US embassy cable - 04HARARE1898

UNCLAS HARARE 001898 
 
SIPDIS 
 
STATE FOR AF/S 
USDOC FOR ROBERT TELCHIN 
TREASURY FOR OREN WYCHE-SHAW 
PASS USTR FLORIZELLE LISER 
STATE PASS USAID FOR MARJORIE COPSON 
 
SENSITIVE 
 
E. O. 12958: N/A 
TAGS: EMIN, ECON, ETRD, EINV, PGOV, ZI, Mining 
SUBJECT: Nickel Exporter Using Just 2 of 4 Mines 
 
Sensitive but unclassified.  Not for Internet posting. 
 
1. (SBU) On a recent site visit to Bindura Nickel Corp 
(BNC) in Mashonaland Central, General Manager R. 
Chinamatira complained to us of Zimbabwe's worsening 
export climate.  Even though nickel reached a 20-year 
high on world markets this year, BNC is operating only 
two of four mines.  By increasing the import duty over 
100-fold and raising electricity rates to double the 
region's average, Chinamatira said the Reserve Bank (RBZ) 
has since last December "destroyed [BNC's] cost 
structure."  At the present Z$5600:US$ official exchange 
rate, the GM argued that Zimbabwean nickel exports cannot 
compete with nickel from Botswana, Russia or China. 
 
2. (SBU) On top of the worsening export climate, BNC can 
no longer access the RBZ's productive sector loans at a 
discounted 50 percent (versus 135 percent on open 
markets).  In his Oct 28 monetary policy statement, RBZ 
Governor Gideon Gono disallowed firms that pay 
shareholder dividends from seeking productive sector 
loans.  Chinamatira believes shareholders would revolt if 
BNC ceased paying quarterly dividends. 
 
3. (SBU) BNC is losing market share to Zimbabwe's Rio 
Tinto subsidiary, which does not mine nickel locally. 
Although Rio Tinto merely refines imported nickel, the 
rival has enjoyed the advantage of buying U.S. dollars at 
the preferential official rate (Z$5600:US$), forty 
percent below zimdollar's parallel exchange rate 
(Z$8500:US$), as well as lower cost structures in other 
countries.  Nickel extracted from BNC's Zimbabwe mines 
cannot compete with these imports, since Chinamatira 
claims many of BNC's costs reflect the parallel rate.  He 
argues BNC has had less luck than Rio Tinto buying U.S. 
dollars through RBZ auctions and must source forex 
through unofficial channels. 
 
4. (SBU) Although BNC's wages have tripled this year, 
outpacing the official 209-percent inflation rate, 
Chinamatira acknowledges that his workers have lost 
buying power.  "Is industry being subsidized by lower and 
lower worker wages?" he asked rhetorically.  Like many 
firms, BNC has seen many of its skilled workers seek 
greener pastures abroad.  For his part, Chinamatira 
insists that he enjoyed more discretionary buying power 
when he apprenticed with BNC in 1990, just after college 
graduation, than he now does as general manager. 
 
5. (SBU) Comment: BNC tells a familiar story.  With 
inflation going up faster than the zimdollar goes down, 
few of Zimbabwe's exports can complete with imported 
goods.  In fact, many importers are having a banner year. 
(U.S. imports during Jan-Sept are up 34 percent over the 
same period in 2003.)  By regional standards, Zimbabwe 
has become a high-cost and uncompetitive producer.  The 
GOZ, however, shows no sign that it is concerned with the 
continuing negative impact of its economic policies n 
productive enterprises.  Political considerations remain 
paramount.  The only question is how long the GOZ will 
let its economic base deteriorate and how much damage 
will be done before saner heads prevail. 
 
Dell