US embassy cable - 03HARARE2329

UNCLAS SECTION 01 OF 02 HARARE 002329 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR AF/S 
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER 
USDOC FOR 2037 DIEMOND 
TREASURY FOR OREN WYCHE-SHAW 
PASS USTR FLORIZELLE LISER 
STATE PASS USAID FOR MARJORIE COPSON 
 
E. O. 12958: N/A 
TAGS: ECON, EFIN, EINV, ETRD, PGOV, ZI 
SUBJECT: Weary retailer asks, what next? 
 
 
1. (U) Summary: A major Zimbabwe retailer has just lived 
through violent occupations, price controls, imperious 
ministers, high inflation and shortages of fuel, 
electricity and cash.  Its Chief Operating Officer now 
wonders what more the GOZ can throw at him.  End Summary. 
 
2. (SBU) The Embassy's Economic/Commercial staff recently 
called on COO Albert Katsande of OK, a leading Zimbabwe 
supermarket/department store chain.  Katsande cataloged 
for us a litany of challenges he has faced, a daunting 
statement about doing business in Robert Mugabe's 
Zimbabwe. 
 
War Vets come to call 
--------------------- 
3. (SBU) A gang of haggard War Vets invaded OK's 
corporate offices three years ago.  As they lounged 
around Katsande's executive office, downing his liquor, 
they forced the COO to sit on the floor and chant pro- 
ZANU-PF (the ruling party) slogans.  They demanded he 
reinstate several dismissed employees, trying to extort 
funds from him for "revolutionary causes."  When he 
finally convinced them to depart, they demanded taxi fare 
to return home.  Over the next year, War Vets visited 
Katsande several more times, threatening to take him to 
ZANU-PF headquarters for interrogation.  Police refused 
to chase the War Vets away. 
 
The price patrols 
----------------- 
4. (SBU) By late-2002, the GOZ had imposed extensive 
price controls.  Unable to accept the diminished value of 
its currency, the GOZ set many prices below cost.  OK's 
Katsande had to decide whether to sell creatively- 
repackaged goods, risking the GOZ's wrath.  The worst, he 
recalls, were the so-called compliance cops.  War vet, 
police and Zimbabwe Federation of Trade (the GOZ's labor 
body) inspectors constantly harassed store managers, 
insisting on bribes and sometimes hauling OK employees to 
jail.  War Vets even took over the Masvingo store for 
several days (while looting the shelves). 
 
Exchanges with the Minister 
--------------------------- 
5. (SBU) In early 2003, Industry and Trade Minister 
Samuel Mumbengegwi went shopping at an OK outlet and 
complained to the manager that no sugar was on the 
shelves.  To avoid a riot inside the store, the manager 
explained that OK would sell its limited supply of sugar 
from the backdoor at 10:00am.  At that point, local 
police would arrive and control the mob of shoppers.  An 
enraged Mumbengegwi complained that it was illegal for OK 
to keep a product off its shelves and threatened to 
revoke the store's operating license.  Katsande finally 
stepped in, but he could not make Mumbengegwi, a GOZ 
hardliner, appreciate that OK was reluctant to market its 
wares at a loss.  It only sold the small amount of 
controlled-price sugar it received each day. 
 
Shoppers with no cash 
--------------------- 
6. (SBU) By mid-year, Zimbabwe's cash crisis was in full 
swing, OK's next great obstacle.  The GOZ frequently 
accused OK of hoarding banknotes.  After a time, the 
Reserve Bank required each OK store to submit a daily 
listing of all cash taken in, a bookkeeping nightmare. 
More and more shoppers paid with checks, which OK had 
little choice but to accept.  Katsande reports many 
shoppers took advantage of banks' fast (and sloppy) check 
processing, submitting to OK checks that were unsupported 
by funds.  Overstretched banks were taking a full three 
months to process checks.  By the time OK could chase 
down the bad-check writers, it didn't matter if the 
customer made good on the debt - inflation had eroded the 
money's value.  While so-called "bearer checks" solved 
the cash crisis, Katsande says the larger, less-protected 
notes are generating a new rash of forgeries. 
 
Mounting inflation 
------------------ 
7. (SBU) With inflation spiraling, OK now readjusts 
prices each day.  Every afternoon store managers are 
required to data-enter new prices that become effective 
at 8:00am the following morning.  OK's head office is 
forced to take a new guess each day at the product's 
replacement cost, based on Zimbabwe's devaluing currency 
and increasingly inefficient infrastructure.  (The fuel 
crisis often prevents freight companies from moving goods 
even short distances for days.) 
 
Comment 
------- 
8. (SBU) It's no small wonder that Zimbabwe's investment 
risk factor has hit stratospheric proportions. The 
government encourages lawlessness; expects companies to 
lose money; tolerates shortages of fuel, electricity, 
water or cash; enacts policies that keep inflation 
soaring and the zimdollar plunging.  As OK's saga 
indicates, Zimbabwe's business environment is not for the 
fainthearted. 
 
Sullivan