US embassy cable - 05HARARE457

C O N F I D E N T I A L SECTION 01 OF 02 HARARE 000457 
 
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 
SUBJECT: BUSINESSMEN WANT RAPID POST-ELECTION CHANGES 
 
Classified By: Ambassador Christopher Dell for reasons 1.4 b/d 
 
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Summary 
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1.  (C) Summary:  Participants at the Embassy's March 17 
business roundtable agreed that Reserve Bank (RBZ) Governor 
Gideon Gono had further damaged the economy since taking 
office on December 1, 2003 with his emphasis on state control 
of the economy.  They disagreed whether more market-oriented 
policies would prevail after the March 31 parliamentary 
elections.  Some participants said the GOZ would likely 
devalue the zimdollar, which could help business conditions. 
However, others noted that without changes to the underlying 
policies, a devaluation would likely spur further 
depreciation in the zimdollar and a corresponding spike in 
inflation.  Most participants expressed skepticism that 
President Mugabe would curb economic intervention, undertake 
an objective audit of land reform and replace 
under-performing farmers, or appoint competent ministers to 
his cabinet.  They encouraged the U.S. and other donors to 
use their leverage to press for more liberal economic 
policies.  End Summary. 
 
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Participants 
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2. (C) The roundtable, moderated by the Charge d'Affaires, 
bought together participants from the economy,s main 
sectors.  Agriculture: Cargill Managing Director John 
Battershell, Anglo-American CEO James Maphosa and independent 
farmer Wilson Nyabonda.  Mining: Zimplats CEO Greg Sebborn 
and Maphosa.  Manufacturing: Colgate-Palmolive MD Davis 
Kenyama.  Tourism: Rainbow Tourism CEO Chipo Mtasa. 
Financial Services: Zimbabwe Allied Banking Group (ZABG) 
Finance/Administration Director Pricilla Mutembwa. 
 
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Some Still Hope for Better Post-Election Conditions 
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3. (C) None of the participants were unabashedly optimistic 
about future GOZ economic policy.  However, the local heads 
of Rainbow Tourism, Cargill, Zimplatts along with the 
independent farmer expressed guarded hope that Mugabe would 
appoint a more pragmatic post-election cabinet.  Several of 
the businesspeople also suggested Mugabe would permit a 
significant devaluation that could help improve the 
competitiveness of Zimbabwe,s exports. 
 
4. (C) Nyabonda, currently Zimbabwe's largest tobacco farmer, 
said he and other farmers were lobbying for a special 
exchange rate of Z$10,000-12,000:US$ vice the official rate 
of Z$6,000:US$.  (N.B. Nyabonda purchased his farm in the 
mid-90,s, before the start of fast-track land reform and the 
seizure of white-owned farms.)  Nyabonda said the tobacco 
selling-season would open April 5.  If the GOZ had not 
instituted a general devaluation or set up a special rate for 
farmers shortly after the election, he predicted that tobacco 
farmers would begin smuggling their tobacco out of the 
country for sale, rather than sell it at a loss to the state. 
 
5. (C) Nyabonda also said he expected the GOZ to undertake an 
audit of farms resettled under the GOZ's fast-track land 
reform and replace under-performing beneficiaries with other 
aspiring farmers.  He argued that the division of large 
formerly white-owned farms into many smaller units was not 
working ) "only one of ten farms has irrigation and power" 
) and that the GOZ would have to find a way to turn these 
smaller farms into "sustainable units." 
 
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While Others Have Given Up Until Mugabe Goes 
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6. (C) By contrast, the Anglo-American, Colgate-Palmolive and 
ZABG representatives were skeptical that any cabinet under 
Mugabe would enact more reasonable exchange rate or land 
reform policies.  They maintained that politicians from the 
ruling ZANU-PF who enriched themselves by accessing foreign 
exchange at the official rate or handpicking the best farms 
were incapable of advocating a floating exchange rate or 
overseeing an independent audit of land reform. 
 
7. (C) Anglo-American CEO Maphosa said the business community 
"overestimated the success of (RBZ Governor) Gono" while 
Kenyama and others criticized the central banker for 
bolstering government control of the economy.  There was no 
general agreement on whether Gono would personally favor 
market solutions but all agreed that Mugabe would have fired 
him, as he had former Finance Minister Simba Makoni, had he 
proposed more liberal policies.  In that regard, Rainbow 
Tourism CEO Mtasa warned that a devaluation, absent more 
liberal underlying economic policies, would only cause 
further zimdollar depreciation on the parallel market and 
would likely cause 2005 inflation to spiral out of control. 
 
8. (C) Maphosa, Kenyama and Zimplatts CEO Sebborn predicted 
serious post-election shortages of food and fuel as well 
other imported commodities.  They said the government would 
have to appeal for international food assistance after the 
election.  They also confirmed that many in the GOZ believed 
that if the March 31 elections were given a clean bill of 
health by South Africa and the Southern African Development 
Community (SADC), the west would bless them as well, leading 
to renewed support from the IMF and other IFIs. 
 
9. (C) The Charge said the U.S. would respond positively to 
an appeal for food aid; we did not use food as a political 
tool, but that renewed IMF lending was a distant prospect at 
best and would depend on a resolution of Zimbabwe,s 
political crisis.  Several participants said the donor 
community should use its leverage to press for more market 
friendly policies.  In that regard, Sebborn noted that his 
company was prepared to invest US$2 billion but had 
inexplicably yet to receive a green light from the GOZ. 
(N.B., by comparison, the country exported only US$1.7 
billion last year and attracted less than US$10 million in 
foreign direct investment.) 
 
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Comment 
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10. (C) RBZ Governor Gono,s honeymoon is over. 
Industrialists are increasingly demanding that Gono implement 
the market-oriented policies the central banker has 
frequently praised and promised.  The GOZ, with or without 
Gono, will clearly have to move quickly following the 
elections on a variety of economic fronts: food insecurity, 
fuel shortages, and the exchange rate being the most 
prominent.  It remains to be seen whether the GOZ under 
Mugabe will be capable of embracing more liberal economic 
policies or will choose to rely on continued state control. 
The latter would be a recipe for further rapid economic 
deterioration. 
Dell