US embassy cable - 04HARARE1758

UNCLAS HARARE 001758 
 
SIPDIS 
 
STATE FOR AF/S 
USDOC FOR AMANDA HILLIGAS 
TREASURY FOR OREN WYCHE-SHAW 
PASS USTR FLORIZELLE LISER 
STATE PASS USAID FOR MARJORIE COPSON 
 
SENSITIVE 
 
E. O. 12958: N/A 
TAGS: ECON, ETRD, EINV, PGOV, ZI, Economic Situation 
SUBJECT: Heinz's Burdensome Subsidiary 
 
 
Sensitive but unclassified. 
 
Summary 
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1. (SBU) Olivine, Heinz's Zimbabwe subsidiary, is barely 
staying afloat, according to its top official.  Unable to 
freely convert its zimdollar earnings into foreign 
exchange for needed imports, the firm is operating at 40 
percent capacity.  Meanwhile, South African manufacturers 
of cooking oil, Olivine's major product in Zimbabwe, are 
taking domestic market-share. 
 
Coping with the Forex Auctions 
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2. (SBU) Olivine remains an important company in 
Zimbabwe, partly due to its position as the largest local 
manufacturer of cooking oil.  Despite its strong domestic 
presence, however, Managing Director Ian McKensie tells 
us he now spends hours each day trying to cope with 
foreign currency shortages, what he calls "an increasing 
workload for less and less product."  While he 
continually lobbies the Reserve Bank of Zimbabwe (RBZ) 
for access to foreign exchange through the auction 
system, McKensie complains that RBZ officials regularly 
cancel meetings after keeping him waiting for hours. 
Recently, Olivine required US$ 1 million worth of crude 
oil for its processing machinery.  Since the RBZ has told 
importers it has too little forex to entertain auction 
bids of US$ 1 million, McKensie said Olivine had to 
submit bids of US$ 200,000 at a series of successive 
auctions spanning six weeks.  Although ultimately 
unsuccessful in obtaining the needed forex, it took 
approximately 12 auctions and countless hours of staff- 
time.  Each bid meant a new set of documents and research 
into the probable exchange rate band on a given day. 
Recent bid spreads have been as narrow as half a cent of 
a zimdollar (about 1/11,000 of a U.S. cent), making it 
extremely difficult for a bidder to win with any 
frequency. 
 
3. (SBU) Lately, the Olivine MD has a new headache: 
cooking oil from South Africa is selling more cheaply 
than his own.  Even though RBZ officials assure McKensie 
they have not allocated foreign exchange for these 
imports, South African cooking oil is nonetheless widely 
available in supermarkets. 
 
Comment 
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4. (SBU) Despite the firm's woes, Olivine is fortunate to 
even qualify for limited amounts of foreign exchange at 
RBZ auctions.  The RBZ currently sells forex at a 42 
percent discount to the parallel market rate (Z$5600 
versus 8000:US$).  But even with this exchange rate 
advantage over foreign producers (whose products almost 
always enter the country at the parallel rate), Olivine 
cannot overcome Zimbabwe's burgeoning costs and 
inefficiencies, including:  a) intrusive RBZ oversight, 
b) wages for skilled tradesmen approaching those in South 
Africa, c) more expensive and irregular fuel and 
electricity supplies than elsewhere in the region, and d) 
diminishing domestic production inputs (e.g., Zimbabwe's 
sunflower crop, the most common source of local cooking 
oil, has dropped from 160,000 to 60,000 tons since the 
Government began expropriating commercial farms for 
redistribution).  It is a daunting business climate for 
local producers, but an opportunity for foreign producers 
to gain market-share in Zimbabwe. 
 
Dell