on January 18, but later rescinded

the approval on January 21 based on unspecified “intelligence” that

the opposition had other “sinister motives.” The MDC challenged the

decision in court, and less than an hour before the planned start

time on January 23, a magistrate ruled that the MDC could hold the

rally, but upheld the denial to march citing public security

concerns. In defiance of the ban, about 200 opposition supporters

set out from MDC headquarters in the city center for the rally

location as hundreds more quickly joined in. Police descended on

the group within a few blocks with tear gas and batons. There w ere

running clashes between marchers and police over a six block area

for about 30 minutes. An estimated 1,000 supporters eventually

gathered in a field near the rally location where they sang songs,

danced, and listened to a speech from Tsvangirai. A large

contingent of riot police observed the event from a distance. The

group peacefully dispersed after about an hour. See Harare 0067 for

details.

¶4. Elections On Track For The End Of March. . . President Mugabe

is expected to set a date for nominations soon. Elections must be

scheduled between 21 and 45 days of that date; we assume they will

take place on March 28 or March 29. We understand that Simba

Makoni, speculated about as a possible rival to Mugabe, has told

Mugabe he will not oppose him. SADC negotiations have apparently

broken down after Mugabe rebuffed MDC demands that a new

constitution be implemented before elections and that elections be

postponed. The MDC is considering whether or not to boycott

elections, given what it sees as an unlevel playing field, but we

expect they will decide to contest. See Harare 70 and 71 for more

details.

¶5. Parliament Adjourns As Election Countdown Begins. . .

Parliament adjourned this week until April 8. President Mugabe will

now need to issue proclamations dissolving parliament, enacting the

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final constituency and ward boundaries and setting dates for

nominations and polling. Before adjourning, both the House of

Assembly and Senate passed the National Incomes and Prices Amendment

Bill, which extends the life of the National Incomes and Prices

Commission; the Bill now awaits presidential assent. The

parliamentary Legal Committee gave the Mines and Minerals Amendment

Bill the green light, but it did not go through both houses before

the adjournment. The Bill includes provisions to pass majority

ownership of mines to indigenous Zimbabweans. If President Mugabe

dissolves parliament for elections in March, the Bill will lapse and

need to be re-introduced and gazetted under a newly elected

parliament.

¶6. Supreme Court Rules On Land Seizure Case. . . The Zimbabwe

Supreme Court ruled this week against Michael Campbell, a white

farmer who was contesting the seizure of his farm. Campbell had

also appealed to the SADC Tribunal in Windhoek which issued an

interim order on December 13 enjoining the Zimbabwean government

from interference with his land until a ruling (still pending) by

the Tribunal on the merits of the case. At the time of the Tribunal

hearing, the Government of Zimbabwe pledged to abide by the

Tribunal’s ultimate decision. Nevertheless, after the ruling by the

Supreme Court, Didymus Mutasa, Minister of Lands, Land Reform, and

Resettlement, said he would allow eviction of Campbell from his

farm.

¶7. Ambassador Visits Bulawayo. . . On his first trip to Bulawayo

(Zimbabwe’s second largest city) from January 17-19, Ambassador

McGee met city leaders and heard about the worsening crisis in

delivery of essential services, especially clean water. He also met

with leading opposition political figures and civil society leaders

to gauge attitudes toward upcoming elections. A media roundtable

allowed him to articulate U.S. policy toward Zimbabwe and U.S.

principles for reengagement. In addition, he visited USAID

humanitarian assistance projects and a Self-Help funded project for

orphans and vulnerable children. He attended a reception for alumni

of the International Visitor and Fulbright Programs and a Public

Affairs Section-sponsored concert at a local high school, in

addition to meeting U.S. citizens living in the area. See Harare

0045 on the political pulse in Bulawayo

¶8. Flooding Continues. . . The UN and the GOZ’s Civil Protection

Unit (CPU) report that 10,000 people have been affected by flooding

since mid-December. The CPU issued a flood alert for Muzarabani and

Dande communal lands in Mashonaland Central province in the

expectation of new flooding from the Zambezi River Valley caused by

the backflow of water from the Cahora Bassa dam. Flooding has

destroyed crops, with losses in Muzarabani estimated at 3000

hectares each for cotton, maize, and sorghum. Water-borne diseases

are spiking, but appear controllable. In anticipation of further

heavy rains and flooding, four stand-by rapid assessment teams have

been formed, each comprised of technical experts from government

local authorities, UN agencies and NGOs. A regional flash appeal is

being prepared for the floods. See Harare 0041.

¶9. Bulawayo Gets Water But Can’t Treat It . . . The good news is

that heavy rainfall has filled Bulawayo’s nearly dry reservoirs to

almost 75 percent capacity. The bad news is that the Bulawayo City

Council has a critical shortage of chemicals with which to treat

that water, with only two days’ worth of aluminum sulphate

remaining. Stakeholders from government, local authorities, UN

agencies, NGOs, and the private sector will meet next week to

discuss the situation. Before the UNICEF-coordinated humanitarian

response can phase out, attention must focus on the provision of

water treatment chemicals and information education campaigns

regarding the safe use of untreated water at a household level.

¶10. USAID Begins DG Sector Assessment . . . A team led by

Professor Michael Bratton of Michigan State University began work on

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a democracy and governance (DB) sector assessment in Harare this

week. The team, including a DG specialist from USAID Washington and

political scientists from the University of Zimbabwe, will pursue

three principal areas of inquiry: 1) analysis of the current

political, economic and social issues that characterize the country,

leading to the identification of key problems relating to the

transition to democracy; 2) analysis of important political actors –

their interests, resources, and actions-leading to identification of

both allies and opponents of democratic reform; and 3) analysis of

the institutional arenas that are important to further understanding

the key democracy and governance problems and the relevant actors.

Taken together, these analytical steps will permit the development

of a democracy and governance strategy for the U.S. Mission to

address the problems identified in step one by working with the

actors and institutions identified in steps two and three.

¶11. Cross-Border Trading Essential For Survival. . . About 96,300

MT of maize, rice, and beans were traded across Zimbabwe’s borders,

a 10% increase in the April-November 2007 period compared to the

same period last year, according to a report on Southern Africa’s

food trading patterns by the Famine Early Warning System Network.

Maize accounted for 83% of this regional trade. Zimbabwe continued

importing maize this year (304,000MT) to offset poor domestic

production, and 99% of imports came from Malawi. There was very

little informal bean trade to Zimbabwe, with no changes in the

volume traded (6,733MT) in the whole region in this period compared

to the same period last season. However, data on informally traded

rice indicate that Zimbabwe was the largest importer in the period

April-November 2007, accounting for 35% of traded rice or 3,048 MT,

of which 81% was imported from Zambia.

——————————————— —-

On the Economic and Business front

——————————————— —-

¶12. New Twist to Cash Shortage. . . Finance Minister Mumbengegwi

and Reserve Bank Governor Gono ordered bank chief executives to

clear up queues at banks within a week or face unspecified action

from the authorities. This followed the RBZ’s assertion that it was

stuck with stacks of cash that commercial banks were not collecting,

resulting in the prevailing cash shortage. According to the

authorities, banks are diverting depositors’ funds into speculative

activities on the stock market and foreign currency parallel market.

Threatening to close some banks, Mumbengegwei stated that he would

not devalue the Zimbabwe dollar until speculative activities stop

and production increases. However, he did not specify how this will

be achieved with the value of the currency held constant at its

present grossly overvalued official exchange rate.

Governor Gono took the unprecedented step of conducting journalists,

bankers and the business community on a tour of the vaults to show

that cash was available. However, what he failed to tell them was

that, for banks to collect the cash from the RBZ, they need to cover

the amount with security in the form of treasury bills. Under the

current circumstances in which deposits are drying up for lack of

confidence in the banking system, the market has been characterized

by huge daily shortages averaging around Z$120 trillion over the

past two days. Banks have had to borrow from the RBZ at very high

rates to meet cash withdrawals by the public, putting some banks at

risk of failure in the medium term. See Harare 0044 for more on the

cash shortage.

¶13. *The Zimbabwe Dollar Takes A Battering . . . In the past week

the Zim dollar depreciated by nearly 50% on the parallel cash

market; the bank transfer rate also fell by about 20% but then

bounced back to Z$6 million:US$1. The depreciation early in the

week on both markets reflected the upturn in demand for forex

following the re-opening of businesses after the Christmas break

(see Harare 0044). However, Reserve Bank Governor Gono’s statement

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on January 23 that the RBZ had installed an electronic system to

monitor currency movements in both local and offshore accounts also

frightened people out of the transfer market, resulting in the

appreciation of the transfer rate to well below the cash rate. We

learned from a senior RBZ official that the monitoring system is not

new; it has been in operation in Zimbabwe for some time now to

monitor large transfers. As this information filters into the

market, we expect the transfer rate to depreciate to above the cash

rate once again.

¶14. Regional Power Blackout Underlines Zimbabwe’s Power Woes. . .

Power blackouts across the region this week have underlined the

precarious state of Zimbabwe’s regional and domestic power supply.

South Africa no longer exports power to Zimbabwe, according to the

Zimbabwe Electric Supply Authority (ZESA); supply from the DRC is

erratic; HCB in Mozambique is holding Zimbabwe on a tight leash, and

Zimbabwe must meet its new power export obligation to Namibia.

Domestically the Hwange thermal plant continues to struggle with

coal supply and the national grid is increasingly subject to

vandalism. The short- and medium-term outlook for meeting

Zimbabwe’s power needs, even in the face of a sharply contracting

economy, is gloomy. See Harare 0073 for details.

¶15. Air Zimbabwe Raises Fares Again… Hardly two months after

more than doubling its fares, Air Zimbabwe raised them again by an

average of 300% with effect from January 23. A round trip economy

class ticket to Beijing, for example, went from Z$1,145,400,000

(about US$200 at the parallel market) to Z$4,515,400,000 (about

US$750). With domestic airfares 800 percent below cost, it had

become cheaper to fly business class than travel by bus, according

to Air Zimbabwe’s CEO, with tax payers meeting the difference

through subsidies. As a result, the parastatal was operating at an

unsustainable loss. The new fares are still about 50% below those

of other regional airlines. We predict another increase just around

the corner.

¶16. Hunyani Holdings Ltd Hurting. . . Symptomatic of the state of

industry, paper and packaging giant Hunyani Holdings Ltd released a

set of disappointing results for the year ended October 31, 2007.

Its turnover (up 15,455%) failed to keep pace with the rate of

inflation. Analysts attributed the poor performance to Zimbabwe’s

fixed and overvalued foreign exchange rate, regulated prices, and

hyperinflation. Moreover, the deteriorating macroeconomic

environment weakened domestic demand for corrugated products while a

lower tobacco crop in Malawi added to the negative effect of the

overvalued Zimbabwe dollar on exports. The flexible division did

not do well either, due to the shortage of foreign exchange for

inputs and boiler problems at the mill which reduced timber

throughout. Output declined by 18% during the year under review and

the company did not declare a dividend.

¶17. Ambassador Begins Outreach to Business Community… Ambassador

McGee challenged the business community to be more energetic in

bringing about peaceful change in Zimbabwe in a speech to the

American Business Association of Zimbabwe (ABAZ) on January 17. See

Harare 0047 for details.

¶18. Embassy Stretched Thin In Service Delivery… The free-fall in

Harare’s public service delivery is severely taxing the embassy’s

ICASS budgets and staffing, which State Department workload data

show to be the leanest in Africa despite Harare’s unprecedented rate

of peacetime collapse. This week’s prolonged power outage left

Public Affairs’ shared high-rise offices without water or

electricity, requiring emergency set-up of temporary PAS offices on

our cramped chancery compound. All other embassy facilities have

stand-alone generators, many of which run 24/7. Most of the

embassy’s water is now supplied from wells on our properties,

although many of the wells have gone dry as more Harare residents

tap into the water table at an estimated rate of 100 new wells per

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week. Our fuel and water trucks are now in operation seven days a

week, 12 hours a day.

(22 VIEWS)