US embassy cable - 04HARARE8

C O N F I D E N T I A L SECTION 01 OF 02 HARARE 000008 
 
SIPDIS 
 
AF/S FOR S. DELISI, L. AROIAN, M. RAYNOR 
NSC FOR SENIOR AFRICA DIRECTOR J. FRAZER, D. TEITELBAUM 
LONDON FOR C. GURNEY 
PARIS FOR C. NEARY 
NAIROBI FOR T. PFLAUMER 
 
E.O. 12958: DECL: 12/31/2008 
TAGS: PGOV, PHUM, ECON, EINV, ECPS, KPAO, ZI 
SUBJECT: GOZ GOING AFTER COUNTRY'S LARGEST CELLULAR PHONE 
OPERATOR? 
 
REF: HARARE 2454 AND PREVIOUS 
 
Classified By: Political Officer Win Dayton under Section 1.5(b)(d) 
 
1.  (SBU) SUMMARY:  Government maneuvers may be underway to 
withdraw the operating license of Econet Wireless Zimbabwe 
(EWZ), the nation's largest cellular phone operator, over 
alleged foreign exchange abuses.  The exercise could 
represent a broadening of GOZ efforts to destroy Strive 
Misiyiwa, the South Africa-based Zimbabwean who is the 
principal owner of EWZ and the Associated Newpapers of 
Zimbabwe (ANZ), publisher of the recently closed The Daily 
News (TDN).  EWZ already has a string of legal victories 
against the GOZ but recent GOZ willingness to shutter 
businesses in defiance of court orders (as evidenced in the 
ANZ case) may bode ill for the company's long-term survival 
in Zimbabwe.  A shutdown of Econet would leave the country 
with two cell GOZ-affiliated phone service providers and 
disrupt a telecommunications sector and economy already under 
immense strain.  END SUMMARY. 
 
2.  (U) According to an article in the December 24 edition of 
the goverment-controlled Herald newpaper, foreign currency 
paid by Econet for calls originating outside the country was 
not being remitted in Zimbabwe, contrary to a year-old 
government directive.  The article reported that most 
incoming calls to Zimbabwe came through Econet, generating 
foreign exchange, while most outgoing calls went through 
competitor NetOne, which generated inadequate foreign 
exchange for the company to meet its international 
forex-denominated obligations.  All calls were supposed to go 
through one gateway.  The article asserted that authorities 
were investigating Econet's practices, as well as failure by 
officials of the Postal and Telecommunications Regulatory 
Authority (Potraz) to implement the directive effectively. 
 
3.  (U) EWZ's principal owner is South Africa-based 
Zimbabwean, Strive Masiyiwa, who also owns Associated 
Newspapers of Zimbabwe (ANZ), the publisher of closed 
independent daily newspaper The Daily News (TDN).  Government 
media coverage of the Econet investigation stressed 
Masiyiwa's ownership of the newspaper and his alleged 
financing of "subversive activities", i.e., the opposition 
MDC.  It also highlighted adverse business turns against 
Masiyiwa telecommunications interests in Nigeria and Kenya. 
Masiyiwa is CEO of Econet Wireless International, which 
maintains operations in several countries, including the UK. 
 
4.  (SBU) EWZ's locally based chief executive Douglas Mbweni 
told the Embassy on January 5 that the company has not been 
approached by GOZ authorities in connection the allegations 
set out in the Herald.  EWZ on January 2 issued a nine-page 
public notice (faxed to AF/S) recounting the company's 
contributions to national develepment and responding 
specifically to the Herald allegations.  The notice denied 
company involvement in subversive activities and elaborated 
on its compliance with the terms of relevant laws and 
licenses.  It claimed that the company was unaware of any 
government directive reducing the number of gateways to one 
but asserted that such a directive, if it existed, would be 
"illegal and unjust." 
 
5.  (U) Masiyiwa and Econet have had a long contentious 
history with the GOZ.  Econet was founded in 1998, earning 
its operating license that year only after a five-year court 
battle against the GOZ.  Masiyiwa's legal campaign began in 
1993, when he successfully challenged the government's 
telecom monopoly as an unconstitutional infringement of free 
speech.  The GOZ then denied his application for a license, 
issuing one instead to Telecel Zimbabwe, a company dominated 
by Mugabe supporters, including Chenjerai Hunzvi, the late 
war veteran leader and violent enforcer of Mugabe's land 
seizure campaign.  After a lengthy legal fight, a court 
ordered the issuance of a license to EZW.  The company soon 
became the country's leading cell phone service provider. 
The GOZ has accused Masiyiwa of funding anti-Mugabe 
activities and blamed him in part for the nation's rejection 
of a GOZ-supported draft constitution in a 2000 national 
referendum.  After death threats and arrests, Masiyiwa moved 
to South Africa in 2000 and reportedly has not returned to 
Zimbabwe since. 
 
6.  (C) COMMENT:  The complete emasculation of moneyed 
players like Masiyiwa, a black Zimbabwean, and others, 
including white ex-commercial farmers, who channel financial 
support to the opposition has long been a priority for the 
ruling party.  It was a key element behind the government's 
chaotic land grab and now fuels continuing talk of 
"indigenizing" other sectors of the economy.  It is too early 
to know whether the Herald coverage signals GOZ intent to 
bring down Econet in spite of court judgments or is meant 
simply to intimidate Masiyiwa in his varied engagement with 
Zimbabwe.  Certainly, the continued closure of TDN is 
intended in part to strain Masiyiwa's resources.  We do not 
know the accuracy of the Herald's reporting of Masiyawa's 
alleged setbacks elsewhere. 
 
7.  (C) COMMENT (CONT'D): In some ways parallelling the ANZ 
case (retels), the unfolding Econet "investigation" 
represents a microcosm of Zimbabwean rule of law: the law not 
as a shield but as a sword with which to constrain or to 
dispatch selected enemies of the state.  The government's 
oppressive and nonsensical regulatory overlay assures that no 
firm could stay in business long without operating outside 
the law and, indeed, all do -- especially those affiliated 
with the ruling party that are building empires above the 
law.  Thus, the state has effective legal grounds to go after 
any business in country.  Sharpening this Sword of Damocles 
is the ruling party's growing paranoia and financial need. 
Businesspeople in Zimbabwe are in an increasingly precarious 
plight, scrutinized by the ruling party through a "with us or 
agin' us" lens in an effectively extortionate atmosphere. 
The growing prominence of business figures in the party 
reflects pressure on the business community to evidence 
loyalties demonstratively, in word and deed.  This 
politicization can be expected to further complicate an 
already painful operating environment for the beleaguered 
business community and to act as yet additional drag on the 
imploding economy. 
 
8.  (C) COMMENT (CONT'D): As with so many other recent GOZ 
economic measures, the GOZ's obsession with its deep forex 
problems in part explains why this action may be underway 
now.  Forex difficulties in the telecom sector, however, are 
unlikely to be resolved until a badly underpriced tariff 
regime is considerably restructured, pricing many Zimbabwean 
consumers out of the market.  In any event, by reducing 
competition, the elimination of Econet would have predictably 
deleterious results for the overall quality of telecom 
services in Zimbabwe, which has been falling markedly during 
the past year.  The situation nonetheless may perversely 
appeal to the GOZ by leaving two parastatals -- Telecel and 
NetOne -- with effective monopoly control of Zimbabwe's cell 
phone services sector and attendant opportunities for revenue 
enhancement at the public's expense. 
SULLIVAN