VZCZCXRO6484
PP RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSB #1396/01 3261304
ZNR UUUUU ZZH
P 221304Z NOV 06
FM AMEMBASSY HARARE
TO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 0856
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHUJA/AMEMBASSY ABUJA 1385
RUEHAR/AMEMBASSY ACCRA 1238
RUEHDS/AMEMBASSY ADDIS ABABA 1389
RUEHBY/AMEMBASSY CANBERRA 0650
RUEHDK/AMEMBASSY DAKAR 1015
RUEHKM/AMEMBASSY KAMPALA 1443
RUEHNR/AMEMBASSY NAIROBI 3828
RUEHFR/AMEMBASSY PARIS 1212
RUEHRO/AMEMBASSY ROME 1865
RUEHBS/USEU BRUSSELS
RUEHGV/USMISSION GENEVA 0601
RHEHAAA/NSC WASHDC
RUCNDT/USMISSION USUN NEW YORK 1606
RUEKJCS/JOINT STAFF WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEFDIA/DIA WASHDC//DHO-7//
RUCPDOC/DEPT OF COMMERCE WASHDC
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK//DOOC/ECMO/CC/DAO/DOB/DOI//
RUEPGBA/CDR USEUCOM INTEL VAIHINGEN GE//ECJ23-CH/ECJ5M//

UNCLAS SECTION 01 OF 03 HARARE 001396 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
AF/S FOR S. HILL 
NSC FOR SENIOR AFRICA DIRECTOR B. PITTMAN 
STATE PASS TO USAID FOR M. COPSON AND E.LOKEN 
TREASURY FOR J. RALYEA AND T.RAND 
COMMERCE FOR BECKY ERKUL 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV ASEC ZI
SUBJECT: MUCH BALLYHOOED 99-YEAR LEASES DISAPPOINT ALL ROUND 
 
 
------- 
Summary 
------- 
 
¶1. (SBU)  The terms of the few dozen much ballyhooed 99-year 
leases issued on November 9 by President Mugabe left many 
questions unaddressed.  Bankers say they do not appear to 
meet collateral requirements for lending into the sector. 
Security of tenure under the leases is tenuous, as the GOZ 
retains the right to cancel them under certain general 
conditions and to retake the leasehold.  Moreover, the leases 
do not clearly address the legitimate compensation claims of 
former farm owners.  Meanwhile, disruptions to the remaining 
white commercial farm operations have increased since the 
launch of the leases.  End Summary 
 
---------------------------------------- 
GOZ Issues 99-Year Leases to 125 Farmers 
---------------------------------------- 
 
¶2. (SBU)  Amid great fanfare, on November 9 President Mugabe 
issued the first long-promised 99-year leases to 125 farmers 
under the "A2" commercial farming model.  Among the 
beneficiaries were 16 white farmers and one prominent member 
of the opposition ) Welshman Ncube, Secretary General of the 
pro-Senate faction of the MDC.  In addition, the independent 
press reported the names of several prominent ruling party 
officials and businessmen among the lease recipients.  The 
number of applicants for the leases, however, is unknown. 
CFU President Doug Taylor-Freeme had earlier told econoff 
that about 1,000 displaced white farmers had filed 
applications.  (Comment: The GOZ has put a close hold on both 
the terms of the leases and the names of the beneficiaries. 
None of the bankers or business people we contacted said they 
had seen a lease firsthand, nor could we obtain a copy of a 
lease from any institution other than the Commercial Farmers' 
Union (CFU).  End Comment) 
 
--------------------------------------------- - 
Unlikely Collateral; Many Unanswered Questions 
--------------------------------------------- - 
 
¶3. (SBU)  Panashe Chitumbe, Head of Risk Management and 
Economic Research at Stanbic Bank, told econoff on November 
13 that from all the information he had gleaned, the leases 
would most likely not serve as a form of bank security and 
therefore did not resolve the credit risk problem in lending 
into the sector.  Furthermore, the GOZ had failed to address 
the banking sector's main area of concern - political risk in 
the agricultural sector.  He pointed out that the leases were 
effectively 3-month leases, not 99-year leases, as the GOZ 
could cancel the lease on 90-days notice under certain broad 
conditions, including insolvency of the lessee.  In addition, 
once cancelled, the GOZ reserved the right to resume 
possession of the leasehold.  (N.B. The 17th amendment to the 
Constitution, passed in 2005, transferred title to the State 
of all agricultural land acquired during land reform.) 
 
¶4. (SBU)  Sima Msindo, Director of Public Advisory Services 
at PriceWaterhouseCoopers, added in a comment to econoff on 
November 21 that it was unclear whether the GOZ would respect 
certain freehold titles or swap them for leasehold titles. 
 
HARARE 00001396  002 OF 003 
 
 
In question were freehold titles under Bilateral Investment 
Protection and Promotion Agreements (BIPPA) and the freehold 
titles of the not insignificant number of black farmers who 
had acquired farmland since 1980 (including Msindo's father). 
 
 
¶5. (SBU)  CFU President Doug Taylor-Freeme pointed out to 
econoff on November 16 an example of the "communal way of 
thinking" of the lease terms.  The lessee, a cattle rancher 
in the document he shared with the embassy, was obliged to 
sell 20 percent of his cattle per year to the GOZ and to 
plant 20 percent of his land in cereals. 
 
¶6. (SBU)  Msindo and Taylor-Freeme also questioned the 
validity of 99-year leases in cases where the state had 
failed to compensate the former owner.  The CFU President 
expressed concern that the GOZ appeared to be passing 
responsibility for paying compensation onto the lessee. 
Apparently seeking to deflate the contentious issue of 
compensation, the state-controlled press on November 12 and 
again on November 16 published a four-page list of names of 
farmers being offered compensation.  John Laurie, 
spokesperson of the white farmer's Compensation Committee 
pointed out to econoff on November 20 that such lists had 
appeared before and compensation had been previously offered, 
but never more than 5-10 percent of the true value of 
improvements and immovable assets.  He regarded both the 
GOZ's fanfare surrounding issuance of the leases and the 
latest offer of compensation as a smokescreen orchestrated by 
the GOZ "for international consumption." 
 
---------------------------- 
The Weak State of Production 
---------------------------- 
 
¶7. (SBU)  Laurie, who is also a past president of the CFU and 
member of the Board of Directors of Standard Chartered Bank, 
in addition pointed out that issuance of a few dozen leases 
did not begin to address the scale of damage done to the 
sector.  The state of the input market was &a nightmare in 
itself,8 with, for example, at most 7,000 working tractors 
available, where there had once been 16,000. 
 
¶8.  (SBU)  Furthermore, the GOZ was still issuing eviction 
notices to white commercial farmers.  The CFU provided 
econoff with a long list of farm disruptions and eviction 
threats (40 cases), and notices of eviction (17 cases) as of 
October 26, 2006.  Moreover, on November 17 it reported an 
increase in the number of farm disruptions since the lease 
launch, commenting that certain GOZ officials appeared to 
have taken news of the launch as a last chance for action. 
 
------- 
Comment 
------- 
 
¶9. (SBU)  The agricultural sector and wider business 
community initially had high hopes that the GOZ's decision to 
issue 99 year leases would spur production and invigorate the 
moribund sector.  As several of our farming contacts note, 
leases have proven successful in other countries.  However, 
the nontransparent and heavy-handed way in which the GOZ has 
 
HARARE 00001396  003 OF 003 
 
 
issued the leases so far has probably doomed this endeavor. 
In order for leases to stand any chance of reviewing 
Zimbabwe's farm output, they must be issued in a transparent 
manner, be based on sound business principles, and ) most 
importantly ) provide some security of tenure.  On all three 
accounts, however, Zimbabwe's recently-issued leases fail. 
DELL