VZCZCXRO0907
PP RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSB #0822/01 2551641
ZNR UUUUU ZZH
P 111641Z SEP 08
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC PRIORITY 3425
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHUJA/AMEMBASSY ABUJA 2069
RUEHAR/AMEMBASSY ACCRA 2282
RUEHDS/AMEMBASSY ADDIS ABABA 2402
RUEHBY/AMEMBASSY CANBERRA 1679
RUEHDK/AMEMBASSY DAKAR 2035
RUEHKM/AMEMBASSY KAMPALA 2456
RUEHNR/AMEMBASSY NAIROBI 4888
RUEAIIA/CIA WASHDC
RUEHGV/USMISSION GENEVA 1551
RHEHAAA/NSC WASHDC
RHMFISS/JOINT STAFF WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEFDIA/DIA WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RUZEHAA/CDR USEUCOM INTEL VAIHINGEN GE

UNCLAS SECTION 01 OF 03 HARARE 000822 
 
SENSITIVE 
SIPDIS 
 
AF/S FOR G. GARLAND 
AF/EPS FOR ANN BREITER 
NSC FOR SENIOR AFRICA DIRECTOR B. PITTMAN 
STATE PASS TO USAID FOR L.DOBBINS AND E.LOKEN 
TREASURY FOR J. RALYEA AND T.RAND 
COMMERCE FOR BECKY ERKUL 
ADDIS ABABA FOR USAU 
ADDIS ABABA FOR ACSS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV ASEC ZI
SUBJECT: GONO ALLOWS SOME FORMAL DOLLARIZATION 
 
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Summary 
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¶1. (SBU) On September 10, Reserve Bank of Zimbabwe (RBZ) 
Governor Gideon Gono announced the licensing of foreign 
exchange wholesale and retail shops plus service stations, 
allegedly to increase the availability of basic goods and 
improve manufacturers' capacity utilization. He also reduced 
the foreign exchange surrender requirement on exporters, 
announced new support for the gold sector, raised the seed 
maize price for growers, and announced the issuance of a 
US$-denominated government bond. The formal retail sector 
welcomed the opportunity to sell goods for hard currency, but 
found the buy-in price high.  We question the timing of the 
announcement and don't expect the initiative to put Zimbabwe 
on a sustainable recovery path. End Summary. 
 
--------------------------------------------- --- 
Gono Launches Forex Wholesale and Retail Outlets 
--------------------------------------------- --- 
 
¶2. (U) On September 10, Reserve Bank of Zimbabwe (RBZ) 
Governor Gideon Gono announced the launch, initially for 18 
months, of foreign exchange licensed wholesale warehouses and 
retail shops (FOLIWARS), foreign exchange licensed oil 
companies (FELOC), and petrol and diesel outlets (FELOPAD). 
He expected the initiative to improve domestic manufacturing 
capacity utilization and increase the availability of basic 
goods. He stated that the initiative neither introduced nor 
condoned dollarization.  The terms for wholesale and retail 
outlets are: 
 
--security deposit for Zimbabweans of US$20,000 payable to 
the RBZ for a single-floor retail outlet*US$50,000 for 
foreigners; 
--security deposit for Zimbabweans of US$100,000 payable to 
the RBZ for a single-floor wholesale warehouse*US$250,000 
for foreigners; 
--allocation of 1000 retail licenses and 250 wholesale 
licenses; 
--excluded from sale in foreign exchange: mealie meal, milk, 
bread, cooking oil, sugar, salt, medicines, locally 
manufactured sanitary pads, locally produced margarine, soap, 
toothpaste; school uniforms and exercise books; 
--surrender of 15 percent of gross foreign exchange sales to 
the RBZ on a weekly basis; 
--profit markup capped at 30 percent of total verifiable cost. 
--permission for local producers to sell their products 
(except excluded items) to forex stores; 
--license applications accepted up to September 22 and 
license issuance up to September 26. 
 
The terms for oil companies and petrol and diesel outlets are: 
 
--exclusion of paraffin and National Oil Company of Zimbabwe 
(NOCZIM) fuel from sale in foreign exchange; 
--security deposit of US$100,000 for oil companies; 
--security deposit of US$5,000 for each service station; 
--daily deposit of all fuel sale proceeds in a special 
revolving Foreign Currency Account; 
--surrender of 15 percent of gross foreign exchange sales to 
the RBZ on a weekly basis. 
 
 
HARARE 00000822  002 OF 003 
 
 
--------------------------------------------- ---------- 
And A Lower Forex Surrender Requirement on Exporters... 
--------------------------------------------- ---------- 
 
¶3. (U) Gono also announced: 
 
--the reduction in exporters' foreign exchange surrender 
requirement from 45 percent to 25 percent; 
--a delivery bonus of 150 percent in local currency to all 
producers of gold, on top of payment at the interbank 
exchange rate, with effect from September 1, 2008; 
--an increase in the seed maize price from Z$13,500 to 
Z$20,000/MT (roughly US$40/MT on the street), back-dated for 
all 2008 deliveries; 
--introduction of a US dollar-denominated bond to raise money 
for importation of strategic commodities, including fuel, 
maize and wheat, fertilizer, agrochemicals, farm equipment, 
medicines, as well as inputs for mining, manufacturing, and 
infrastructure development. 
 
-------------------------------- 
And a US Dollar-Denominated Bond 
-------------------------------- 
 
¶4. (U) The US dollar denominated Strategic Commodities 
Imports Bond (SCIB) will be issued on the following terms: 
 
--180 day tenor; 
--15 percent effective return in US dollar terms, with 
interest and capital paid on maturity; 
--minimum subscription US$100,000; 
--repayment alternatives: foreign exchange; shareholding in 
companies in which the RBZ has shares; certificates to 
purchase tobacco and cotton in local currency and export it 
with 100 percent foreign exchange retention; equity 
conversion in joint venture projects in mining; coal fines, 
iron fines, raw coal, raw chrome; Homelink houses and housing 
development land. 
 
--------------------------------- 
Private Sector Sees Some Benefits 
--------------------------------- 
 
¶5. (SBU) Albert Katsande, Chief Operating Officer of 
Zimbabwe's largest supermarket chain OK Zimbabwe Ltd, told 
econoff on September 11 that the policy shift would help his 
and other large companies survive.  Until now, they had faced 
arrest if they played in the informal market.  The new policy 
formalized the dollarization of the economy that was already 
underway, in his view.   He also felt it effectively killed 
the National Income and Pricing Commission. 
 
¶6. (SBU) OK Zimbabwe has 53 outlets; Katsande said it would 
probably select about 30 of them to be foreign exchange 
stores.  It could not afford to pay the security deposit of 
US$20,000 per outlet up front, and would try to negotiate 
payment with profits from sales.  Katsande expected the RBZ 
to selectively grant security deposit dispensations, which he 
suggested opened up a new source of patronage. It would 
squeeze out some informally operating forex shops on the one 
hand, and, on the other hand, provide people with US$20,000 
but no retail experience a front "to do deals." 
 
¶7. (SBU) On the markup, Katsande said 30 percent was 
 
HARARE 00000822  003 OF 003 
 
 
reasonable if the company were allowed to include all its 
costs, including rent, labor and financing. The NIPC had 
allowed a 20 percent markup.  He did point out, however, that 
the 15 percent foreign exchange surrender requirement cut 
into the profit margin, but added that the vagueness of how 
the markup would be determined could work in the retail 
sector's favor by leaving room for interpretation. On the US 
dollar denominated bond, he suggested that the RBZ had 
probably assumed "something positive" coming out of the 
present power-sharing negotiations, which would have lowered 
sovereign risk and made the terms more attractive.  Katsande 
felt that the initiative could be an intermediate step toward 
formal dollarization of the economy, but for now there was 
not enough foreign exchange in circulation to cover anything 
more than day-to-day transactions. 
 
¶8. (U) Post was unable to reach more executives in the formal 
retail economy or in the fuel business for their views, but 
will report further septel. 
 
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Comment 
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¶9. (SBU)  Introducing a major policy shift that fails to 
address the economy's fundamental distortions during the most 
delicate phase of power-sharing negotiations indicates bad 
faith on the government's part.  Gono should be acting like a 
lame duck governor, as his ouster and the implementation of 
far-reaching reforms will certainly be a top priority of the 
MDC once it has a voice in government. The uptake on the 
license offer will put some foreign exchange in the 
government's coffers, the outlets could lower the transaction 
cost of shopping for those with access to forex, and more 
people will grow accustomed to transacting in foreign 
exchange, but the initiative will not set Zimbabwe on a 
sustainable recovery path. 
 
MCGEE