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FinGaz

      Hwange, Kariba for sale

      Sunsleey Chamunorwa Editor-in-Chief
      6/12/03 5:44:40 AM (GMT +2)

      THE Zimbabwe Electricity Supply Authority (ZESA), whose long-stalled
privatisation should have commenced a year ago, has recommended that the
government hives off a 50 percent stake in both the Hwange and Kariba South
power stations for an estimated US$600 million ($494.4 billion at the ruling
exchange rate) amid heightened fears that Zimbabwe risks selling the family
silver for a song if it takes the privatisation plunge without pausing to
take stock.

      It is widely believed within ZESA and government circles that the
sell-off of the targeted 50 percent in each of the two power generating
assets, whose combined value has been preliminary put at US$1.2 billion
($988.8 billion) would bolster the country’s electricity generating
capacity. The proceeds from the privatisation would be used to carry out
expansion projects at the Hwange and Kariba South Power Stations, retire
ZESA’s total external debt of US$200 million and facilitate other power
generation investments.

      Although those recommendations are yet to be deliberated on by the
Cabinet, management at the power utility presented these recommendations to
the board on Wednesday May 7 2003. The presentations were done by Isaac
Mupotsa, the managing director of Zimbabwe Power Company, which is tasked
with the management, operation and development of all generation facilities
in Zimbabwe, Cletus Nyachowe, who is doubling as the acting managing
director of Powertel and acting head of Transmission as well as Alex
Makomva, the head of distribution.

      ZESA has already sounded the Minister of Energy and Power Development,
Amos Midzi, over its intended plans, but Midzi is yet to accept the document
for onward transmission to Cabinet.

      ZESA board sources who cannot be named this week said that although no
investor had been identified yet, the sentiment among some ZESA officials
was that three possible technical partners, namely YTL Power International
Limited of Malaysia, Tracterbel Energy Engineering of Belgium and National
Power of the United Kingdom, should not be overlooked in the asset disposal
exercise.

      Long before the Hwange and Kariba assets had been slated for sell-off
under the unbundling of ZESA, which should have commenced more than a year
ago, the three companies had shown a strong appetite to invest in ZESA.

      Even as the country’s high risk profile ran into a wall of negative
international investor sentiment, the three companies "had always shown
interest in the country’s power sector", they said.

      Government was however of a different opinion. It felt that ZESA
should court only the East Asian countries, a move resisted by the ZESA
board which could not be swayed by government’s arguments. The board opted
for open tender, which is the route the disposal of assets in ZESA is now
likely to take.

      The acquisitive YTL was spurred by its ambition to enter and
consolidate in the African market. The Malaysian company preferred to be a
multi-project company with rights to invest in other projects in Zimbabwe
and within Africa.

      Dato’yeoh Seokhong, YTL’s executive director responsible for overseas
investments was not available for comment as he was said to be away in the
United Kingdom where the company last year acquired Wessex Water for 1.2
billion pounds, beating the National Bank of Scotland to the bid.

      Eric Eoon, the company’s director for business development responsible
for Africa but based in Kuala Lumpur could only say: "We last spoke to ZESA
in 2000 when I came to Harare after we had been advised that the
privatisation of ZESA had been put on hold. And we told the Zimbabwean
authorities that whenever they are ready we would be willing to consider
investing in Zimbabwe. But they have not yet contacted us on this new
development."

      Belgium’s Tracterbel had initially indicated that it wanted to invest
in the Hwange electricity generating asset, "progressively" commencing with
20 percent and subsequent increments of 10 percent per annum until it
achieved 80 percent of equity.

      National Power was however not interested in a project with ZESA as
the only buyer (sole buyer model), the management said, adding that the
"investor sought market diversity for securing of his investment". National
Power, which had requested our questions in writing, had not responded by
the time of going to press.

      "This presents an excellent window of opportunity for both ZESA and
the country and admittedly time is of the essence because the interested
companies have waited for a long time and they will not wait forever.
Despite their patience dating as far back as 1995 for some of these
companies, we haven’t treated them as we should," said one board member.

      He however cautioned that, whatever the circumstances, government
should avoid the temptation to sell assets in a rush. He added that the
board had since asked the management at ZESA to scrutinise the corporate
past of the companies that had shown interest.

      He said although Zimbabwe, which in the past had navigated without a
compass in its previous privaitsation efforts now had "a road map, we can
never be too careful you know".

      Although the government, previously criticised for its stop-go
privatisation exercise, had since given ZESA the green light to start
casting around for possible strategic technical partners to acquire a 50
percent apiece for both the Hwange and Kariba Power Stations, there were
concerns within ZESA that the exercise could be scuppered by the absence of
the long-mooted Zimbabwe Electricity Regulatory Commission (ZERC).

      It is however reliably understood that Midzi, on May 30 2003, allayed
the fears when he told the ZESA board that the ZERC would come on stream
with effect from the first of next month, before the assets on the auction
block are disposed of. Documents in our possession however show that the
appointment of ZERC was originally scheduled for this month.

      The government is however now keen to expedite the privatisation of
ZESA to bolster the country’s electricity generating capacity. Zimbabwe
presently imports 35 percent of its energy requirements. Imports from the
Southern African Power Pool will only be available until 2007. But with the
expansion of Kariba and Hwange whose construction period is estimated at
three years, together with the proposed offshore investment in the
Hidroelectrica de Cahora Bassa of Mozambique, Zimbabwe will have the
capacity to export power to the Southern Africa Development Community member
states.

      The feasibility study results on the Kariba and Hwange expansion
projects would be out next month after which project marketing through
pre-qualification notices and road- shows would be done between August and
September, according to the ZESA recommendations.

      Interested investors would undertake due diligence exercises in the
period leading up to December 2003, before construction commences in January
2004. Due diligence is the process of very detailed checking of a company’s
accounts and activities that normally takes place after an acquisition or
take- over has been agreed but before it is implemented. Any skeletons in
the cupboard are likely to be exposed.
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FinGaz

      S African tycoon Mzi Khumalo upsets govt

      Hama Saburi Deputy Editor-in-Chief
      6/12/03 5:45:21 AM (GMT +2)

      A COMPANY fronted by South African business magnate Mzi Khumalo has
clashed with the government after declaring a US$2.5 million dividend (Z$2.1
billion at the official exchange rate) before even getting the requisite
approvals.

      Officials at the Mines Ministry told The Financial Gazette this week
that they were not amused with the declaration of dividend, which came
barely a few months after Khumalo’s Metallon Corporation acquired
Independence Gold Mine for about US$15.5 million.

      Mines Minister Edward Chindori-Chininga swiftly intervened when he got
wind of the development and registered the government’s displeasure with the
local office.

      The source said: "Officials at the local office assured the minister
that the government’s concern would be taken care of, but we are just
keeping our ears on the ground to check their next move."

      A senior government official said Chindori-Chininga warned that his
ministry could throw spanners into the Independence Gold Mine deal by
instructing regulatory authorities to shoot it down.

      A spokesperson for Independence Gold Mine confirmed that the group had
declared a dividend for the six months to March this year which is still to
be paid.

      "The shareholder is appearing in the books as one of our creditors, so
no money has been paid. Metallon Corporation paid 100 percent in cash for
the mine and since last year to March, the company has made substantial
profit and KPMG Chartered Accountants audited all the financial statements
and all the requisites expected were met," said the spokesperson.

      The spokesperson disputed the figure circulating in government circles
saying the mine declared a US$733 000 dividend (about Z$604 million at the
official exchange rate).

      Independence Gold Mine’s full year stretches between October and
September, hence the dividend referred to the six months to March this year.

      Sources said the government was still digesting the motive behind the
declaration of the dividend.

      It is suspected that Metallon Corporation could have wanted to
prejudice its local partners who only bought into the company recently.

      Analysts said it is easy for the government to track the movement of
dividends repatriated outside Zimbabwe because permission to do so has to be
granted by the regulatory authorities.

      Even in cases where foreign-owned companies are justified to
repatriate dividends, the government has been encouraging them to reinvest
to ease pressure on the drying foreign exchange market.

      Metallon Corporation’s local partners operating as Manyame Consortium
were not available for comment this week.

      Albert Nduna was said to be in New York on official business, while
Mthuli Ncube who had promised to phone back this reporter on Tuesday, left
the country yesterday morning on urgent official business.

      The other partner, John Mkushi, could not be contacted.

      Metallon Corporation acquired Independence Gold Mining from Lonrho
Zimbabwe last year.

      In line with the indigenisation thrust being pushed by the government,
Metallon offered a 30 percent stake to the Manyame Consortium.

      By acquiring 30 percent of the mine, the consortium has localised a
sizeable part of the company for the first time in the history of the
company, which has always been completely foreign-owned.

      Independence Gold Mine owns How Mine in Bulawayo, Redwing Mine in
Mutare, Mazoe Mine in Mazoe, Arcturus Mine in Goromonzi and Shamva Mine in
Shamva.
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FinGaz

      Tourism Ministry side-steps tender

      Godfrey Marawanyika Staff Reporter
      6/12/03 5:46:39 AM (GMT +2)

      THE Ministry of Environment and Tourism has flouted tender procedures
by directing Parks and Wildlife Management Authority to issue two additional
hunting concessions without following proper procedures.

      The authority could be prejudiced millions of dollars if the ministry’
s directive goes unchallenged.

      Environment and Tourism Minister Francis Nhema directed the authority
to award hunting concessions to Aristoc and Tentpeg for free yet they were
bidders prepared to fork out between US$1 million and US$2 million (Z$824
million and Z$1.6 billion at the official exchange rate).

      The Financial Gazette could not immediately establish owners of
Aristoc and Tentpeg who have been designated to operate in the Deka Pool and
Sengwa Safari area.

      It is however, rumoured that the two companies are owned by former
diplomats.

      Nhema could not be reached for a comment as he was said to be in
Mozambique.

      Parks and Wildlife Management Authority chairman, Buzwani Mothobi
asked this reporter to put questions in writing. He had not responded to the
questions by the time of going to press.

      Initially, the authority had agreed to sell the concessions through a
public auction hoping to better last year’s feat when it grossed $585
million from the sale of one concession.

      Mothobi informed other board members in a confidential circular dated
June 2 2003 that the directive was meant to accelerate the pace of economic
empowerment.

      "With regard to the wildlife industry, in order to accelerate the pace
of empowerment as well as to consolidate the gains made so far, the Minister
of Environment and Tourism Hon F D Nhema (MP) has directed as follows: That
all experimental leases be for five (5) years, which would place them in
line with other leases, which have been given five (5) years, and give them
a better opportunity to recoup on their investment.

      "The current adhoc basis for experimentals is not conducive to proper
business operations, let alone sustainable empowerment," he said.

      He said the directive was also in line with the National Economic
Revival Programme adopted by the government in February this year to breathe
life into the faltering economy.

      Mathobi said: "In view of the urgency of these matters, I have, on
behalf of the board and the authority, complied with the minister’s
directive."

      Board members who spoke to The Financial Gazette said there was no
need for more experimental leases since the authority has done six of them
so far.

      Members of the board were yesterday locked in a crucial meeting to
discuss Nhema’s directive amid indications that they could split over the
issue.

      Senior officials within his ministry said the directive was meant to
ensure that the concessions fall in the hands of people who have not been
economically empowered before.

      A number of concessions auctioned by the Parks and Wildlife management
have in the past stirred controversy.
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FinGaz

      200 litres fuel fetch half-a-mln


      6/12/03 5:49:56 AM (GMT +2)

      BULAWAYO — Illegal fuel dealers are making a beeline to neighbouring
Botswana to import petrol and diesel for resale here to desperate
industrialists, business executives and other motorists, demanding as much
as $500 000 for a 200-litre drum as the fuel crisis continues to dog
Zimbabwe.

      Investigations by this newspaper this week showed that the petrol
dealers cross through the Plumtree border post, about 100 kilometres from
Bulawayo, to buy the fuel mostly from Ramakwebane, Francistown and the
capital Gaborone, taking advantage of the government’s latest relaxation of
fuel importation regulations.

      Private individuals are now allowed by law to import 500 litres of
either petrol or diesel duty free once a month or in a space of thirty days.

      A 20-litre gallon of either petrol or diesel is flogged in the streets
here for as much as Z$45 000 compared to the official price of Z$9 000 at
most filling stations.

      A dealer with 500 litres of either product imported from Botswana can
fetch over $1.2 million for a product purchased for 1 200 pula at a foreign
currency black market rate of $325 against the Pula.

      In Botswana, fuel costs 1 200 Pula (about Z$13 440 on the official
rate of 11.2 against the Pula) to buy 500 litres fuel, the maximum allowed
into Zimbabwe free of duty provided the importer is doing so for private use
at P 2. 40 a litre.

      A customs official, speaking by telephone from Plumtree border post,
said there had been a noticeable surge in the importation of fuel from
Botswana into Zimbabwe mostly by locals since the government relaxed the
fuel import regulations. "They (locals) are taking advantage of the 1 206
Pula allowance a month they are given when visiting Botswana (to buy fuel or
groceries). We don’t charge them duty if they don’t import more than 500
litres in a space of thirty days or bring in groceries not more than Pula 1
206 a month. If they import more than 500 litres we (customs) impound the
extra litres," said the customs official. "The fuel has to be for private
use and imported by the owner in his private car. If they need more than 500
litres, a fuel import licence is needed from NOCZIM."

      NOCZIM, the country’s fuel procurement agency, is presently saddled
with huge dents running to several billions of dollars.

      Zimbabwe, which has been in the throes of a fuel crisis for the past
three years because of foreign currency shortages blamed on a decline in
exports, needs about US$40 million (Z$32,96 billion) monthly for 67
megalitres of fuel.

      The rush to bring in fuel imports in small containers by gold-diggers
for resale in the parallel market comes amid wild speculation of a new fresh
round of fuel increases expected to be announced by the government anytime
from now. —Staff Reporter
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FinGaz

      Digging deeper into the public purse


      6/12/03 5:56:59 AM (GMT +2)

      Analysts said this week that after a bruising encounter with an
opposition determined to force him out of power, Mugabe was re-directing his
efforts towards consolidating his grip on power.

      The move would batter an already ailing fiscus, creating further
economic turmoil.

      The five-day mass protest, that was expected to deliver the opposition
Movement for Democratic Change (MDC) leader Morgan Tsvangirai to the State
House, had forced him to rethink his policy of people power, which he would
now work frantically to lure before the demise of his career as the country’
s top civil servant.

      "Mugabe should be feeling relieved after surviving the MDC march last
week from which he was expecting a lot of problems. He is not likely to
start talks with anyone since he now has the confidence that he can
consolidate his power.

      "He will use all the tactics at his disposal to consolidate this
power, and making promises and giving generously are some of the tactics he
will use," said University of Zimbabwe law lecturer Lovemore Madhuku.

      Last week, the MDC called for a weeklong mass protest to force Mugabe
from power.

      Dubbed the final push, the protest floundered in the face of a heavy
deployment of police and military personnel, cowing anxious urbanites into
remaining in the safety of their homes.

      In the build-up to last week’s protest, Mugabe, aware of the
desperation his government was facing, embarked on nationwide tours that
took him to Mashonaland Central, Mashonaland East and then to Mashonaland
West in the midst of the protest week.

      Mugabe has been promising his rural supporters various development
projects as well as material and financial support in his controversial land
reform.

      On the first day of the protest, he boasted that his government had
put in place "shocking" salary increases for the country’s teachers, who
last month went on strike demanding a completion of their job evaluation
exercise and were threatening to go on strike again in a few weeks’ time.

      Sources close to the salary negotiations said the teachers, who
constitute about a third of Zimbabwe’s civil service, would be getting hefty
salary adjustments next month.

      Mugabe also promised chiefs — the bedrock of his support in the rural
power base — modern houses, electricity and cars as well as a review of
their salaries introduced in the run-up to 2000 parliamentary elections.

      He assured his peasant supporters that the state-run Grain Marketing
Board (GMB), which has in the past two years been running grain loan
schemes, would not immediately demand the grain it has been loaning to them.

      He also promised them more assistance in the form of farming inputs,
dams, roads and irrigation facilities.

      Heneri Dzinotyiwei, a lecturer at the UZ, said naturally Mugabe, like
any other politician, would grab any opportunity like the present one to
endear himself to the people by going out to reassure them.

      "At a time like this, any leader would like to find some good news to
take to the people in order to re-assure them," Dzinotyiwei said.

      He said Mugabe could take advantage of the national indecision
resulting from the current political polarisation in the country to
strengthen his hold on power for some time by using this tactic of going to
the people to re-assure them that he was solving their problems.

      "At the moment there is a serious polarisation of the country with
some people being pro-MDC, while others are pro-ZANU PF.

      "There is no consensus that Mugabe should go or should not go, but
there is definitely a consensus that the problems the country is facing
should be addressed," Dzinotyiwei said.

      Commentators said Mugabe had been struck by the fact that most of the
workers were heeding the MDC calls for mass stayaways, and this indicated to
him that things were getting bad.

      Empty promises would therefore not sway a public that has been
disappointed by political rhetoric.

      This fact would now force him to re-look at all pledges he has made to
the electorate.

      John Robertson, an independent economic consultant, said that with the
economy in its current state of collapse, it was worrisome for Mugabe to
make such commitments when the country had no resources to fund them.

      "Everyone is wondering where the money will come from because they
cannot raise any extra money from taxes and export revenue is dwindling,"
Robertson said.

      He said the unbudgeted increases in the salaries of teachers and other
civil servants could result in the government salary bill shooting to
between $400-$500 billion, up from the present budget of $221 billion.

      "We don’t know where he will get the money to fulfil all the promises
he is making … maybe he will print more money, but this will push inflation
to more than 1 000 percent.

      "His government can not fund what it’s doing and that’s what will
bring them down," Robertson said.
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FinGaz

      Resilient ideas that remain silent

      Hama Saburi Deputy Editor-In-Chief
      6/12/03 5:58:35 AM (GMT +2)

      BRAINS behind Zimbabwe’s economic thinking may have succeeded in
hatching laudable strategies capable of pulling the country out of the
woods, but they have all faltered in one area — implementation.

      At least four solid economic blueprints were put together between
1980, when Zimbabwe tasted independence from Britain, but none of them was
implemented in full.

      Analysts said failure to go beyond rhetoric could be Zimbabwe’s
biggest undoing as the economy is virtually teetering on the verge of
collapse, while policy frameworks are gathering dust on the shelves.

      The economy, analysts said, has operated on "auto-pilot," for the past
one-and-a-half decades with policymakers jumping from one economic plan to
another.

      Harare economist, Joseph Muzulu, said the task of repairing economic
damage suffered so far was getting tougher each year because of inept policy
implementation.

      Muzulu said: "The dosage is becoming bigger. In other words, the
degree of policy change required now is much higher and harder to implement
than before."

      The latest in the series of blueprints introduced in the past two
decades is the National Economic Recovery Programme (NERP), which is already
under serious threat barely five months after its launch on February 18.

      Despite getting the nod from a World Bank team that visited Zimbabwe
early this year, NERP, which was put together by a loose coalition
comprising government, labour and business, is facing a confidence crisis.

      The crisis became evident when the Zimbabwe Congress of Trade Unions
(ZCTU), representing labour, pulled out of the coalition aptly named the
Tripartite Negotiating Forum (TNF).

      ZCTU cited arbitrary reviews of fuel prices by government, twice this
year, without consulting other members of the forum.

      While ZCTU’s decision could be labeled "political," there are also
line ministries and institutions that have missed targets outlined in NERP.

      Employers Confederation of Zimbabwe president, Michael Bimha admitted
this week that the short-circuiting of the consultative process has reduced
the collective ownership of NERP.

      NERP is just one of the many policy frameworks loaded with ideas but
failed on implementation.

      At independence from Britain in 1980, the government adopted socialist
principles and proceeded to offer free education and health among other
things.

      It later abandoned socialist principles on realising that the
productive base was getting weaker and could not support consumption.

      The budget deficit was also getting wider with recourse from domestic
and offshore funding proving too expensive to central government.

      The Economic Structural Adjustment Programme (ESAP), which was pushed
by the late Finance Minister, Bernard Chidzero in 1991, was implemented
half-heartedly and not many were surprised when President Mugabe announced
its abandonment in October 2001 at the burial of the late national hero,
Clement Muneri Muchachi.

      But still, the government had already lost the support of the
International Monetary Fund (IMF) and the World Bank, which were the major
backers of ESAP.

      Between ESAP and NERP, Zimbabwe had tried to refine its economic
reforms by adopting the short-lived Zimbabwe Programme for Economic and
Social Transformation

      (ZIMPREST), and the Millennium Economic Recovery Programme.

      Former planning commissioner, Richard Hove also tried to get the
nation to buy into Vision 2020 borrowed from Malaysia without success.

      Muzulu said while Zimbabweans were an educated lot, they lack the
courage to execute action plans.

      The once robust local economy is however, getting weaker, bleeding
from high inflation now above 260 percent and unemployment hovering above 70
percent.

      It is estimated that output in industry could plunge by 30 percent on
the back of shortages of coal, foreign exchange and electricity load
shedding.

      By the end of last year, most sectors such as mining, agriculture,
tourism and manufacturing had registered massive declines.

      Muzulu said ESAP failed because the government did not go the full
length in implementing other important aspect such the public sector reform
and privatisation, which were key to the success of the programme.

      "For the results to come out, the policies should be implemented. The
more difficult policies which makes the difference are the ones that are not
being implemented," Muzulu noted.

      Analysts said it has been difficult for policymakers to see through
their ideas because of red tape in government.

      It takes months for simple decisions to be made in government and by
the time they are finally made, conditions on the ground would have changed.

      In some cases, civil servants deliberately sit on programmes,
particularly those that affect their livelihood, such as reforms in the
public service.

      University of Zimbabwe (UZ) economics lecturer, Professor Rob Davies,
said there is also lack of seriousness and detail on the part of people
implementing economic policies.

      Davies said: "There are pages and pages of what needs to be done and
dates of implementation. Some of the dates in NERP passed before the
document was even released. The whole thing is not serious and it is
difficult to understand why?"

      The UZ economics lecturer believes that there could be individuals
benefiting from the economic meltdown and would resist efforts to abate the
situation.

      For instance, middlemen who are raking millions of dollars from the
black market would not want to see the price stabilisation protocol signed
under the TNF.

      Illegal foreign exchange dealers and moneychangers are also likely to
frustrate anything that eradicates the parallel market.

      The same with the chaotic land reform, which is said to have benefited
top politicians and civil servants, most of whom are under-utilising their
pieces of land.

      The majority of people who were set to benefit from the reforms face
famine owing to resultant food shortages.

      Davies said: "The consequences of this poor implementation of policies
is the continued collapse of the economy."

      Economic consultant, Samuel Undenge said NERP was doomed to fail
because ministries and the Reserve Bank of Zimbabwe were already behind in
implementing its objectives.

      "The Zimbabwe economy needs a push start. You can push start a car
successfully if the driver inside the car knows how to change the gears, in
this case monetary policy instruments.

      "NERP represents a push start by the joint effort of people of
Zimbabwe. But see what is happening now on implementation," said Undenge
referring to lethargy on the part of the RBZ.

      The central bank is still to top up facilities offered to the
productive sectors and narrowing spreads in interest rates in line with
international best practices.

      Undenge however, believes that the government took the correct
decision by abandoning ESAP because it ignored black economic empowerment
and emphasised a lot the extension of global capital.

      He said: "In fact, if we had implemented it in full the economy could
have gone under long back."
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FinGaz

Comment

      Embrace the devil


      6/12/03 2:09:58 AM (GMT +2)

      THE sometimes blundering International Monetary Fund, which itself has
more-often-than-not taken firm but wrong-headed stances on economic and
fiscal issues, has finally slammed the door on Zimbabwe. Some will say not
quite but this is the way we see it.

      Prior to this development, which was announced last Friday after the
Bretton Woods twin’s board meeting, speculation had swirled about Zimbabwe’s
imminent suspension. Since 1995, Zimbabwe has had a turbulent relationship
with the IMF and it was just a question of time before the country was
written off by the international monetarists. The IMF’s decision was
therefore widely predicted.

      Although this development has provoked muted response from the country
’s authorities, a wide cross-section of Zimbabweans greeted news of the
suspension of the country’s voting rights with collective trepidation
because they know only too well what this means and its implications —
Zimbabwe’s credit rating, for a long time the envy of many a developing
country, has been reduced to junk status, a red flag which will not escape
the attention of the international financier community.

      With the IMF funding on ice, Zimbabwe is now in a very deep hole
because no matter how far the country passes the hat, no international
financier will twitch. The decision by the IMF to suspend Zimbabwe will now
set the stage for the stiffening of the hands of the other international
institutions that have been sitting on the sidelines waiting to take the cue
on Zimbabwe from the IMF. What the IMF has done will only help to convince
the world that Zimbabwe has its needle well and truly stuck, so to speak.

      Admittedly, what we get from the IMF as balance of payments assistance
or support only amounts to the proverbial drop in the ocean, considering our
external support requirements. But the IMF’s continued funding for any
developing country is widely seen as a seal of approval by the international
community. At the risk of stating the obvious, it is imperative to point out
that, as a nation we are already going through a severe crisis of confidence
and without the IMF, it will unfortunately be quite some task to whip up the
enthusiasm of the other international financiers.

      To these financiers the IMF’s move on Zimbabwe is a wake-up call: they
will not touch Zimbabwe even with a barge pole. And a return to a normal
relationship with these key international financiers, who, as has been noted
before, take the lead from the IMF will be difficult and lengthy. The dented
international credibility could not therefore have come at a worse time. As
it is, the economy is struggling to cushion itself against the crushing blow
of an accelerated currency plunge amid slowing export performance.

      In the run-up to 1995 when the IMF finally jumped ship and abandoned
Zimbabwe, the institution’s impatience with Zimbabwe which had been hitherto
subtle, became even more glaring.

      Since then, the country has been on notice to meet its obligations or
face the chop. The institution has since made it clear that, under no
circumstances, will it dole out another tranche of its cash unless certain
obligations are met.

      Lest we are misunderstood, we hold no particular brief for what the
IMF stands for or has done in the past. In any case we are only too aware
that the IMF itself has come in for flak for its sometimes-misplaced
missionary-like zeal for fiscal rectitude. Its obsession with reining in
expenditure resulted in deep cuts in social spending by governments in
developing countries, creating bottomless wells of disenchantment and
general disillusionment as people got frustrated by social depravation.

      Be that as it may, with the economy having collapsed into a
recessionary heap we do not have much of a choice. Do we? We feel that we
have no option but to seek rapprochement and mend fences with the IMF.
Whether we like it or not we have to bite the bullet and knuckle down to the
IMF demands for the good of the nation.

      Given our predicament, the IMF is a necessary evil that, if it comes
back to Zimbabwe, could trigger a massive inflow of external funds into the
country and help us stabilise our finances.

      Ultimately, the end will justify the means.
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FinGaz

Letters

      Is it now official Zanu PF policy?


      6/12/03 2:41:52 AM (GMT +2)

      EDITOR — Zanu PF have now declared that businesses that were not
functional during the period of recent mass action will be denied a licence
to continue operating, whether or not they were capable or enabled to do so.

      The wizardly vision of Zanu PF has already created a national
unemployment level of about 80 percent, so why should they not now deliver
their self-inspired goal of 100 percent?

      National starvation is but another attribute that they are shameless
of while they rob the nation of all substances for their own gain and
survival. The globally known Zanu PF culture of greed, supplemented by
expected everlasting donor aid is something that even the most dim-witted
Politburo member may eventually question.

      This is only because his own diet may be similarly reduced to that
level of sustenance unless he recognises and adjusts the real cause of the
national demise. Drug crazed or mentally deficient Zanu PF supporters would
rather destroy newspapers that they cannot even read in denial of the fact
that the same party will some time in the near future quit sponsoring
mindless hooliganism.

      Any intelligent Zanu PF members must now have two desperate visions.
First, they are analysing where they can soon go with their acquired wealth
for short-term safety. Secondly they are conspiring what to tell their
supporters ahead of their hasty vacation out of the country before they are
found out and possibly lynched by their own subordinates.

      Walter Hurley,

      South Africa.
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FinGaz

Letters

      There isn’t any ‘bubble to burst’


      6/12/03 2:43:27 AM (GMT +2)

      EDITOR — I make reference to the comment headlined ‘ZSE overheating’
in the Financial Gazette of May 29-June 4 2003.

      That the bubble will burst is inevitable. While well meaning, it may
be viewed as an unwanted and inaccurate attack on Zimbabwe’s most important
asset base. It requires an answer.

      Long ago we played a game called ‘Silly Syllogisms’ one of which is

      - two like to moon

      - two like green cheese.

      - Therefore the moon is made of green cheese.

      We were eight years old but knew it was a joke.

      Yes, bubbles always burst but there must be a bubble in the first
place.

      What is the logic here about the share market? Like many seekers of
truth in the market place you are looking in the wrong direction. The place
to look is at the value of what shares are bought and sold with, ie: the
Zimbabwe dollar.

      Can we agree that the value of a currency is what you can buy with it?
No more, no less. Who will dare to put a replacement value on the Elephant
Hills Hotel or the NTS retreading plant? Those are what shares represent.

      When the value of the dollar goes down the value of what you can buy
with it goes up. It’s not a bubble looking at the index, while helpful for
trends it’s a lazy man’s way of looking at the market.

      Counters must be examined individually. A few are too high and a few
are too low but most are faced with inflation.

      There isn’t any bubble and therefore there isn’t going to be any
"burst".

      J Logan,

      Investor.
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FinGaz

      Fast-tracking home grown economy


      6/12/03 2:26:09 AM (GMT +2)

      IT was a successful mass stayaway, like the one before it, but
authorities’ heavy handedness thwarted any demonstrations.

      Pre-emptive assaults were meted out on innocent citizens the day
before the strike.

      My nephew was assaulted on Sunday as he stood in a queue for a
commuter omnibus to go home.

      He was challenged by a uniformed assailant to protest. But no, he knew
better and kept quiet.

      The assailant was a mere tool in a grand scheme.

      The emperor is angry. He says he has the mandate of true Zimbabweans
who voted for him.

      Tsvangirai has his weaknesses. I suspect he welcomed his arrest on the
day of the proposed march, as this removed him from the frontline.

      The man only has an inkling of what power is.

      Companies, however, despite threats to cancel licences, remained
closed for five days.

      A more effective strategy for disillusioned citizens should not
therefore be talk of a "final push", but routine two or three-day national
strikes every month under a more general banner than just the MDC. The
objective should not be to oust an elected President, but to put him under
pressure.

      He owes us accountability. We voted him into power.

      The President is on a crusade to destroy the evil white economy. It
takes evil to fight evil.

      He has pulled down the value of white commercial assets to within the
reach of indigenous people.

      Now you see consortiums of upstart indigenous entrepreneurs taking on
deals that a few years ago would have been an exclusive preserve of white
players with big bucks.

      The rules of commerce according to the present rule of law are foreign
to the new order that ZANU-PF intends to usher in.

      The government uses its fight against the black market only as a
weapon to selectively harass opponents.

      Only the other day a percieved political opponent — Raymond Majongwe —
was arrested for buying fuel on the black market, yet the government is a
player too. It also buys foreign exchange on the black market.

      Establishment men bypass controls with impunity.

      Some reportedly sell grain to the GMB only to buy it back (in some
cases, even before the truck offloads!) at subsidised miller rates.

      Similar cases are evident in the fuel sector.

      We hope the government knows this is what it is actually doing and
that the war against colonial commercial structures will one day come to an
end and the black market legitimised.

      After all, it is only in the black market that people with a ravaged
history can forge the rudiments of a home-grown commercial dispensation.

      Certainly small businesses deserve more recognition at policy level
throughout the developing world.

      "Fast tracking" is a Zimbabwean innovation.

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FinGaz

      Zim faces 100 metric tonnes cereal deficit


      6/12/03 2:16:24 AM (GMT +2)

      The shortage of fertilisers, seed for staple cereal crops, fuel and
electricity supply, compounded by continued shortage of foreign currency,
are diminishing output prospects for the country’s coming winter maize,
wheat and barley as well as the 2003/04 summer crops, the latest Famine
Early Warning Systems Network (FEWS) report says.

      Zimbabwe is currently expected to show a 2002/03 maize harvest of
between 800 000 and 900 000 tonnes, leaving a cereal deficit of one million
tonnes, of which 700 000 tonnes is maize.

      "Even if the outstanding Grain Marketing Board (GMB) commercial
imports of 160 000 tonnes and food aid imports of 80 000 tonnes are moved
into the country, the cereal gap will still be 725 000 tonnes (of which
about 580 000 tonnes will be maize)," the report said.

      Inflation in Zimbabwe stood at 269.2 percent in April 2003 and is
estimated to reach 500 percent by year end.

      Coupled with reduced income levels and incoming generating
opportunities, run-away inflation is making more of the urban population
food insecure, the report said.

      "After three consecutive years of poor harvests, the food security
situation in the Matebeleland provinces, some parts of the Midlands and
Masvingo provinces and areas in the extreme north along Zambezi valley
remains critical and is set to worsen after June," FEWS NET said.

      World Food Programme (WFP) Emergency Operations (EMOP) food aid
distributions come to an end, unless another EMOP is put in place before
then.

      In most of these areas, GMB supplies are inadequate and the market is
short of staple cereal.

      "Staple prices are too high for most households to afford to buy
sufficient grain, especially since rural income generating opportunities
have not recovered from the effects of the drought," it said.

      "The general increase in prices of all commodities continues unabated
throughout the whole country while income lags behind. In urban areas,
unemployment continues to increase, yet apart from a few isolated instances,
the urban poor have not received needed food assistance," the report said. —
I-Net Bridge
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[Let them eat cake!....B]

FinGaz

      Ethiopian Special Buffet something to die for


      6/12/03 6:06:49 AM (GMT +2)

      AVONDALE, once a quiet village with a family-run supermarket and a
coffee shop, is rapidly growing into one of Harare’s premier shopping
centres.

      There is also a great choice of restaurants serving either fast food
or slow food, and at least one supermarket serves a punnet of tasty-looking
stew and steaming sadza at lunch time. This can be eaten in your car while
you snatch a half-hour lunch break, to the envy of those parked on either
side of you.

      Last Sunday, George, Elise and I considered the lunchtime options
available and unanimously decided to visit Fontana di Trevi in Avondale for
their weekly Ethiopian Special Buffet, currently priced at $7 000.

      The terracotta-coloured, hacienda-style Fontana di Trevi is situated
in King George Road, adjacent to the bend in the road frequently used to
facilitate speed traps and roadblocks.

      A large bird advertising Famous Grouse does sentinel duty near the
entrance, and there is plenty of safe parking in a gravel drive way behind
palisades.

      We had booked "a table for three in the gazebo", which was fortunate,
as when we arrived, the restaurant was three- quarters full and the buffet
in full swing.

      A genial waiter seated us and took our drinks order: a Castle for
George, ($850) Mazoe Orange and water ($350) for Elise and me. The same
waiter, whose bonhomie did not once falter during the long gastronomic
afternoon, then led us to the "authentic Ethiopian buffet" and described the
different creations as they steamed in their chafing dishes, tempting us
with their aroma.

      Traditional Ethiopian stews, known as "wats", formed the basis of the
buffet, all subtly flavoured with a blend of spices known as "Berbere",
which varies accordingly to suit the dish.

      A perfectly cooked chicken wat, combining hardboiled eggs and a rich
sauce, varied in colour and flavour from a hot and spicy lamb wat. I gave
the beef wat a miss, needing to save space for the grilled lambs’ ribs. The
various lentil and chick pea wats and a mixed vegetable wat combining
carrots and zucchini would have kept a large party of vegetarians quite
happy, and a traditionally prepared bowl of rape, onion and tomatoes had to
be re-filled at least twice.

      A large platter of Njera, a sponge-textured pancake equivalent of
bread, was available for aficionados to eat with the wats, and for the less
adventurous, a platter of pitta bread was just as satisfying. A bowl of
crumbled sour cheese, garnished with green herbs, could be eaten to temper
some of the hotter meat and lentil dishes.

      Our waiter encouraged us to try all the dishes, and to return for
second helpings, providing us with a clean plate and clean cutlery. I couldn
’t resist a second helping of lamb wat and a few more spoonfuls of the fiery
national favourite, the chickpea wat. And another serving of rape, and just
a little sprinkling of crumbled cheese …

      Finally satisfied, we rounded off our meal with two different types of
ice cream and a slice of vanilla gateau. The piece de resistance was a cup
of "ritual Ethiopian coffee, made the traditional way, out in the garden",
over a small fire of hot coals. While sipping this stimulating brew, we
inhaled the heady incense used in its preparation and listened to stories of
how the Arabian Queen of Sheba paid a visit to the court of King Solomon,
bearing gifts of gold, jewels and spices. Ethiopian tradition has it that
Sheba married Solomon and their offspring, Menelik 1, founded the royal
dynasty of Ethiopia.

      Special mention should be made of the garden at Fontana di Trevi, with
its inviting green lawns and palm trees, both exotic and indigenous. A
Jumping Castle, constantly in use last Sunday, provides entertainment for
the under 12s. With children in mind, and those who prefer mildly flavoured
and less spicy food, there are simple and less pungent traditional dishes
available.

      There is also an extensive a la carte Italian menu available, with a
wonderful range of antipasti, pasta, grills, fish, chicken and beef.

      Fontana di Trevi has a well-stocked bar and whisky drinkers can enjoy
a tot of J&B for $2 000, or a Famous Grouse for $2 500.

      The Ethiopian Special buffet lunch, from being a monthly event, is
growing in popularity and can now be enjoyed every Sunday of the month.



      Fontana di Trevi Restaurant
      7 King George Road
      Avondale
      Tel 703038 / 703826
      Open: Tuesday-Sunday
      Closed : Monday

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FinGaz

      GMB food procurement in limbo

      Dumisani Ndlela News Editor
      6/12/03 2:13:22 AM (GMT +2)

      A REGIONAL food security assessment organ has warned the Grain
Marketing Board (GMB) could fail to execute its food procurement obligations
due to "inherent inefficiencies and corruption".

      "Reduced deliveries to the GMB, together with inherent inefficiencies
and corruption within the parastatal are expected to limit the government’s
capacity to provide food," the Southern African Development Community Famine
Early Warning Systems Network (Fews) said in its latest report on the
country’s food security situation.

      The GMB is the sole legal procurement agency for maize grain, both
locally and offshore.

      Zimbabwe’s southern parts are facing a serious threat of famine due to
poor harvests.

      The government has already declared a disaster in the south,
encompassing mainly the two Matabeleland provinces.

      In its food security report, Fews warned that the parastatal would
even be constrained from making substantial imports by the current foreign
currency shortages in the country.

      "It’s capacity to import is going to be reduced further by the poor
export performance that is expected to continue throughout the current
marketing year," the report said.

      GMB has in the recent past managed to get an average 13 percent of the
estimated national maize production, with projections hinting a rocky spell
for the parastatal due to a host of factors, the report said. Major
constraints likely to affect GMB’s market operations include a lower maize
producer price offered by the parastatal, limited deliveries by smallholder
farmers due to poor harvests and non-production by large-scale commercial
farmers.

      This week, Agriculture Minister Joseph Made said the GMB would ensure
it moved closer to farmers to reduce transport costs.

      This, he said, would ensure transport costs do not erode the farmers’
margins.

      The Fews report said staple cereals — maize, wheat and sorghum—
remained critically in short supply throughout the country, and this was
pushing prices up, forcing sellers to evade GMB to sell on the parallel
market.

      Farming industry players said non-governmental organisations were
trying to avert the disaster by marshalling enough food aid.

      It is understood the government is pleading with donors for food aid
but it will take some time before more assistance starts trickling in as
donors such as the WFP have to forward the request to the UN.

      Food aid from non-governmental organ- isation has played a critical
role in averting famine in the country, currently going through its worst
economic crisis in history which has been worsened by erratic rainfall in
the past three years.

      Many large-scale farmers have been replaced by peasants and
non-farming urbanites in a move designed to de-racialise commercial farming.
That has reduced farming output. Some have not occupied pieces of land
allocated to them as they do not have adequate funds to buy inputs and
machinery and develop required infrastructure.

      The government says the uptake for the commercial farms has been in
the region of between 70 and 75 percent.

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FinGaz

      Output in timber industry declines by 10pc

      Zhean Gwaze Staff Reporter
      6/12/03 2:14:54 AM (GMT +2)

      NON-EXPANSION of existing plantations has affected the production of
timber, with no major planting taking place in the past two years.

      The chief executive of the Timber Producers Association, Bill Johnston
has said output in the timber industry has been on the decline since 2001.

      Johnston told The Financial Gazette: "Forestry reserves have shrunk by
approximately 10 percent due to losses suffered from the land reforms and
fires."

      National annual timber statistics indicate that 119 000 cubic metres
of timber were produced in 2001.

      The figure dropped by 10 percent in 2002 to 108 000 cubic metres.

      Figures for this year are yet to be released.

      Johnston said the decline was mainly a result of the land reform,
which displaced a number of white farmers who were involved in timber
production.

      Changes in the land tenure system since 2001 forced many players in
the industry not to expand their plantations, as they were not sure how the
process would affect their operations. The government’s agrarian reform has
led to the appropriation of over 90 percent of the country’s 4 500
white-owned commercial farms for the resettlement of the landless blacks,
many of whom lack resources to farm on a large scale.

      Major timber producing areas were acquired for resettlement and most
of the settlers started depleting the forests for firewood and construction
material. They also overgrazed the land.

      Uncontrolled veld fires have also contributed to the decline, Johnston
said.

      The timber industry has a long production cycle. Pine trees mature
after a period of up to 25 years and continuous replanting is required.

      The timber industry contributes about four percent of the Gross
Domestic Product and earns the country the much-needed foreign currency
through exports to regional and international markets.

      Industrial Development Corporation of Zimbabwe general manager, Mike
Ndudzo said communities in timber growing areas must be given concessions to
own plantations.

      They must be allowed to process timber at village level to motivate
them to look after the trees.

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FinGaz

      The MDC blundered, period!

      Taungana Ndoro
      6/12/03 2:10:45 AM (GMT +2)

      In February 2000, soon after the referendum results, mobs of war
veterans invaded white- owned farms defying the law and signifying the
demise of property and land rights.

      In the same year the High Court ordered the police to evict farm
invaders from commercial farms and the police defied the order indicating
the grotesque breakdown of the rule of law.

      When the government resolved to fast-track the land reform, the
Supreme Court rendered the move illegal but the order fell on the police’s
deaf ears.

      That marked the beginning of lawlessness in this country which the
international community and civic society greatly lambasted.

      The police became selective in enforcing court orders as they in fact
challenged a High Court order by applying for an order stopping them
(police) from evicting the invaders and limiting their intervention to only
ensuring that the situation remained peaceful. This application was
dismissed with costs.

      As lawlessness progressively seeped through the fabric of society seen
in the run-up to the parliamentary and presidential elections in 2000 and
2002 respectively, human rights abuses rapidly escalated, attracting wide
condemnation the world over.

      The situation deteriorated to the extent that the whole social,
political and economic set-up was disintegrating until the Movement for
Democratic Change (MDC) called for the "final push".

      There have been several suggestions put across as to the objective(s)
of the inconclusive "final push" with some saying it was meant to evict
Robert Mugabe from State House.

      MDC spokesperson Paul Themba-Nyathi said it was to bring Mugabe to the
negotiating table and a government minister even gave the impression that,
"the clear intent behind such threatened actions is to effect a coup d’etat
against the legitimately elected government of Zimbabwe."

      Whatever hullabaloo the "final push" might have caused and whichever
way one might want to interpret it, what sticks out like an ugly rib through
the chest is the court order of May 31 barring the MDC from taking mass
action from June 2-6.

      The MDC erred by failing to explicity define the major objective of
the "final push"upon which the government and its sympathisers eagerly
sought to either ridicule their motive as a dream or more gravely as a coup
d’etat.

      Unlike in the past when the police developed cold feet in executing
court orders to evict farm invaders, the ZRP this time responded with
unparalled enthusiasm to thwart the planned opposition mass protest that
they had defined in such a way as to render it treasonous.

      Supposing the government, instead of Police Commissioner Augustine
Chihuri, had applied for the order to illegitimitise the mass action, would
the police have sought "an order stopping them from preventing street
protests and limiting their intervention to only ensuring that the situation
remained peaceful" as they did during the farm invasions?

      The crux of the matter however is MDC’s response to the fateful court
order.

      That ill-gotten court order should have sent loud warning signals to
the opposition that the much-awaited and much-publicised street marches to
State House would never be, at least not that week (June 2-6).

      That ill-gotten court order was exactly what the ruling party needed
to legitimise their brutal clampdown on anyone suspected of sympathising
with the opposition’s pilgrimage to Mugabe’s abode.

      The logical thing that the MDC leadership should have done on June 1
was to — in earnest — call off the mass action.

      Had the MDC called off the mass action then, not only would they have
adhered to the rule of law, (a principle that the party passionately asserts
to uphold) but they would also have bought invaluable time to unpuzzle ZANU
PF’s "shock and awe" blitzkrieg.

      It was an act of blindness for the party to go through with the
planned mass action in spite of a court order to the contrary. By stubbornly
insisting on ‘lawlessness’ not only did the MDC reduce themselves to the
level of the 2000 farm invaders but they also fell into ZANU PF’s neatly
orchestrated trap.

      The first casualty of that trap was Morgan Tsvangirai who was quickly
bundled up to police sanctuary before he could carry out his defiance of the
somehow ‘unlawful’ court order.

      That move effectively deemed the planned march protests a non-starter
since sheep without a shepherd easily fall into the jaws of hungry wolves.

      That ill-gotten court order was an indication that security agents
would be out to make the mass action a picnic of blood and bandages. That in
itself sent waves of confusion, despair and indeed shock and awe throughout
the entire stronghold of the long-suffering opposition.

      The MDC blundered, period!

      After Tsvangirai’s arrest they still had an opportunity to postpone
the mass protests, but someone must have ill-advised them to go through with
it though the atmosphere was clear — ZANU PF was more prepared to deal with
the mass action than MDC was to go through with it.

      Of course in one breath passed through a whistle, the MDC managed to
shut down the whole nation, but I don’t think I’d be way off if I say that
was the final whistle — the game of stayaways is over! The enthusiasm for
staying at home without even a worthless dollar in your pocket is long gone.

      The MDC must now learn to play the game on the field rather than off
(away) it. If they do not want to play the game on the field then ZANU PF
will continue to win by default.

      While MDC captain Tsvangirai languishes in police custody probably for
another month he must spare a sobering thought to strategies that will not
fail. On the other hand, the ruling party must be on guard since prolonging
Tsvangirai’s detention might trigger spontaneous mayhem. We should give it
to him that though in custody, Tsvangirai still commands a lot of charisma.

      However, the MDC’s failure to achieve the people’s objectives is
slowly fragmenting the once dominant opposition party whose members are
being painfully disillusioned about the continued failed schemes to put
buttered bread on their tables.

      The MDC should not have embarrassed itself. It should have been
subtler, more calculative, more prudent, more cunning and more strategic,
especially when dealing with a party of the calibre of ZANU PF.

      Hongu ZANU yaora asi haisati yava honye. The ruling party still has a
few more tricks it can employ before it completely decays.

      As the nation burns, it’s clear the armed forces hold the fuel and the
water and it remains their discretion as to what they should splash on the
inferno.

      The armed forces must however, remember that though they might prevent
political change, they cannot implement economic emancipation.
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FinGaz

      Dollarisation in Zim: official or unofficial?


      6/12/03 2:41:15 AM (GMT +2)

      Experiences elsewhere have shown that countries characterised by
galloping or runaway inflation or any high levels of inflation, have faced
the challenge of restoring lost purchasing power of their currencies.

      One of the adverse effects of unsustainable levels of inflation is
that it imposes what is termed inflation tax on the pockets of consumers. A
typical example is given by a case where one used to spend $5 000 to fill up
a Mazda 323 with fuel but now, one needs more than twice as much to do so.
(Of course, depending on where fuel is procured!) This simply means that the
purchasing power of $5 000 has been eroded by inflation.
      Lost purchasing power has therefore hit hard bank savings on fixed
interest rates, pensioners income, and others on fixed incomes where annual
increments, if any, fail to keep pace with inflation. When consumers are
hurt by inflation tax, they hedge that tax by finding alternative means and
ways of ensuring that they store their wealth in those assets that do not
easily lose value such as gold, real estate, silver cutlery or jewellery.

      The process of hedging not only inflation but adverse economic
policies such as an unfavourable exchange rate by exporters and importers,
and adverse interest rate policy by bank clients, is not only new to
Zimbabwe but has already been experienced elsewhere.

      This process of hedging prompts one to stimulate debate on the
question of whether Zimbabwe is slowly getting into a situation where there
is unofficial or official dollarisation. If this is the case, should
Zimbabwe continue to have a wait and see stance as inflation moves from
single to double, and now triple digit levels?

      The implicit question being raised here in order to avoid full
dollarisation is the need to address the root causes of inflation, by
putting in place those policy measures that reverse the inflationary trend
that is now heading towards a quadrupling of the inflationary figures.

      The definition of dollarisation therefore has a broader focus. It
should not only be considered in terms of US dollars but it is use of any
foreign currency together with or instead of the domestic currency.

      This can be done officially or unofficially. However, in most
countries where there is unofficial dollarisation, the US dollar has tended
to become the foreign currency of choice.

      Zimbabwe is a typical example of a country that is now using more US
dollars (on the parallel market though!) relative to prior periods.

      Dollarisation therefore normally arises as a counter-response to
adverse inflationary conditions that wipe out the purchasing power of a
currency, or that wipe away the competitiveness of exports regionally and
internationally.

      Unofficial dollarisation occurs when individuals hold much of their
financial wealth in foreign assets even though foreign currency is not legal
tender that is, people will tend to hold foreign-currency bank deposits or
notes (paper money) to protect themselves against high inflation in the
local currency.

      To some extent, unofficial dollarisation is beyond the control of the
government because it normally takes place without formal legal approval.

      It can also arise when people hold foreign assets legally or
illegally. For example, when people are allowed to hold accounts such as
dollar accounts in the form of individual and corporate foreign currency
accounts, then this is considered to be legal but it would still be illegal
to hold other kinds of foreign assets, such as bank accounts abroad such as
Swiss accounts, unless special permission has been granted.

      This can include holding any of the following: foreign bonds,
foreign-currency deposits, other non-monetary assets that are normally held
abroad; foreign-currency deposits in the domestic banking system; for
example, individual and corporate foreign currency accounts or foreign notes
(paper money) in wallets, mattresses or safes at home.

      Dollarisation may begin with asset-substitution then followed by
currency substitution that is, in the first instance, people substitute cash
for assets such as purchase of real estate or gold rather than holding cash.

      A higher level involves substitution of currency that is, rather than
use Zimdollars, people will prefer to hold US dollars, South African rands
or Botswana pulas or any other currency for the simple reason that
preference is made of using a stable means of payment and store of value.

      Other bills will however continue to be paid for in the local currency
such as wages, taxes, and everyday expenses such as groceries and telephone
bills (unless one is roaming on a mobile!)

      However, there is a tendency that expensive items such as vehicles,
mobile phones and houses may continue to be paid for in foreign currency. An
advanced stage of unofficial dollarisation sees people thinking in terms of
foreign currency. Most if not all prices in the domestic currency end up
indexed to the exchange rate. This is what defined some circles as " the
economy is priced to the parallel market."

      Official dollarisation is also known as full dollarisation and this
arises when foreign currency is exclusively or predominantly considered to
be legal tender. In this case, foreign currency will not only be used in
contracts between private parties, but will include the government which
will now be using it to effect payments too.

      Domestic currency may continue to exist, but coins that have small
value will be largely used. Most countries that have adopted official
dollarisation have approved one foreign currency to be legal tender.

      Official dollarisation occurs when a government finally adopts foreign
currency as the predominant or exclusive legal tender. In some cases, a
country can be specific and adopt say the US dollar as the predominant
currency by allowing residents of that country to accept it as legal tender.

      In some cases, multiple currencies would be acceptable. With official
dollarisation, a country may end up not issuing domestic currency and
instead, use will be made of foreign currency.

      Empirical evidence on the ground has indicated the following in
Zimbabwe:

      - Real estate is one sector that pioneered the billing of rentals in
US dollars. This includes the selling of properties.

      - Airlines are now charging fares in US dollars.

      - The Zimbabwe Electricity Supply Authority is now billing in foreign
currency, in line with the NERP.

      - In line with the NERP again, modalities are being developed of
ensuring that tourist travellers pay in foreign currency for fuels. Once in
place, this would be further green light for residents to accept US dollars,
rands or either as legal tender, depending on government instructions;

      - Procurement of fuel in foreign currency has recently become a common
phenomenon, as most garages are now accepting US dollars as legal tender.

      - Other (not yet known to me!)

      There are very few countries that have adopted official dollarisation
because of the political symbolism that is granted on a national currency.
Some economic factors such as the perceived costs of dollarisation have also
discouraged other countries from considering full or official dollarisation.

      Dollarisation has witnessed generally unimpressive economic growth in
most dollarised. As people suddenly switch into foreign currency, this has
had a tendency to depreciate the domestic currency, thereby starting an
inflationary spiral that is very unhealthy for economic growth and
development.

      Whilst this is not the only incident, Zimbabwe has experienced this
about two weeks ago when excessive demand for US dollars pushed the rate
from Z$1 500 : US dollar to somewhere around Z$2 900 : US$1. The net effect
is that the cost of a depreciating currency is passed on to the consumer
through increased prices.

      Where people hold extensive foreign-currency deposits, a change in
domestic or foreign interest rates can trigger large shifts from one
currency to the other, as a means of speculating about the exchange rate.
Such shifts complicate the job of a central bank that is trying to target
the domestic money supply.

      An officially dollarised country may end up relinquishing the
independent of its monetary policy to the country whose currency it uses.
This means that should Zimbabwe decide to have official dollarisation and
thereby adopt the South African rand for instance, as acceptable legal
tender, in addition to Zimdollars, this means that Zimbabwe will have to
adopt and or align its monetary policy with that of South Africa.

      Interest rates will also tend to be broadly similar throughout the
zone. However, some difference in interest rates may arise due to various
risk factors for example, country risk. With this development, the need for
currency conversion fees will disappear.

      Whilst dollarisation has its ugly face on one side, its beauty is also
seen where unofficial dollarisation provides a hedge against inflation in
the domestic currency. This can increase the stability of the banking
system. Furthermore, by allowing domestic banks to accept deposits in
foreign currency (e.g. FCAs), this means that depositors do not have to send
their money out of the country when they want to switch it into foreign
currency.

      The question that remains unanswered is where the money goes to once
such accounts have been declared illegal. Zimbabwe’s experience has shown
that the money flies back to where it can from, or it seeks a safe haven
where it would not be forcible liquidated at a government determined
exchange rate but a market –based rate, or it seeks a home where access will
always be guaranteed without queuing for it for example, a Swiss account, or
a matress.

      Dollarisation also reduces the risk of currency devaluation and this
ultimately reduces the risk of a bank run, thereby ensuring the stability of
the banking sector.

      An officially dollarised country becomes part of a unified currency
zone with the country whose currency it uses. Examples include the
Dollarzone, Eurozone or the zone that may be defined by the African Union.
Within the unified currency zone, arbitrage that is, the buying and selling
of goods, services, financial assets etc in order to take advantages of
differences in prices, will tend to keep prices of similar goods within a
narrow range.

      The list on the pros and cons of dollarisation discussed here is not
exhaustive. The rest would be brought up in the debate. In a nutshell, the
purpose of this article was simply to discuss the notion of dollarisation,
the risks that we take as a country as we fail to control inflation, and the
ultimate measures that people take in order to hedge inflation.

      The issue here is not about the need for Zimbabwe to be on unofficial
or official dollarisation, neither is it about the country being under
unofficial or planning to have official dollarisation.

      The issue that should stimulate debate is on the nature of specific
measures that should be taken in order to tackle inflation head on and
thereby get the macroeconomic environment right.

      Inflation was declared enemy number one a long time ago but we seem to
continue to approach it without much confidence. Inflation has to be fought
head on otherwise unofficial dollarisation will continue to creep in and
ultimately force the introduction of official dollarisation. Whither
Zimbabwe with dollarisation? Unofficial, official or none of the above?

      Judith Kateera is a member of the Zimbabwe Economic Society
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FinGaz

      Govt must restructure domestic debt


      6/12/03 5:43:08 AM (GMT +2)

      THE major source of the economic problems facing the country has
undoubtedly been the budget deficit, which has largely been financed by
domestic banks.

      Throughout the reform period, the budget deficit has exceeded six
percent of the GDP, with the highest deficit to date being 23 percent of the
GDP — being experienced during the 2000 fiscal year.

      However, owing to government’s domestic debt restructuring exercise
and the non-payment of foreign debt due to foreign currency shortages, the
deficit fell to about nine percent of the GDP in 2001.

      Last year the deficit rose to around 14.1 percent and is estimated to
fall slightly to 11.5 percent during the current fiscal year. Supplementary
budgets could see the deficit rising.

      As has always been noted by many analysts and commentators, the
problem with the government budget deficits is how they are financed —
borrowing from the domestic banking sector.

      This has been compounded by the restrictions on foreign borrowing by
international aid agencies, a situation that has resulted in the reliance on
domestic capital markets to finance government budget deficits.

      Before Zimbabwe severed relations with the multilateral donor
community, the government used to enjoy about 40 percent funding of its
deficit from the donor community, a figure that rose to more than 60 percent
in the first half of the 1990s.

      Because there has been no foreign funding of the budget deficit during
the past four years and an ever-declining revenue base due to the poor
performance of the economy, the government has been left with no option but
rely on the domestic economy to fund its chronic expenditure overruns.

      It is against this background that the government decided to
restructure its domestic debt starting in 2001 so a greater proportion of
the debt becomes medium to long-term.

      During the first year, the government set itself a target of reducing
short-term debt to 70 percent of total domestic and 30 percent for medium to
long-term debt. Last year and thereafter, the government’s aim was to
intensify its domestic debt restructuring exercise by increasing the
proportion of medium and long-term debt to at least 40 percent.

      These targets have, however, not been met as government only managed
to reduce the proportion of its short-term debt by about four percentage
points to 90.7 percent while the proportion of long-term debt rose by the
same basis points to 9.3 percent.

      What is now worrying is that since last year it seems as though the
debt-restructuring programme has been discarded as the proportions of short
and long-term debt have reverted to their pre-policy announcement levels of
five percent and 95 percent, respectively as shown in the diagram below.

      The government, therefore, needs to urgently resuscitate the domestic
debt-restructuring programme that it initiated in 2001 as the large
proportion of short-term debt imposes a serious debt service burden and has
negative implications on the economy.

      To minimise the adverse impact of short-term funding on domestic
financial markets, it is my hope that the new Reserve Bank governor should
resuscitate the domestic debt-restructuring programme by shifting short-term
debt towards longer-term securities.

      However, it should be noted that the major threat to such an exercise
is inflation as high inflation has the effect of shifting the composition of
domestic debt towards the short-term.

      In this regard, therefore, inflation stabilisation is critical, if the
debt restructuring exercise is to be realised and assist in the
stabilisation of the current volatile macroeconomic environment.
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Telegraph

Commonwealth snub to Mugabe
By Tim Butcher in Johannesburg
(Filed: 12/06/2003)


A Zimbabwean official was barred from a Commonwealth meeting in Johannesburg
yesterday as President Robert Mugabe's regime tried to defy its suspension
from the organisation.

Zimbabwe claimed incorrectly that its "suspension from the councils of the
Commonwealth", imposed after Mr Mugabe's widely condemned re-election last
year, had lapsed. But the Commonwealth stood firm, refusing the official
access to a three-day science council meeting.

By contrast, some countries have allowed Zimbabwean officials to evade a
European Union travel ban. France allowed Augustine Chihuri, the Harare
police commissioner, to attend Interpol meetings last year, and Spain
allowed Mr Mugabe to land in Madrid.

"The situation is that Zimbabwe remains suspended from the councils of the
Commonwealth and it is encouraging that all members fulfilled their
obligations to maintain the suspension," a Commonwealth spokesman said.
Zimbabwe's suspension is up for review in December at the Commonwealth Heads
of Government meeting.

Zimbabwe's science minister, Olivia Muchena, was anxious to ensure that her
representative was allowed to muscle into the official Commonwealth
function.

"It's not like I am gate-crashing," she said. "I came on an invitation.
Zimbabwe has taken a position that the suspension ended in March."
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FinGaz

Cottco reaps gold, RBZ fails dismally


      6/12/03 2:02:36 AM (GMT +2)

      Diamond Cotton
      The processor of white gold has indeed made its mark. What a
marvellous trail the company has blazed so far! From a stodgy parastatal,
through a successful listing, Sylvester Nguni and his team have transformed
the Cotton Company of Zimbabwe into one of the most profitable companies on
the local exchange. Meikles, you oughta watch out for these boys!

      Earnings per share (EPS) have grown from $3.12 to $17.92, a growth of
473 percent.

      These earnings are definitely going to go up for a variety of reasons.
Bearing in mind that the company only consolidated part of SeedCo’s results
into their own, the share from the associate is bound to increase.

      Had the company consolidated full year results for the latter, then
the contribution after tax would have been slightly above $1 billion. Yet
the company only recorded SeedCo’s contribution as $187 million owing to the
timing of the transaction.

      Synergies to be brought about by linking up SeedCo and Quton are still
to come to fruition but one supposes they could be substantial if the
companies integrate well.

      Also the cotton prices around the world are likely to remain above
US$0.50 per pound of lint in the short to medium term. This would greatly
benefit the company.

      Even if the company were to give farmers $400 per kg of cotton, heck,
even $800 per kg, they would still make obscene amounts of money!

      The company is also substantially cash positive and to that extent, it
could utilise those amounts of cash to generate substantial finance income.
In the first six months of last year, they netted above $750 million in
finance income and close to a billion at the end of the year. The amount
netted in the first half rivalled many a small bank’s bottom line in the
same period.

      In short this company is here to stay so long as the management is
empowered and power struggles in shareholding do not interfere with the
running of the entity.

      Let me end on a personal note: I think the company must give more to
its outgrowers and stop sponsoring rugby festivals and concentrate on
developing its impoverished outgrower community.

      Dog RBZ

      For not making available cash on the market as and when needed. Though
not a regular fan of Undenge, I believe this act is unlawful. I mean this
should be a top priority of the central bank. No one really cares where they
get the foreign currency to print $500 notes.

      Instead of addressing the problem, the central bank was elusive while
this was happening leaving the media to inform the public where they really
stood through guess-work.

      Meanwhile the bank issued the same statements each day trying to trash
stories reported in the private media on various issues. I think last month
would be remembered as the month the bank’s corporate affairs department
worked overtime the most.

      What was next? We heard the governor was calling it a day. This
baffled every concerned citizen. Was he going because of the monetary
problems or what? Whatever reasons given for his resignation, the man will
rue the day he accepted the offer to become the guardian-in-chief of
Zimbabwe’s purse.

      Regardless of how intelligent our governor is (having spent successful
years as a scholar in the United States), no sane treasury chief would like
to be remembered for introducing new notes and coins of higher denominations
during one’s tenure.

      In essence this means one would have failed to contain inflation and
money supply growth. On the contrary one would have helped fuel it. So I
think the oratory published in the Herald to describe his tenure were a
painful send-off to the man.

      Imagine, Al Greenspan, leaving a legacy that he brought about the
introduction of new US$500 and US$1 000 bills!

      That would defeat the whole purpose of his job.

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The Herald

Fertiliser industry faces serious viability problems

Herald Reporter
THE fertiliser industry is facing serious viability problems due to the
shortage of foreign currency to source inputs and industrial spares needed
to boost production in order to meet a growing agrarian reform-induced
demand.

This was revealed at an urgent meeting between the Minister of Lands,
Agriculture and Rural Resettlement, Cde Joseph Made, and executives of the
country’s leading fertiliser manufacturers — Zimbabwe Phosphate Indus-tries
and Windmill.

Cde Made convened the meeting to discuss the situation in the fertiliser
industry, the closure of Windmill’s Mt Hampden plant and to raise concerns
for newly resettled farmers who urgently needed fertiliser for their winter
wheat crop.

He said the closure of the plant had a direct impact on the operations of
farmers in the country who were determined to enhance the country’s food
security position.

"We would want that plant to operate," he said. "There is a huge demand for
fertiliser for the winter and summer crop and farmers want more fertiliser."

"Fertiliser is what makes a crop yield well. This is what will bring income
to the farmer, food security, better returns and the capacity for farmers to
repay loans," he said.

He urged fertiliser companies to supply fertiliser timeously so that farming
operations would not be disrupted.

Many farmers who had tilled their land to grow wheat had not started
planting because of lack of fertiliser.

ZimPhos general manager Mr Misheck Kachere said fertiliser companies were
facing serious viability problems owing to the shortage of foreign currency
to procure inputs and industrial spares.

He said the fertiliser industry had a capacity to produce 200 000 tonnes but
operated at 65 percent capacity due to foreign currency shortages, transport
problems, fuel and coal shortages and erratic electricity supply.

"Production of fertiliser for the five months to May 2003 was 130 000
tonnes," he said in a report. "As a result, 60 000 tonnes for the winter
crop was supplied up to the end of May 2003 against the 95 000 tonnes
required."

Windmill managing director Mr Andy Humpreys said his company had closed the
Mt Hampden plant due to lack of chemical inputs, which are imported.

The major ingredients in the manufacture of fertiliser are potash imported
from the Middle East, Chile and Europe and sulphur imported mainly from
South Africa.

Mr Kachere said ZimPhos requires US$500 000 every month to import 3 000
tonnes of sulphur required to fully utilise capacity.

But he said in the last two years the company had not been allocated any
foreign currency.

"There is now only one month of sulphur stocks left for which ZimPhos owes
the supplier and Spoornet US$800 000," he said. "Sulphur will run out by the
end of June 2003 and further supplies will only be made upon settlement and
cash upfront for future supplies."

Sulphur is used for the manufacture of sulphuric acid, which in turn is used
for converting phosphate rock to soluble phosphates.

Windmill and the Zimbabwe Fertiliser Company require US$700 000 every month
to import sufficient potash to fully utilise production capacity.

"So far this year no foreign currency has been availed for potash imports,"
Mr Kachere said. "As a result, capacity utilisation was constrained despite
reformulation of some compounds to minimise potash usage."

Kwekwe-based Sable Chemicals needs to import an additional 3 000 tonnes of
ammonia at a cost of US$750 000 a month to operate at full capacity.

Ammonia is used in the manufacture of ammonium nitrate fertiliser and Sable
only produces 70 percent to meet its requirements.

Last year, Sable Chemicals recorded a loss of $6 billion owing largely to
lack of foreign currency to buy inputs and spares.

Demand for fertiliser has surged to more than one million tonnes a year up
from 500 000 tonnes in the last few years largely due to the agrarian
reforms through which the Govern-ment input scheme has generated
unprecedented demand for fertiliser.

It is estimated that the country suffered a 600 000 tonne deficit of
fertiliser in this current farming season and agricultural experts say this
may worsen if nothing is done to revive the fertiliser industry.

Only 420 000 tonnes of the product was produced out of the required one
million last year.

Mr Kachere said the industry would only produce 300 000 tonnes under the
current circumstances from June to December this year against an estimated
500 000 which would only be possible if the industry gets foreign currency.

He said the industry would need US$2,45 million every month or a total of
US$14,7 million in the last half of the year to ensure maximum capacity
utilisation.

Improved transportation of raw materials by the National Railways of
Zimbabwe was also necessary for the industry’s operations.

At least 27 tonnes of sulphur, potash, phosphate rock and pyrites have to be
moved monthly for the industry to operate viably in the last half of the
year.

Fertiliser companies need US$500 000 to buy spares every month but no
allocation has been made so far this year.

The shortage of foreign currency has resulted in delays of around two weeks
or more in completing annual maintenance shutdowns.

The operation of the industry has also been curtailed by the insufficient
quantities of consumables — catalysts and water treatment chemicals required
in the manufacture of phosphates and ammonium nitrate respectively.

Insufficient wagons and engines have led to the NRZ failing to deliver
quantities required by the fertiliser industry by 43 percent.

This has been made worse following South Africa’s Spoornet move to place an
embargo on NRZ wagons which it says were unsafe while it does not want their
own wagons to cross into Zimbabwe due to long turnaround times.

As a result, sulphur from Durban now takes three months instead of two weeks
to get to Harare.

The sulphur burning plant at ZimPhos was shut down for the whole of December
2002 and the annual maintenance shutdown in March 2003 was extended for one
month due to poor delivery of sulphur.

Local fertiliser companies were failing to get adequate coal supplies and
were resorting to road haulage, which was very expensive, to transport coal
from Hwange and inputs from SA.

The fertiliser industry requires 50 000 litres of diesel and 20 000 litres
of petrol every month but was relying on about 60 percent of these totals.
The cost of raw materials has increased by more than 300 percent whereas
price increases were too low to allow the industry to generate sufficient
cash for normal working capital requirements.

The cost of coal has gone up from $20 000 to $80 000 per tonne while rail
transport costs have shot up from $4 500 per tonne to $35 000 per tonne.

Fertiliser company executives are expected to meet Industry and
International Trade Ministry officials today to discuss ways to improve
fertiliser production by the industry.

At present only 5 000 to 6 000 tonnes of fertiliser was going straight to
the market as the industry continues to face production constraints.
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