Although President Robert Mugabe repeatedly said the price blitz of 2007 was a reaction to a “political agenda” pursued by “greedy companies” doing the bidding of Western governments seeking to bring about regime change through “illegal sanctions”, the blitz was actually recommended by the Joint Operations Command.
JOC consisted of the Minister of State Security Didymus Mutasa and the heads of the military branches, police, and Central Intelligence Organization.
Though JOC was originally designed as a security advisory board, it reportedly served in a close advisory role to Mugabe in all matters of State.
Mugabe’s close advisor, central bank governor Gideon Gono was opposed to the price controls but his recommendations were not adopted.
Opposition leader Morgan Tsvangirai was also opposed to the price controls and condemned them as being politically motivated by Mugabe’s desire to maintain power.
The controls were based on verbal orders and proclamations by Mugabe and when the government realised this, two weeks after enforcement, when lawyers announced plans to challenge the arrest of business executives and managers, Industry Minister Obert Mpofu quickly issued a statutory instrument ordering the price rollbacks.
Full cable:
Viewing cable 07HARARE657, GOZ CHARTS NEW PATH TO ECONOMIC DESTRUCTION
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Reference ID |
Created |
Released |
Classification |
Origin |
VZCZCXRO7346
PP RUEHMR RUEHRN
DE RUEHSB #0657/01 2001513
ZNY CCCCC ZZH
P 191513Z JUL 07
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC PRIORITY 1715
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHUJA/AMEMBASSY ABUJA 1655
RUEHAR/AMEMBASSY ACCRA 1523
RUEHDS/AMEMBASSY ADDIS ABABA 1659
RUEHRL/AMEMBASSY BERLIN 0303
RUEHBY/AMEMBASSY CANBERRA 0925
RUEHDK/AMEMBASSY DAKAR 1288
RUEHKM/AMEMBASSY KAMPALA 1715
RUEHNR/AMEMBASSY NAIROBI 4132
RUEHFR/AMEMBASSY PARIS 1485
RUEHRO/AMEMBASSY ROME 2149
RUEHGV/USMISSION GENEVA 0780
RHEFDIA/DIA WASHDC//DHO-7//
RHEHAAA/NSC WASHDC
RUEHBS/USEU BRUSSELS
RHMFISS/JOINT STAFF WASHDC
RUCNDT/USMISSION USUN NEW YORK 1876
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK//DOOC/ECMO/CC/DAO/DOB/DOI//
RUEPGBA/CDR USEUCOM INTEL VAIHINGEN GE//ECJ23-CH/ECJ5M//
C O N F I D E N T I A L SECTION 01 OF 05 HARARE 000657
SIPDIS
SIPDIS
AF/S FOR S. HILL
NSC FOR SENIOR AFRICA DIRECTOR B. PITTMAN
USAID FOR L.DOBBINS AND E. LOKEN
ADDIS ABABA FOR USAU
ADDIS ABABA FOR ACSS
E.O. 12958: DECL: 07/19/2017
SUBJECT: GOZ CHARTS NEW PATH TO ECONOMIC DESTRUCTION
REF: HARARE 00605
Classified By: CDA Katherine Dhanani under Section 1.4 b/d
——-
SUMMARY
——-
¶1. (U) The GOZ’s edict to roll back prices continues to wreak
havoc as panic buying and supply chain disruptions have led
to widespread shortages of basic commodities. Many
Zimbabweans, already struggling to make ends meet, spend
hours each day standing in line to buy scarce products or
executing other creative coping mechanisms. On August 1 new
restrictions on imports will go into effect which will
further dry up the supply of food and other essential goods.
Numerous businesses have downsized operations or simply
closed shop at the risk of government take over. Not
everyone is suffering, however. Price monitoring teams with
gangs of opportunistic cohorts in tow take advantage of the
situation to engage in “controlled looting.” Meanwhile,
government officials scramble to implement statutory
instruments to legalize the operation and to institutionalize
additional market controls.
¶2. (C) The decision to implement price controls was
recommended by the Joint Operation Command (JOC), a cadre of
senior security officials, and embraced by President Mugabe
to demonstrate he was willing to take decisive action against
out of control inflation and as a populist sop to poor
Zimbabweans in advance of elections. Price controls have
been followed by import restrictions on staples and fuel.
There is fear that the government will carry out its threats,
as businesses are forced to close, to take them over and
either run them or hand them over to party stalwarts as it
seeks to continue to maintain support through patronage.
Opposition to the policy exists within ZANU-PF, but so far
the only publicly-reported criticism from within the party
has come from Reserve Bank Governor Gideon Gono. The
question on everyone’s mind is — Where is this all going?
End Summary.
——————————————-
Back in the USSR – Long Lines and Shortages
——————————————-
¶3. (U) The GOZ’s “Operation Reduce Prices,” a populist
campaign to rollback prices by half or more on all goods and
services to June 18 levels, continues to wreak havoc on the
country’s already anemic economy (reftel). Price reductions
have had the unintended consequence of inducing panic buying
causing widespread shortages throughout the country of basic
commodities, such as bread, milk, maize meal, meat and
cooking oil. Causing further anxiety among an increasingly
restive public, supply chain disruptions are expected to
worsen over the coming weeks as what inventory remains in the
pipeline is finished off without adequate replacements to
follow. Approximately 3,000 business executives and store
managers have been arrested since the start of the operation
on June 25.
¶4. (U) In recent years there has always been the occasional
shortage of bread, milk, sugar or cooking oil; however, meat
was always the one commodity in ready supply — until now.
During the first two weeks of the price reductions, shoppers
HARARE 00000657 002 OF 005
quickly cleared out every grocery store and butcher shop of
beef. Until last week, chicken, pork and fish were still
somewhat available, but those supplies have mostly
disappeared as well. The government has ordered farmers to
deliver beef stocks for slaughter, but meat cases at stores
remain empty.
¶5. (U) On July 10, the government made matters worse by
cancelling the licenses of all private abattoirs and
transferring the responsibility of supplying meat to the
state-controlled Cold Storage Commission (CSC). Until about
decade ago, CSC was one of the largest meat processors in
Africa, before inefficiency and bad management crippled the
company. CSC no longer has the physical, financial or
management capability, however, to take over for hundreds of
private abattoirs.
——————————————–
You Can’t Get There From Here – Without Fuel
——————————————–
¶6. (U) Price controls have also made the simple task of
getting to work more difficult. Fuel is scarce and many
commuter bus owners have put their vehicles in the shop “for
repairs” to avoid having to operate at a loss. Driving out
to one of the peri-urban high density suburbs that surround
Harare late afternoon last week, poloff observed a procession
of hundreds of commuters forced to walk the 15kms home due to
the lack of commuter buses.
¶7. (U) Even for those with money, fuel is hard to come by at
any price. There are longer than normal queues at the few
service stations forced by the government to sell fuel at
Z$60,000/ liter (about US$0.40 using the parallel market
rate), but that supply is quickly running out. Emboffs
observed police posted at one service station showing
favoritism to certain individuals while others waited for
hours in dismay. Fuel on the black market, which used to be
readily available, has become difficult to find and is now
going for up to Z$200,000/ liter (about US$1.33).
¶8. (U) Driving another nail in the coffin, the GOZ on July 19
announced plans to ban use of coupons to buy fuel from direct
fuel importers (DFI) and gave individuals two weeks to use
their coupons to claim the fuel. All fuel will then have to
be accessed through “approved” sites. (Note: Under the DFI
program, importers provided fuel to companies and individuals
who had pre-purchased fuel with foreign exchange. End Note.)
This action will undoubtedly affect businesses and the upper
socio-economic ranks as the GOZ will not be able to import
sufficient fuel to satisfy demand when sold at a controlled
rate which is well below the free market price.
————————–
Coping – We’ll Make a Plan
————————–
¶10. (U) Coping with the dire shortages is now a major
preoccupation for many, including embassy staff. Those with
free time go from shop to shop to queue in long lines for the
remote chance to buy even one loaf of bread or a bag of maize
meal, but limited supplies run out in short order. Some
consumers have resorted to sending text messages to friends
and family when a certain product has been located —
triggering a stampede to that particular store. Another
HARARE 00000657 003 OF 005
coping mechanism is to try to broker a deal with a “friend”
who works at a shop to sell any amount of scarce provisions
out the backdoor.
¶11. (U) In the face of continuing shortages, many had counted
on “making a plan” to bring in food from South Africa or
Mozambique. The government, however, signaled its intent to
close off this avenue by announcing new restrictions on
imports. Under new statutory instruments effective August 1
a family can import up to US$250 per month in consumables for
personal use. Anything above that amount or intended for
resale will require a government license. This new
regulation is sure to hit hard on cross-border traders who
are a critical source of basic commodities in the informal
market.
———————————————
One Bitten, Twice Shy – The Business Response
———————————————
¶12. (C) In response to government intimidation and thuggery,
many businesses have downsized operations or closed shop at
the risk of government take over (forcing more into
unemployment*the rate now stands at over 80 percent).
Business retrenching can be found in all sectors. For
example, Yvonne Nxumalo, an executive at FMC Motors, a large
car dealer in Harare, told us the company closed its spare
parts division last week to avoid large losses. The owner of
an inexpensive snack food company in Harare told poloff that
he stopped production and sent his employees home for a month
rather than operate at a loss. According to Callisto
Jokonya, president of the Confederation of Zimbabwe
Industries (CZI), many of CZI’s prominent members, including
Dairiboard, Zimbabwe’s largest dairy company, were seriously
considering handing over operations to the government once
current inventories are depleted rather than fight a losing
battle.
——————–
A Boom Time For Some
——————–
¶13. (U) Not everyone is suffering from the price reductions,
however. Government officials with privileged cohorts in tow
take advantage of the situation to engage in “controlled
looting.” Despite official government condemnation, price
monitoring teams move from shop to shop ordering prices
reduced to arbitrary levels, after which a hoard of friends
and family swoop in to buy out the stock. Most of the
products end up on the black market at the old — or higher
— prices. There are also reports of bogus price monitors
ordering shops to sell them products at prices well below
cost. Additionally, the upscale restaurants around Harare
that have reduced their prices are doing a brisk business
with the more affluent diners — at least as long as their
supplies last.
————————————-
Government Scrambles to Make It Legal
————————————-
¶14. (U) The government first realized it had failed to base
its price control directive on anything beyond verbal orders
and proclamations by President Mugabe and cabinet ministers
two weeks after enforcement began, when lawyers announced
HARARE 00000657 004 OF 005
plans to challenge the arrests of business executives and
managers. In response, Minister of Industry and
International Trade Obert Mpofu quickly issued a statutory
instrument formally ordering the price rollbacks.
¶15. (C) The next mad scramble came when business managers
began to question the government about how prices would be
set going forward. Nearly three weeks after the beginning of
the price control campaign, the July 16 The Herald headline
read “Government still working on pricing formula.”
According to the report, the government intends to set up
pricing schedules that will allow mark-ups of 5 percent from
producers to wholesalers, 10 percent from wholesales to
retailers, and 10 percent from retailers to the public. The
Task Force on Price Monitoring and Stabilization now releases
a new set of prices for specific products on a nearly daily
basis causing massive confusion with store managers and
shoppers. On July 18, the government announced the first
product for which it had approved an increased price: cooking
oil at 105,187 Zimbabwe dollars for producers (or about 75
cents US) per liter.
——————————
Mugabe’s Latest Political Ploy
——————————
¶16. (C) Mugabe has repeatedly said the price blitz was a
reaction to a “political agenda” pursued by “greedy
companies” doing the bidding of Western governments seeking
to bring about regime change through “illegal sanctions.”
According to several sources the actual recommendation to
implement price controls was made by the Joint Operation
Command (JOC) consisting of Minister of State Security
Didymus Mutasa and the heads of the military branches,
police, and Central Intelligence Organization. While the
JOC, a pre-independence holdover, was originally designed as
a security advisory board, it reportedly now serves in a
close advisory role to Mugabe in all matters of State.
¶17. (C) While opposition to the price control policy exists
within ZANU-PF, it has been limited. On July 10, Reserve
Bank of Zimbabwe Governor Gideon Gono, according to an
Embassy source (Septel), delivered a lengthy presentation to
Mugabe discussing price controls. In a document given to
Mugabe at that time, Gono outlined a holistic approach to
stabilizing the economy and warned about the “unintended
consequences” of relying solely on the price reductions to
control inflation. He recommended that the price controls be
taken in conjunction with other changes, such as reducing
government expenditure, revising foreign exchange regime,
ensuring private property rights, and fighting corruption.
¶18. (C) Other opposition has come from Anti-Senate MDC
faction opposition leader Morgan Tsvangirai who has condemned
the price control operation as being politically motivated by
Mugabe’s desire to maintain power. Business for the most
part has remained silent, apparently fearful that criticism
could lead to even more of a crackdown.
——————————–
Comment – Where is it all going?
——————————–
¶19. (C) Despite reports of dissension within ZANU-PF in
recent months, Mugabe appears to be firmly in control. In
HARARE 00000657 005 OF 005
anticipation of elections, his price blitz is a populist
measure aimed at demonstrating he can take decisive actions
against spiraling inflation caused, in his eyes, by the
regime-change machinations of the West. Mugabe’s more recent
actions in restricting imports and banning DFI fuel coupons
indicate that he has gone past just sending a message to
“profiteers” and has embarked on a rigorous command and
control economic program. The next step may be for the
government to take over businesses that can (or choose to) no
longer function and dole them out as patronage, repeating
Zimbabwe’s experience with seizure of commecial farms. While
Gono, who by all accounts remains a trusted Mugabe advisor,
and others within ZANU-PF may be voices of reason on this
question, there is no indication to date that Mugabe is
listening.
¶20. (C) Rural Zimbabweans have always lived a meager
existence and they will continue to survive through
subsistence agriculture and international food assistance.
More problematic is the future of the urban population, both
rich and poor. People are now buying and hoarding goods, but
with manufacturing made unprofitable, and restrictions on
imports, including fuel, the pipeline will quickly run dry.
Most likely, creative Zimbabweans will find a way to
circumvent import restrictions and the informal market will
grow. Additionally, more Zimbabweans will join the already
large exodus to South Africa. But nobody we have talked to,
from business people to academics to ordinary Zimbabweans,
knows where this is all going. End Comment.
DHANANI
(15 VIEWS)
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