How Zimbabwe was surviving the economic meltdown

Zimbabwe’s economy had plummeted by as much as 40 percent by mid-2003 but the economy was being sustained by remittances from Zimbabweans abroad as well as assistance from Libya and South Africa.

Libya’s TAMOIL had donated approximately US$350 million through fuel in 2001-02 and South Africa’s ESKOM close to US$ 50 million through electricity since 2002.

Remittances accounted for annual inflows of US$ 500 million, according to the local Western Union.

A vibrant informal economy was also thriving and was now supplying the bulk of the fuel and scarce banknotes.

Exporters were also doing well though they kept most of their proceeds in off-shore accounts.

Full cable:

Viewing cable 03HARARE1547, Zimbabwe’s Ailing Economy: Where It Stands

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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 001547

SIPDIS

SENSITIVE

STATE FOR AF/S and AF/EX

NSC FOR SENIOR AFRICA DIRECTOR JFRAZER

USDOC FOR 2037 DIEMOND

PASS USTR FLORIZELLE LISER

TREASURY FOR ED BARBER AND C WILKINSON

STATE PASS USAID FOR MARJORIE COPSON

¶E. O. 12958: N/A

TAGS: ECON ETRD EINV PGOV ZI

SUBJECT: Zimbabwe’s Ailing Economy: Where It Stands

¶1. (SBU) Summary: The Zimbabwean economy has plummeted

more than anyone thought possible, the curious tragedy of

a place that had all the right stuff – fertile land

packed with minerals, sophisticated infrastructure run by

well-educated populace, high-income tourist destinations

– now in disintegration. As it stands in mid-2003,

meaningful policy shift is only imaginable after

political change. End Summary.

The Broad Picture

—————–

¶2. (SBU) Although statistics are sketchy, the formal

Zimbabwean economy has probably shed 40 percent, from

approximately US$ 7 to 4.3 billion. Inflation is 365

percent (year-on-year), real interest rates negative-300

percent and the Zimdollar trading at 3350:US$1 (up 200-

fold from 17:1 in 1998). Without Western food

assistance, most Zimbabweans would suffer severe

undernourishment. (U.S. food aid alone totaled US$ 115

million last year, or about 3 percent of GDP.) Perhaps 7-

8 percent of the population has emigrated. The country’s

infrastructure – education, transport, energy,

telecommunications, law enforcement – is in shambles.

What Has Sustained It?

———————-

¶3. (SBU) First and foremost, indirect assistance from the

West, Libya, South Africa and emigrants has propped up a

teetering economy. In addition to the West’s food aid,

Libya’s TAMOIL donated approximately US$ 350 million

through fuel in 2001-02 and South Africa’s ESKOM close to

US$ 50 million through electricity since 2002 – all

without payment, or prospect thereof. Remittances

account for annual inflows of US$ 500 million, according

to the local Western Union rep.

¶4. (SBU) Secondly, there is a vibrant informal economy

not captured by official data. Few companies do not

stray occasionally into this Neverneverland. Motorists

now depend exclusively on informal fuel networks, and

dealing in scarce banknotes is but one of many lucrative

rent-seeking opportunities. Almost everything for sale

in Zimbabwe is technically contraband, exceeding the

GOZ’s whimsically-enforced and unrealistic price limits

(e.g., a US$.08 bread loaf or US$.12 liter of gas).

¶5. (SBU) Thirdly, many exporters are doing well

exploiting Zimbabwe’s low-cost environment. In

agriculture, this means cotton and horticulture (often

raised by increasingly efficient small-scale farmers); in

minerals, ferroalloys; in manufacturing, a real mixed

bag. We have visited plants that successfully export

furniture, bus-windshields, khaki slacks and wooden doors

to the U.S. Needless to say, exporters routinely shelter

foreign exchange earnings from the GOZ in off-shore

accounts.

The Shrinking Economy

———————

¶6. (SBU) The rest of the formal economy is in dismal

shape, however. The cattle herd has been decimated.

Beneficiaries of land reform, which has dispossessed

about 4,000 white farmers, add little to the agricultural

output. The size of this year’s tobacco harvest will be

80-90 million kgs, higher than initially expected but a

far cry from 1999 when Zimbabwean grew 237 million kgs

and led the world in exports. The official press

recently acknowledged that farmers had sent to the Grain

Marketing Board only 33,500 out of this year’s projected

930,000 tons of maize production.

¶7. (SBU) Zimbabwe’s once strong textile producers have

laid off 12,000 of 30,000 workers, losing countless

contracts to AGOA-qualified countries. JCPenney and the

GAP have already left, and one local producer said he was

barely holding on to Target.

¶8. (SBU) Zimbabwe’s convoluted export policies, energy

rationing and erratic railway service have taken their

toll on mineral production. Coal producer Wankie

Colliery is operating at 40 percent capacity. Gold

production is down 50 percent since 1999, causing

Zimbabwe to fall from third to sixth in Sub-Saharan

rankings. Investment in Zimbabwe’s all-important

platinum reserves lags South Africa and Russia.

¶9. (SBU) Finally, tourism is nearly lifeless. Most high-

priced safari lodges remain empty. And even domestic

tourism has been crippled by the gasoline scarcity.

Comment

——-

¶10. (SBU) It’s doubtful the paralytic GOZ can address

more than one economic crisis at a time. For the moment,

the banknote squeeze gets top attention. As for

management of other crises, the GOZ seems confident of

free electricity from South Africa and free food from the

West. In spite of GOZ’s best efforts, market forces are

resolving the fuel crisis, although conventional gas

stations like Mobil, Caltex and BP are being squeezed out

of the market.

¶11. (SBU) Otherwise, there is little to cheer:

– With no chance of formal employment, perhaps half the

population has resigned itself to minimal subsistence

dependent on food donations. (Low-skilled jobs are

available in cities, but salaries often do not cover

transport and lunch.)

– President Mugabe has asked ZANU-PF stalwart Charles

Utete to oversee a land reform review, but we cannot

easily envisage the GOZ publicizing and acting upon a

report that spells out abuses by many cabinet ministers.

With each passing month, it becomes less likely that a

substantial number of the 4,000 dispossessed farmers will

return to farms.

– Sources close to the GOZ report that businessman Gideon

Gono is front-runner for Reserve Bank President. As

major shareholder in a private bank and owner of the

business newsweekly, he is a walking conflict-of-

interest. We would expect him to be neither independent

nor outspoken.

Only through political change, it seems, does Zimbabwe

stand any chance of stemming its broad economic decline.

Sullivan

(25 VIEWS)