US embassy cable - 04HARARE703

UNCLAS HARARE 000703 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR AF/S 
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER 
USDOC FOR AMANDA HILLIGAS 
TREASURY FOR OREN WYCHE-SHAW 
PASS USTR FLORIZELLE LISER 
STATE PASS USAID FOR MARJORIE COPSON 
 
E. O. 12958: N/A 
TAGS: ETRD, ECON, EINV, PGOV, ZI 
SUBJECT: Goodbye, Exporters: Colgate-Palmolive's Case 
 
Ref: a) Harare 141  b) Harare 256   c) Harare 456 
 
1. (SBU) Summary: Colgate-Palmolive's relocation of 
productive facilities from Zimbabwe to South Africa bears 
witness to this Government's export-unfriendly policies. 
End Summary. 
 
Zimbabwe's Loss - South Africa's Gain 
------------------------------------- 
2. (SBU) We have reported frequently (refs) on the GOZ's 
demolition of exporters through overtaxing, overvaluing 
the zimdollar and overcharging for services such as 
electricity.  Colgate-Palmolive's case is illustrative. 
Over the past three years, the consumer products firm has 
gradually shifted its Zimbabwean manufacturing capacity 
to South Africa. 
 
3. (SBU) The company's local managing director recently 
recounted how frustrating the process of becoming 
strictly an importer has been.  For instance, Colgate- 
Palmolive used to export toothpaste produced in Zimbabwe 
to Malawi, taking advantage of a duty-free arrangement. 
Eventually, however, the multinational calculated that 
this privilege did not compensate for Zimbabwe's many 
obstacles: 
 
- exchange 25 percent of forex revenue with the GOZ at a 
negligible rate 
- contend with a perpetually overvalued zimdollar 
- pay - on a regional standard - double for electricity 
- get around logistics nightmares (erratic railway 
service, fuel/banknote shortages, etc) 
- absorb a high political risk factor. 
 
It became cheaper to export toothpaste from South Africa 
to Malawi, even with a strong rand, higher salaries and a 
25 percent duty requirement. 
 
Comment 
------- 
4. (SBU) On a regional or global scale, GOZ policy has 
rendered domestic producers uncompetitive.  Miners, for 
example, tell us they are digging deep for platinum in 
South Africa that they could extract near the surface in 
Zimbabwe - if only export conditions here made it 
worthwhile.  By squandering resources to prop up the 
zimdollar, the GOZ is indirectly subsidizing foreign 
producers that sell in Zimbabwe while punishing its own 
manufacturers - i.e., what's left of them.  Given that 
the zimdollar has already collapsed from Z$17:US$ since 
1998, it's hard to explain GOZ vigilance to hold the 
exchange at about an overvalued Z$5,000:US$ rather than, 
say, Z$8,000-12,000:US$.  But that's Zimbabwe. 
 
Sullivan