Why IATA suspended Air Zimbabwe

The International Air Transport Association suspended Air Zimbabwe nearly 10 years ago, preventing ticketing on other airlines, pending the payment of US$1.3 million.

The country was facing a forex crunch at the with the Zimbabwe Electricity Supply Authority owing South Africa’s Eskom and Mozambique’s Hydro Cabora Bassa arrears of US$42 million.

Failure by Air Zimbabwe to pay IATA has dogged the national airline for years.

Full cable:

Viewing cable 04HARARE224, Demand for US dollars still growing

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This record is a partial extract of the original cable. The full text of the original cable is not available.

060748Z Feb 04

UNCLAS HARARE 000224

SIPDIS

STATE FOR AF/S AND AF/EX

NSC FOR SENIOR AFRICA DIRECTOR JFRAZER

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 EINV ETRD PGOV ZI

SUBJECT: Demand for US dollars still growing

¶1. Summary: Economists, bankers and businessmen around

Zimbabwe all ask one question: How soon will the Reserve

Bank (RBZ) run out of forex to fuel its new auction

system? End Summary.

¶2. Eligible importers are trying to gobble up everything

they can at the Monday and Thursday auctions, since the

zimdollar trades on the auction floor at an overvalued

Z$3,600:US$. The parallel market is making a rapid

comeback even without the participation of most banks,

with rates heading fast toward Z$5,000:US$. Demand at

the RBZ’s currency auctions continues to grow:

Week of       Demand

——-       ——

1/12           1.7 million

1/19           8.2

1/26           17.2

2/2           18.7

While the RBZ has been mum on incoming export receipts,

we have not encountered a single knowledgeable observer

who believes the portion of export receipts channeled to

the auction floor (usually 25 percent) can cover US$20

million of import demands each week. In fact, the RBZ

has kept demand for forex to a minimum by allowing banks

to place bids only on behalf of certain importers.

¶3. At the same time, each week the GOZ seems to face

urgent new demands for its own forex reserves. The

International Air Transport Association (IATA) recently

suspended Air Zimbabwe (preventing ticketing on other

carriers) pending payment of US$1.3 million. Energy

parastatal ZESA’s spokesman said both South Africa’s

Eskom and Mozambique’s Hydro Caborra Bassa have been

pressuring the GOZ to pay down arrears of US$42 million.

(ZESA’s total arrears now exceed US$400 million.)

Comment

——-

¶4. By any measure (inflation, cross-border price

comparisons, parity purchasing power), the zimdollar is

now heavily overvalued. With inflation continuing to

surge, most exports are uncompetitive at the present

blend rate of around Z$2700:US$ (exporters still must

surrender 25 percent of proceeds at Z$824:US$). One

exporter wrote in the Daily News this week that the

wholesale price of a box of locally-produced matches is

now Z$149 plus VAT; an Indian company offered to supply

him in (including VAT and transport to Harare) for Z$39 –

when converted at the present auction rate. That’s makes

Zimbabwe a four-fold more expensive manufacturer than

India, at least in this particular case. At some point,

either the auction rate or a more accessible parallel

rate will adjust for these distortions. Until then,

Zimbabwe will be an uncharacteristically high-cost

environment.

Sullivan

(24 VIEWS)