Controlled looting hit Air Zimbabwe

The task force on price controls ordered Air Zimbabwe, already dubbed Air Quasi-fiscal by one commentator because of its heavy reliance on central bank subsidies, to slash its fares when the government cracked down on prices in 2007 in what became known as “controlled looting”.

Air Zimbabwe consumed 40 percent of the government’s off-budget subsidies to parastatals.

It slashed its round trip economy class airfare to Beijing from Z$195 million to Z$61 million.

Full cable:

Viewing cable 07HARARE605, GOZ IN DOOMED BID TO END HYPERINFLATION BY FIAT

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VZCZCXRO7606

RR RUEHMR RUEHRN

DE RUEHSB #0605/01 1910553

ZNY CCCCC ZZH

R 100553Z JUL 07

FM AMEMBASSY HARARE

TO RUEHC/SECSTATE WASHDC 1673

INFO RUCNSAD/SADCC COLLECTIVE

RUEHUJA/AMEMBASSY ABUJA 1642

RUEHAR/AMEMBASSY ACCRA 1510

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RUEHBS/USEU BRUSSELS

RHMFISS/JOINT STAFF WASHDC

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RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK

RHEFDIA/DIA WASHDC

RHEHAAA/NSC WASHDC

RUCNDT/USMISSION USUN NEW YORK 1863

C O N F I D E N T I A L SECTION 01 OF 03 HARARE 000605

SIPDIS

SIPDIS

AF/S FOR S. HILL

NSC FOR SENIOR AFRICA DIRECTOR B. PITTMAN

ADDIS ABABA FOR USAU

ADDIS ABABA FOR ACSS

E.O. 12958: DECL: 03/13/2017

TAGS: PGOV ECON PHUM ASEC ZI

SUBJECT: GOZ IN DOOMED BID TO END HYPERINFLATION BY FIAT

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Summary

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¶1. (SBU) On the heels of a sharp spike in inflation, the GOZ

on June 25 began a populist campaign to roll retail prices

back to their June 18 level. Using thuggery and

intimidation, “crack teams” under a newly established Cabinet

Task Force descended first on supermarkets then across the

retail sector and even to parastatals, forcing managers to

slash their prices by half or more. As a result, supermarket

shelves have been stripped of all staples in what one manager

called “controlled looting,” and the supply chain has

collapsed. The business community is scaling back production

and trying to lie low until this doomed attempt to curb

hyperinflation passes. In the meantime, the already weak

economy is shrinking faster than ever, and even the least

educated Zimbabwean is tense with apprehension about what’s

to come. End Summary.

——————————–

A Graveside Speech Becomes “Law”

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¶2. (C) Following three weeks of rampant inflation which saw

prices double, triple and even quadruple (Note: Annual

inflation in June reached 25,000 to 30,000 percent according

to PricewaterhouseCoopers. End Note), on June 25, a Cabinet

Task Force on Price Monitoring and Stabilization led by

Minister of Industry and International Trade Obert Mpofu,

announced a directive to retailers, wholesalers and

manufacturers to reduce prices of basic commodities by up to

50 percent. Three days later, in a graveside speech for a

brigadier general, President Mugabe announced that “the

nonsense of price escalation must come to an end

immediately.” Mugabe accused businesses of profiteering and

raising prices to foment civil unrest in support of a Western

campaign to support regime change. In language eerily

reminiscent of his government’s land seizure program, Mugabe

threatened to seize businesses and mines that did not comply

with the price rollbacks.

¶3. (SBU) Implementing government policy, police and ZANU-PF

youth, so-called “green bombers,” descended on supermarkets,

demanding the rollback of first a few then all prices to the

June 18 level. From supermarkets, the teams moved across

most of the retail sector. The ensuing buying frenzy

stripped the stores of meat, maize meal, eggs, oil, soap and

other staples; it shut down most butcher shops and saw petrol

supplies vanish from the market; many commuter buses also

stopped servicing their routes under the new prices as the

chain of supply collapsed.

¶4. (C) Dave Mills, Meikles Africa Director of Retail, related

to econoff two incidents typical of government-directed

activity. Thugs descended on the Meikles-owned TM

supermarket in Ruwa, outside Harare, on June 29. They

assaulted and detained the store manager when he requested

their credentials, then they singled out items to slash in

price by half. The next day the same team fell upon the TM

supermarket in Harare’s affluent Newlands neighborhood.

Fearing chaos, the manager reduced the price of all goods by

half and then witnessed “controlled looting.” Not fitting

the normal shopper profile, Mills believed the looters were

actually profiteers and ZANU-PF loyalists traveling in the

officials’ wake.

——————————————— ——

HARARE 00000605 002 OF 003

Parastatals Unspared – Including “Air Quasi-Fiscal”

——————————————— ——

¶5. (SBU) The Task Force also ordered the telecom and aviation

parastatals to roll their prices back to June 18 levels. Air

Zimbabwe, or “Air Quasi-Fiscal,” as economic commentator Jono

Waters calls it in his Zfn electronic newsletter (Air

Zimbabwe consumes about 2/5 of the GOZ’s off-budget subsidies

to parastatals) had more than tripled its fares in late June,

only to be forced to roll them all back on July 2. The round

trip economy class airfare to Beijing, for example, fell back

to Z$61 million from Z$195 million (at the parallel exchange

rate of Z$140,000:USD that’s US$435 down from US$1392); its

round trip London airfare fell back to US$300. (Comment:

Needless to say, the flights are full ) at least outbound.

End Comment)

—————————————–

Coping, Or Not, In The Business Community

—————————————–

¶6. (C) The business community is scrambling to cope. Ian

MacKenzie, Managing Director of Olivine Industries, told

econoff that he had scaled back production sharply at his fat

and oils plant, but not shut down completely in order to

appear to abide by the directive and keep himself “out of

Chikurubi” – Harare’s infamous maximum security prison.

Three dozen prominent senior managers and executives were

less fortunate. They were arrested this weekend for failing

to comply, or comply fast enough, with the directive,

according to press reports.

¶7. (C) Jyots Laxmidas, an apparel manufacturer and footwear

retailer in Zimbabwe’s second city Bulawayo, told econoff on

July 5 that he had closed all seven of his shoe outlets the

previous day when told that his prices would have to come

down sharply. He planned to comply with the directive and

re-open later in the week, but with far fewer products. He

added that not a single petrol station was operating in the

city that day. At the same time Bulawayo was awash with

black marketeers. Hawkers on street corners were selling, at

the old price, bars of soap and other items they had grabbed

during the initial price drop. We have seen the same in

Harare.

¶8. (C) Glenn Stutchbury, Regional Commercial Director of

Meikles Africa Hotels, told us that although the 5-star

Meikles Hotel had complied, it would eventually start such

sleights of hand as gradually introducing food items that

weren’t on the menu on June 18, and doing away with Meikles’

“standard” category of hotel rooms. Other businessmen were

moving stocks of goods out of warehouses in a cat-and-mouse

game with inspectors, or simply shutting down temporarily.

9 (C) Mills added that the TM chain of 56 supermarkets and

4,500 employees had begun to send workers on leave and

terminate contracts. He also noted that shoppers close to

the border had taken advantage of the arbitrage opportunity;

all the liquor on sale at TM’s Kariba outlet, for example,

had found its way across Lake Kariba to Zambia. On July 9,

Temba Banda, an accountant at Meikles Africa, told econoff

that the GOZ had instructed the company to slash all prices,

including clothing and appliances. Meikles had immediately

banned all purchases on credit, in a weak defense.

—————–

The Law Be Damned

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HARARE 00000605 003 OF 003

¶10. (U) After two weeks of enforced price controls and

numerous arrests apparently based on verbal orders of cabinet

ministers and the president, Industry and International Trade

Minister Mpofu issued a statutory instrument formally

ordering the price rollbacks. Lawyers have announced plans

to challenge arrests taking place before the issuance of the

instrument and also the legality of the order itself.

———————————————

Hope for A Political Solution Within ZANU-PF?

———————————————

¶11. (SBU) Numerous ZANU-PF heavyweights are involved in

industry and retailing, and they are bound to be affected by

low prices and ultimately by the unavailability of goods.

Business contacts have commented to us that their

vulnerability may be an impetus for them to urge the

government to reverse course. At the same time, Mugabe has

renewed his attacks on “profiteers.” Speaking to his base

(war veterans, women, and other party stalwarts) at ZANU-PF

headquarters on July 6, Mugabe again threatened to confiscate

non-complying businesses and blasted those who have

challenged the legality of the government’s actions.

——-

Comment

——-

¶12. (C) The GOZ’s latest doomed bid to control hyperinflation

and appeal for popular support in anticipation of next year’s

scheduled election is certain to quicken the pace of economic

contraction as retailers and manufacturers shut down, formal

employment shrinks further, and, in lockstep, the GOZ’s tax

revenue evaporates. The price slashing has populist appeal

only in the very shortest term ) until the staples disappear

from the shelves, which has already happened. Even the least

educated Zimbabwean is tense with apprehension about what’s

next. Inflation can only spiral to new heights as

demand-driven price increases for basics joins the RBZ’s use

of the printing press, running at full speed, to pay for all

the unbudgeted subsidies needed to “keep the lights on.”

With hardly a face-saving option available to Mugabe, he has

backed himself well into a corner with this attack on “the

forces of regime change.” Mugabe appears to be reacting to

the threat of hyperinflation in typical style ) lash out and

try to radicalize the situation. Unfortunately for him, the

laws of economics are not subject to change by government

fiat.

DELL

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