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Viewing cable 08HARARE898, ZIMBABWE'S RESPONSE TO USITC ON INFRASTRUCTURE

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Reference ID Created Released Classification Origin
08HARARE898 2008-10-03 10:51 2011-08-24 16:30 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Harare
VZCZCXRO7819
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSB #0898/01 2771051
ZNR UUUUU ZZH
R 031051Z OCT 08
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC 3521
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
UNCLAS SECTION 01 OF 03 HARARE 000898 
 
SENSITIVE 
SIPDIS 
 
USITC FOR L SCHLITT 
 
E.O.12958: N/A 
TAGS: ETRD ECON EAGR PGOV ZI
SUBJECT: ZIMBABWE'S RESPONSE TO USITC ON INFRASTRUCTURE 
 
REF: STATE 85109 
 
------- 
SUMMARY 
------- 
 
1. (U)  Zimbabwe's infrastructure has been deteriorating over the 
past decade of economic decline.  Foreign currency shortages, skills 
flight, and lack of maintenance have been largely responsible for 
the decline.  The deteriorating infrastructure negatively affects 
the country's export competitiveness as it raises the cost of doing 
business.  A number of firms in the clothing and textiles sector 
stated that in addition to investing in infrastructure to increase 
export competitiveness, the government should stabilize the economy 
and let the forces of supply and demand determine the exchange rate. 
 END SUMMARY. 
 
--------------------------------- 
Deteriorating Road Infrastructure 
--------------------------------- 
 
2. (U)  As of 2007, Zimbabwe had a classified road network of 88,300 
km, of which approximately 17 percent was paved.  Trunk roads are 
generally in a fair state of repair, but the condition of urban and 
unpaved rural roads has deteriorated markedly in recent years.  Road 
maintenance is constrained by a severe shortage of funds. 
 
3. (U)  Our discussions with firms in the clothing and textiles 
sector revealed that roads do not hinder export competitiveness. 
According to Ms Bortolan of Security Mills Private Limited, the 
company is not constrained in moving goods by road.  Sharing 
Bortolan's assessment were Chitey Laxmidas of Styles International 
Private Limited, which exports leisure wear to the U.S., and Jeremy 
Youmans, Group Finance Director of Paramount Garment Works (Pvt) 
Limited and Chairman of the Clothing Manufacturers Association. 
Youmans, in fact, believes that Zimbabwe's road network is a 
competitive advantage within the region. 
 
4. (SBU)  A 2007 World Bank study of roads, railways, water, energy 
and telecommunications subsectors in Zimbabwe noted that although 
the formation of a semi-autonomous State Highway Authority (SHA) had 
been mooted in 2001, it had not taken shape due to uncertainty 
surrounding funding, hyperinflation, and the shortage of foreign 
exchange.  Moreover, collaboration between government and the 
private sector enunciated in 2004 through the publication of private 
public partnership (PPP) policy guidelines has not progressed.  The 
legal instruments required to support policy implementation have not 
been finalized, even though some trunk roads, such as the route to 
South Africa, carry sufficient traffic to generate attractive 
returns on private sector investment.  Civil engineer and road 
expert Rob Geddes told us that the toll fees required to make such a 
venture profitable may be politically unacceptable.  He attributed 
failure to build the Harare-Beitbridge road to such considerations. 
 
---------------------- 
Antiquated Rail Sector 
---------------------- 
 
5. (SBU)  Zimbabwe has 2,760 km of rail track.  As of July 2008, 
there were 165 locomotives, of which only 65 were operational; only 
57 percent of the over 10,000 wagons were operational; and only 42 
percent of the passenger rail cars were working.  According to M.T. 
Karakadzai, General Manager of parastatal National Railways of 
Zimbabwe (NRZ), a full train can carry the same amount of cargo as 
53 thirty-ton trucks. 
 
6. (SBU)  Old and failing equipment lowers NRZ's performance and 
compromises network reliability.  According to Karakadzai, out of a 
design capacity of 18 million tons/year, NRZ is only capable of 
moving about 7.5 million tons/year.  The NRZ's automated centralized 
train control (CTC) system is also obsolete and subject to 
vandalism.  Karakadzai said that, as of July 2008, 77 percent of the 
CTC system was not working, resulting in numerous accidents. 
Zimbabwe's critical skills shortage exacerbates the problem, as most 
artisans have emigrated to neighboring countries leaving the NRZ 
with 3,000 vacancies for skilled artisans as of the end of July 
2008. 
 
7. (U)  NRZ must import about 90 percent of its spares, and it 
requires three million liters of imported diesel per month to 
operate.  The shortage of foreign exchange to purchase spare parts 
compounds NRZ's problems and compromises its ability to meet 
customer needs. 
 
8. (SBU)  While Bortolan said the deterioration of the rail network 
had not constrained exports, Laxmidas recounted how derailments and 
cargo handling equipment failure had cost his company an entire 
consignment of goods destined for the U.S. in 2007.  A crane 
breakdown had delayed the loading of goods onto a container.  Once 
en route, the train was delayed by a derailment along the 
 
HARARE 00000898  002 OF 003 
 
 
Zimbabwe-Chiqualaquala route to Mozambique, leading to the goods 
being redirected.  By the time the container reached Durban, the 
ship had left port and the sale was lost.  In reaction, Styles 
International began using costly airfreight to the U.S. to meet 
tight delivery deadlines. 
 
9. (SBU)  Youmans also bemoaned NRZ's operations, noting that it 
failed to supply coal to textile firms for the dyeing process. 
Youmans calculated that it was twenty times cheaper to move goods by 
rail than by road, and an efficient rail system therefore would 
reduce costs significantly and create a competitive advantage in 
international markets. 
 
10. (U)  Karakadzai said the NRZ was using its own resources to 
rehabilitate rolling stock and track.  The initiative is expected to 
put some 2,000 wagons back on track.  Another NRZ initiative is to 
produce spares locally by bringing a former spares supplier to NRZ. 
Moreover, NRZ bought Fort Concrete in order to manufacture railway 
sleepers itself.  In addition, the NRZ is seeking to invest in 
private public partnership programs, noting that the 
build-own-operate model had been used successfully in the 
construction of the Bulawayo-Beitbridge Railway. 
 
--------------------------------------------- ---- 
Inadequate Electric Power Generation/Distribution 
--------------------------------------------- ---- 
 
11. (U)  Electric power generation from Zimbabwe's power stations 
falls far short of demand.  Zimbabwe's electricity generating 
equipment is antiquated.  The World Bank report states that no major 
investment in expanding generating capacity has occurred since 1986, 
although investment in distribution infrastructure in rural areas 
has increased.  In the meantime, Zimbabwe Electricity Supply 
Authority's (ZESA) customer base has swelled by some 40 percent over 
the past eleven years and the waiting list for connections has 
increased tenfold. 
 
12. (U)  Many transformers are old and overloaded--the urban network 
is 20-30 percent overloaded.  In recent years, maintenance has been 
less than 10 percent of the planned level.  As a result, the number 
and frequency of breakdowns have increased.  In addition, the rate 
of connecting new clients has fallen sharply and the quality of 
service has plummeted.  Non-technical losses caused by increased 
vandalism of distribution equipment have also surged.  Thieves, for 
example, steal transformer oil, leading to breakdowns and to 
downtime as imported spare parts take months to procure.  In the 
meantime, in a vicious cycle, overloading of other transformers 
causes more breakdowns. 
 
13. (U)  A major constraint on ZESA is the shortage of foreign 
exchange to purchase spare parts and new equipment, and to fill the 
power shortfall with imported power.  This factor plus the exodus of 
skilled labor to the region are at the root of the decline in 
service.  Many engineers emigrated to South Africa when the former 
Chief Executive, Sydney Gata, resigned to work for Eskom, the South 
African utility, leaving a yawning gap in skills and experience. 
 
14. (U)  Coal supply to Hwange Thermal Power Station is constantly 
interrupted due to machine breakdowns at the nearby Wankie Colliery. 
 The dragline excavator fails frequently as does the belt that 
conveys coal to the power plant.  The NRZ does not have reliable 
locomotives, wagons and signaling equipment to move coal to 
Zimbabwe's other power stations in a cost effective manner. 
 
15. (U)  Youmans underlined that the textiles sector requires steady 
power.  If power fails, for example, in the middle of dyeing, the 
entire textile batch is written off.  Our interlocutors at Security 
Mills and Styles International added that load shedding impeded the 
expansion of exports because it prevented companies from meeting the 
tight deadlines set by international clients. 
 
16. (U)  Sub-economic tariffs that do not reflect cost are at the 
root of ZESA's problems.  With regard to the mining sector, the 
Chamber of Mines and ZESA signed a Memorandum of Agreement, with the 
blessing of the Exchange Control Authorities, for mining firms to 
pay for power in foreign exchange in return for uninterrupted power 
supplies.  The arrangement is confined to the mining sector and does 
not address the general power distribution challenge, however. 
 
17. (U)  In order to boost electricity generation, the GOZ enacted 
legislation in 2003 that allows for independent power projects 
(IPP). However, the small number of projects that have been 
developed make a negligible contribution to the national grid. 
 
------------------------------- 
Breakdown in Telecommunications 
------------------------------- 
 
18. (U)  According to a World Bank report, Zimbabwe's sole provider 
of fixed lines, TelOne, has about 332,000 fixed lines in servQ 
 
HARARE 00000898  003 OF 003 
 
 
At the official population estimate of 12 million people, this gives 
a low teledensity of about 2.8 percent; even if the population 
figure is significantly overstated, teledensity is low.  TelOne is 
also operating equipment that has outlived its useful life. 
Moreover, there is a long waiting list of customers to be connected. 
 
 
19. (U)  Zimbabwe has about 1.3 million mobile subscribers, giving a 
penetration rate of 9 percent.  However, service provision is poor 
with call completion rates between mobile networks estimated at less 
than 10 percent.  During peak times, it is nearly impossible to make 
a call from one mobile network to another.  Although the regulatory 
authority, the Posts and Telecommunications Regulatory Authority of 
Zimbabwe (POTRAZ), is empowered to fine or withdraw a license if 
suppliers fail to meet agreed service levels, it has to prove that 
the limitations are not beyond the operators' control. 
 
20. (U)  International communications are achieved through two 
Intelsat satellite earth stations and two international digital 
gateway exchanges.  Private operators are required to route at least 
out-going calls through the government-owned gateways.  Difficulties 
in making payments to foreign suppliers due to foreignQange 
shortages have resulted in periodic disruptions to international 
connections. 
 
21. (U)  Fixed line reliability is poor primarily because of 
antiquated equipment.  Moreover, frequent power cuts disrupt the 
operations of telephone exchanges.  As with most operations in 
Zimbabwe, the biggest constraint to expansion in the 
telecommunications sector is the shortage of foreign exchange.  With 
the additional problem of a very low tariff regime, 
telecommunication services have declined sharply in recent years. 
 
22. (U)  Paramount Garment Works stated that poor communications 
constrained its operations.  It was almost impossible to place 
international calls.  In addition, some mobile service providers 
were not allowing clients to make international calls.  Security 
Mills and Styles International concurred that telecommunications 
inadequacies were a major constraint to expanding their markets. 
 
--------------------------------- 
Macroeconomic Stabilization Vital 
--------------------------------- 
 
23. (U)  Overall, all firms interviewed agreed that the 
deterioration in infrastructure had made their exports less 
competitive.  However, they said the biggest constraint on export 
competitiveness was macroeconomic instability.  Once this was 
addressed, and the exchange rate was determined by forces of supply 
and demand, they all felt that Zimbabwe's exports would become more 
competitive internationally.  They did not see the soft issue of 
customs procedures as hindering exports, contrary to the 1990s when 
bureaucracy was regarded as a major deterrent to exporting. 
 
MCGEE