Harare becomes too expensive for business

Zimbabwe had become too expensive to do business in by mid-2004 that Coca Cola was considering relocating to the South African financial hub Johannesburg because it was cheaper, according to a cable released by Wikileaks.

“As a cost-cutting measure, the firm is relocating its top Zimbabwean executives from depressed Harare to the southern African business hub, “the cable said.

The main problem was the overvalued Zimbabwe dollar which was officially trading at Z$5 600 at the auction to the greenback when the parallel market rate, which some banks were now giving to selected clients ranged from Z$7 800 to Z$8 500.

The official exchange rate remained Z$824 to the United States dollar.

Full cable:

Viewing cable 04HARARE1420, Banks eye parallel market

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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 HARARE 001420

SIPDIS

STATE FOR AF/S

USDOC FOR AMANDA HILLIGAS

TREASURY FOR OREN WYCHE-SHAW

PASS USTR FLORIZELLE LISER

STATE PASS USAID FOR MARJORIE COPSON

¶E. O. 12958: N/A

TAGS: ECON ETRD EINV PGOV ZI

SUBJECT: Banks eye parallel market

¶1. Summary: In spite of the GOZ’s strong-armed efforts

to enforce a fixed (auction) rate, local businesses tell

us parallel currency trading is becoming more widespread.

NMB now discreetly offers its best customers access to

the parallel market. End summary.

Zimdollar expensive at any rate

——————————-

¶2. Business-to-business weekend trading generally took

place within a Z$7,800-8,500/US$ band. Because the

parallel exchange is still covert and untransparent, many

traders offered unwitting smaller clients as little as

Z$6,200/US$. Although the higher-end parallel exchange

nets about 40 percent more than the official rate, it

still overvalues the zimdollar by any historic purchasing

parity measure. Inflation, for example, has registered

360 percent since August 2003, while today’s rate is

nearly identical to that of one year ago (Z$5600:US$ on

Aug 22, 2003 vs. Z$5602:US$ at last Thursday’s auction).

Zimbabwe has become an expensive place to do business, so

much so that Coca-Cola now considers Johannesburg a

cheaper venue. As a cost-cutting measure, the firm is

relocating its top Zimbabwean executives from depressed

Harare to the southern African business hub.

¶3. GOZ enforcement requires parallel traders to adopt

extreme precautions. We have seen traders rely on

multiple levels of intermediaries; we have heard them

speak in code over phone lines. Finance Minister Chris

Kuruneri remains behind bars, however, as a grim but

symbolic deterrent to parallel trading and foreign

exchange externalization. We understand repeat-offender

NMB has again begun to tempt its best customers with

parallel exchange rates, the first commercial bank to do

so since January.

Comment

——-

¶4. Reserve Bank (RBZ) Governor Gideon Gono vilifies

parallel traders as economic saboteurs. Actually, they

enhance his potency. Since most prices for goods and

services reflect the parallel exchange, Gono can offer

select importers amplified profit margins by granting

them discounted access to foreign exchange at the

official rate. (The RBZ formally dismisses most

unsuccessful forex applications with a single word –

“cause.” There is no further explanation.) In effect,

Gono has created a subsidy for privileged importers

through an indirect exporter tax.

Sullivan

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