Mutasa was behind the disastrous 2007 price controls

Although President Robert Mugabe repeatedly said the price blitz in 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 Joint Operations Command was actually behind it.

The Joint Operation Command consisted of Minister of State Security Didymus Mutasa and the heads of the military branches, police, and Central Intelligence Organization.

The JOC, a pre-independence holdover, was originally designed as a security advisory board, but it reportedly now served in a close advisory role to Mugabe in all matters of State.

Mugabe’s key economic advisor central bank governor Gideon Gono was opposed to price controls. He was reported to have delivered a lengthy presentation to Mugabe on 10 July discussing price controls.

Full cable:

Viewing cable 07HARARE657, GOZ CHARTS NEW PATH TO ECONOMIC DESTRUCTION

If you are new to these pages, please read an introduction on the structure of a cable as well as how to discuss them with others. See also the FAQs

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

TAGS: PHUM PGOV ZI ASEC ECON

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

(29 VIEWS)