MONEY that is being used to prop up President Robert Mugabe’s brutal regime, keep his military onside and win over voters in the run-up to Zimbabwe’s elections this month is being printed by a German company.

With inflation topping 100,000% and the highest value 10m Zimbabwe dollar note worth just 20p, heavily guarded planeloads of banknotes are flying into Harare almost every day to keep up with the demand.

Documents obtained by The Sunday Times show the Munich company Giesecke & Devrient (G&D) is receiving more than €500,000 (£382,000) a week for delivering bank notes at the astonishing rate of Z$170 trillion a week.

“The regime is surviving by printing money,” said Martin Rupiya, professor of war and security studies at the University of Zimbabwe. “At this stage there is no other way.”

According to a source at the Reserve Bank of Zimbabwe, G&D delivers 432,000 sheets of banknotes every week to Fidelity printers in Harare, where they are stamped with the denomination. Each sheet contains 40 notes and the current production is entirely in Z$10m notes.

Last week some of this money was used to award huge pay rises to the army in an apparent move to buy their loyalty ahead of the presidential and parliamentary elections on March 29. Teachers belonging to a union supportive of the government were also given large sums.

Soldiers received windfalls of between Z$1.2 billion for privates and Z$3 billion for officers, while teachers received Z$500m on average. Those belonging to the Progressive Teachers’ Union of Zimbabwe, which criticises Mugabe, were excluded.

“Mugabe is giving soldiers a lot of money as a way of buying allegiance,” said Raymond Majongwe, the Progressive union’s general secretary. “Mugabe is planning to rig the elections in March because he must win at all costs. He, however, believes that we teachers do not deserve increased salaries because he says we are agents of regime change.”

Last month Z$1 trillion was set aside for managing so-called war veterans “for the purpose of elections”. Mugabe has long used the war vets to intimidate voters.

“G&D are literally bankrolling the regime,” said a Zimbabwean banker who could not be named for fear of reprisals. “These notes are being used to buy votes, to purchase foreign exchange to import electricity and vehicles to keep their regime going, and to fund the import of Chinese water cannons and police equipment to keep us intimidated.

“They are profiting from evil and should be named and shamed.”

G&D’s involvement is embarrassing for the German government which has been one of the most vocal supporters of European Union sanctions against members of the Mugabe regime. Chancellor Angela Merkel has taken a tough stance on Zimbabwe, speaking out at the EU-Africa summit in Lisbon last December to insist that the world cannot stand by while “human rights are trampled underfoot”.

Asked about the company, a German foreign ministry spokesman said: “It’s their economic decision. According to current EU sanctions, the government does not have any legal basis to take action.”

G&D, the world’s second biggest printer of banknotes, is a secretive company. An official at the Dubai office, which oversees its sales to Africa, confirmed that the government of Zimbabwe was a long-standing client but refused to give details. The headquarters in Munich was no more forthcoming. “The printing of banknotes is a very confidential matter,” said Daniela Gaigl, a company spokeswoman. “We don’t comment on any issuing authority.”

The Sunday Times has established that G&D has been printing the country’s notes since the breakaway Rhodesian regime of Ian Smith in the 1970s when Britain declared sanctions. After British officers intercepted a consignment, G&D secretly shipped three machines to set up a printing press in the bowels of the Reserve Bank.

These have since been moved to a heavily guarded facility at Msasa in the industrial area of Harare.

The official value of the Zimbabwe dollar is fixed at 30,000 to the US dollar. But traders, businessmen, fuel vendors and even nationalised companies such as Air Zimbabwe use black market rates to set their prices. Last week, within just seven days, the Zim dollar depreciated from 12m to 24m to the US dollar.

Prices in shops rocketed as traders struggled to make money to cover replacement costs. In a Spar supermarket in central Harare, sardines rose from Z$15m per can on Tuesday to Z$30m on Wednesday while the cost of a single lavatory roll rose from Z$5m to Z$8m.

“We have the world’s first million-dollar banana,” joked one woman shopper.

The economic crisis is not the only reason that the forthcoming elections may be the toughest faced by Mugabe. The president, who turned 84 on February 21 and has been in power since 1980, is facing an unexpected challenge from within his own ruling party, Zanu-PF.

The candidacy of Simba Makoni, his former finance minister, has breathed life into a campaign in which people had been resigned to the likelihood that Mugabe would once again defeat Morgan Tsvangirai, the leader of the main opposition Movement for Democratic Change (MDC).

An MDC faction led by Arthur Mutambara has thrown its support behind Makoni. “Mugabe goes into these elections the weakest he has ever been,” said Gugulethu Moyo, a Zimbabwean lawyer for the International Bar Association. “Makoni’s candidacy has exposed huge fissures in Zanu-PF.”

While Makoni claims to have widespread support within the ruling party, few well-known Zanu-PF figures have publicly expressed support. But yesterday, Dumiso Dabengwa, a senior politburo member, threw his weight behind Makoni. “We urged him to come clean and take the burden and we will give him the necessary facilitation and support,” he told business leaders.

Makoni’s supporters are widely believed to include the powerful former army chief General Solomon Mujuru, whose wife Joyce is Mugabe’s deputy. Zimbabwean media have reported that Mujuru is under surveillance and his companies under investigation.

Some fear that Makoni may divide the opposition. A fourth candidate has also emerged in the form of Langton Towungana, a little-known independent, who is nevertheless receiving widespread coverage on state television.

Few believe the elections will be free and fair. Negotiations to try to achieve this, led by Thabo Mbeki, South Africa’s president, have collapsed.

In an open letter, James McGee, the US ambassador to Zimbabwe, warned of “ominous signs” such as inadequate preparation, voter confusion, registration irregularities and ongoing violence.

Additional reporting: Nicola Smith in Dusseldorf

Making of Makoni

- Simba Makoni, Mugabe’s strongest challenger, knows Britain well; he studied chemistry at Leeds University and Leicester Polytechnic

- Youngest member of Mugabe’s first government in 1980

- Dismissed as chief executive of Zimpapers, which controls the Herald, in 1994 after clashes with editor close to Mugabe

- Reemerged as finance minister in 2000

- Resigned in 2002 after Mugabe refused to devalue currency

- Announced last month he was fighting Mugabe for presidency after weeks of denying it

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