US embassy cable - 02HARARE2822

UNCLAS SECTION 01 OF 02 HARARE 002822 
 
SIPDIS 
 
STATE FOR AF/S 
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER 
USDOC FOR 2037 DIEMOND 
PASS USTR ROSA WHITAKER 
TREASURY FOR ED BARBER AND C WILKINSON 
DEPARTMENT PASS USAID FOR MARJORIE COPSON 
 
E. 0. 12958: N/A 
TAGS: ECON, EFIN, ETRD, ZI 
SUBJECT: Bulawayo's Sullen Industrialists 
 
 
1. Summary: Exasperated by employee flight to 
neighboring countries and an ever more intrusive 
bureaucracy, firms in Zimbabwe's second largest city 
say they will not survive if the GOZ implements its 
2003 budget.  End Summary. 
 
Workers, firms exiting Zimbabwe 
------------------------------- 
2. Econchief recently descended upon industrial 
center Bulawayo to visit firms that either import 
from or export to the U.S.  The impression we return 
with is not encouraging.  The three apparel 
producers we met with are moving, respectively, to 
South Africa, the black market and despair.  The   . 
first told us he is unable to maintain his machinery 
due to the high cost of foreign exchange and will 
restart his plant in South Africa.  The second, a 
hunting/safari clothes exporter to the U.S., said he 
is surviving but only because he lets politically- 
connected indigenous rather than international banks 
handle his accounts.  "I don't know how they do it 
and I don't ask," he said. 
 
3. The third, a supplier to Eddie Bauer in the U.S., 
admitted he is also looking for greener pastures 
outside Zimbabwe but is reluctant because the family 
business has been a Bulawayo fixture since 1957. 
However, he is losing 3 trained workers per day, 
mostly to competitors in Botswana, an annual 
attrition rate over 100 percent.  The GOZ has 
nullified any benefits he can use to attract and 
retain staff, by a) raiding the once well-heeled 
Clothing Industry Pension Pund and b) preventing him 
from spending foreign exchange earnings on bicycles 
and maize meal for his employees.  (Explanatory 
note:  The new 2003 budget compels exporters to 
surrender half their export earnings to the Reserve 
Bank, ostensibly for official exchange but in 
practice as an indirect tax.  To spend the remaining 
half their earnings, firms must convince the Reserve 
Bank that purchases are for "priority" items.  In 
spite of Zimbabwe's transport and food problems, the 
Reserve Bank turned down the firm's request to buy 
bicycles or maize meal for employees.)  The owner 
feels he can no longer overcome these obstacles, not 
to mention less favorable tariffs stemming from 
Zimbabwe's failure to qualify for the African Growth 
and Opportunity Act (AGOA). 
 
Climate of despair 
------------------ 
4. The head of Bulawayo's Zimbabwe Investment Center 
said he now gets so few inquiries from foreign 
investors that he has trouble justifying his 
office's existence.  The local Confederation of 
Industries president said many companies are 
considering shutting their doors beyond the 
Christmas break while they wait (read: pray) for 
more workable policies.  His own cement company 
lacks foreign exchange to keep its expensive 
Caterpillar machines running.  (Further explanatory 
note: Since the cement firm does not export, it has 
no Foreign Currency Account.  Meanwhile, the 2003 
budget makes it illegal to buy foreign currency at 
parallel rates from bureaux de change.)  The 
National Railway of Zimbabwe, which Bulawayo 
producers depend on for freight transport, is down 
to just 9 working locomotives. 
 
Comment 
------- 
5. Our visit to Bulawayo confirms that the GOZ's 
management of foreign exchange in- and outflows will 
make-or-break companies, industries or even the 
economy.  The forex-starved GOZ is not letting an 
apparel company import bicycles or maize meal for 
workers, or coffee and cotton producers b 
uy 
herbicides and pesticides, hardly the stuff of 
frivolous extravagance.  Some White- and Asian-owned 
businesses fear the GOZ will only approve forex 
expenses of Black-owned firms, turning Foreign 
Currency Accounts into a vehicle for indigenization 
of the economy.  Whether true or not, the GOZ will 
surely run exporters out of businesses by refusing 
them access to even half their earnings. 
 
Sullivan