US embassy cable - 05HARARE325

C O N F I D E N T I A L HARARE 000325 
 
SIPDIS 
 
AF/S FOR BNEULING 
EB/IFD FOR FCHISHOLM 
NSC FOR SENIOR AFRICA DIRECTOR C. COURVELLE, D. TEITELBAUM 
TREASURY FOR OREN WYCHE-SHAW, 
STATE PASS USAID FOR MARJORIE COPSON 
ALL AFRICAN DIPLOMATIC POSTS 
 
E.O. 12958: DECL: 12/31/2009 
TAGS: ETRD, PGOV, ZI, ECON, EINV, Economic Policy, Economic Situation 
SUBJECT: COKE TO NEGOTIATE NEW PRICE 
 
Classified By: Ambassador Christopher Dell for reason 1.4 b/d 
 
1. (C) Summary: Producing a price-controlled commodity, 
Coca-Cola's local subsidiary will now resume negotiations 
with the GOZ's Ministry of Trade and Industry over the cost 
of its hallmark drink.  Coke country manager Togi Chinoda 
told Econoff on February 22 that the company now loses money 
on each drink it sells.  End Summary. 
 
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How much for the "real thing"?  Depends on exchange rate 
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 2. (C) Chinoda said the price of coke is  still set by the 
GOZ.  (N.B., the GOZ established retail prices for almost all 
goods until mid-2003.)  Chinoda said he negotiated a Z$ 
2,000/bottle price with the GOZ last October, but inflation 
has eroded the company,s profit margin. 
 
3. (C) At the official exchange rate of Z$ 6,000:US$, Chinoda 
said each bottle runs about US$.33, far in excess of the 
US$.18-22 Coke charges in neighboring countries.  However, 
Chinoda insisted that the official exchange rate offers a 
distorted picture of his operations.  Coke must convert its 
zimdollar revenue into U.S. dollars at parallel rates in 
order to cover most expenses, since the company rarely 
acquires foreign exchange through Reserve Bank auctions. 
When converting the Z$2,000/bottle price at the current 
parallel rate of Z$12,000:US$, the beverage costs less than 
US$.17, below its regional pricing range. 
 
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But it,s still not enough to cover costs 
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4. (C) Chinoda said Coke is actually losing money on every 
bottle it sells.  He estimated the cost per bottle as nearly 
US$.20.  Because of the high cost, Chinoda said Coke now puts 
off buying inputs until the last minute and sometimes endures 
shortages.  The firm has stopped selling beverages in 
disposable bottles, as it loses even more money when the 
imported plastic is taken into account.  Chinoda said he is 
now down to a two-day supply of bottle tops, which are 
imported from South Africa, although company guidelines 
require subsidiaries to keep a three-week stock on hand. 
"After the election, we just hope the official exchange rate 
goes up," Chinoda added, since a more realistic exchange rate 
would help Coke lobby for a higher zimdollar price. 
 
5. (C) The Coke representative said he does not want to 
increase the Z$1,500 bottle deposit.  He frets Zimbabweans 
would begin hoarding bottles as a rare savings vehicle in 
this high inflation environment, adding to his woes. 
 
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Comment 
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6. (C) Coke,s problems exemplify what is wrong with the 
GOZ's interventionist economic policy, where bureaucrats 
determine how much foreign exchange a company is allotted and 
what soda pop should cost.  In 2003, Colgate-Palmolive gave 
up trying to manufacture toothpaste here and now imports it 
from South Africa.  If the GOZ does not loosen its grip on 
the business sector, Coke could follow suit. 
DELL