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RR RUEHWEB

DE RUEHSB #0598/01 1861502
ZNR UUUUU ZZH
R 051502Z JUL 07
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC 1667
INFO RUEHSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHUJA/AMEMBASSY ABUJA 1639
RUEHAR/AMEMBASSY ACCRA 1507
RUEHDS/AMEMBASSY ADDIS ABABA 1643
RUEHRL/AMEMBASSY BERLIN 0291
RUEHBY/AMEMBASSY CANBERRA 0909
RUEHDK/AMEMBASSY DAKAR 1272
RUEHKM/AMEMBASSY KAMPALA 1699
RUEHNR/AMEMBASSY NAIROBI 4115
RUEHFR/AMEMBASSY PARIS 1469
RUEHRO/AMEMBASSY ROME 2133
RUEHBS/USEU BRUSSELS
RHMFISS/JOINT STAFF WASHDC
RUEHGV/USMISSION GENEVA 0768
RHMFISS/HQ USEUCOM VAIHINGEN GE
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK
RHEFDIA/DIA WASHDC
RHEHAAA/NSC WASHDC
RUCNDT/USMISSION USUN NEW YORK 1860

UNCLAS HARARE 000598 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
AF/S FOR S. HILL 
NSC FOR SENIOR AFRICA DIRECTOR B. PITTMAN 
ADDIS ABABA FOR USAU 
ADDIS ABABA FOR ACSS 
 
E.O. 12958: N/A 
TAGS: PGOV ECON EINV ZI
SUBJECT: INDIGENIZATION BILL - ANOTHER BLOW TO ZIMBABWE'S 
BELEAGURED ECONOMY 
 
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Summary 
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¶1. (SBU) Parliament is scheduled to begin considering the 
Indigenization and Economic Empowerment Bill in late July. 
The Bill's official purpose is to seek to increase 
participation of indigenous Zimbabweans in the economy; its 
ultimate objective is for at least 51 percent of the shares 
of every business to be owned by indigenous Zimbabweans. The 
Bill, to the relief of many in the business community - both 
black and white - does not contain any obligation by existing 
private businesses to begin to indigenize.  Nevertheless, in 
light of the already dominant position of indigenous 
Zimbabweans in business, it raises concerns about cronyism in 
the eventual distribution of company shares and about the 
resurgence of a &grab8 mentality.  Ultimately the Bill will 
discourage new investment and discourage those foreign 
investors still on the ground, including U.S. companies, from 
holding on longer as the pace of economic decline 
accelerates.  End Summary. 
 
------------ 
Key Features 
------------ 
 
¶2.  (U) The Government Gazette published the long-anticipated 
Indigenization and Economic Empowerment Bill on June 22.  Key 
features of the Bill, which Parliament is scheduled to 
consider when it re-opens in late July, are: 
 
-  The Government shall endeavor to secure that at least 51 
percent of the shares of every public company and any other 
business shall be owned by indigenous Zimbabweans.  In the 
shorter term, the Minister of Indigenization and Empowerment 
(N.B. at the moment, Paul Mangwana) will be empowered to 
publish regulations prescribing acceptable, but temporary, 
lesser percentages and thresholds. 
 
-  An indigenous Zimbabwean is defined as any person who 
before April 18, 1980 - the date of Zimbabwe's independence - 
was disadvantaged by unfair discrimination on the grounds of 
his or her race, any descendant of such a person, and any 
company, association, syndicate or partnership in which such 
persons hold the controlling interest or are the majority of 
the members.  (N.B. The definition may include Zimbabweans of 
Indian descent; there are varied interpretations.) 
 
-  Ministerial approval will be required for mergers, 
restructurings and acquisitions to ensure a high level of 
control by indigenous Zimbabweans.  (N.B. The Bill does not 
contain any obligation by existing businesses to begin 
indigenizing.  It does, however, call for an "indigenization 
and empowerment assessment rating" of every company.) 
 
-  The Bill requires Government departments, parastatals, 
local authorities and companies to procure at least 51 
percent of their goods and services from businesses 
controlled by indigenous Zimbabweans. 
 
-  The Bill calls for establishment of an Indigenization and 
Empowerment Board appointed by the Minister to advise on 
strategy, and a Fund to be set up to finance the acquisition 
of shares, management buy-ins and buy-outs, and 
capacity-building for indigenous Zimbabweans.  It will be 
capitalized, among other sources, by the proceeds of levies 
 
on companies and other businesses. 
 
------------------------------------ 
Benefit to the Politically Connected 
------------------------------------ 
 
¶3.  (SBU) The USG-funded State University of New York (SUNY) 
parliamentary support project considered the economic 
implications of the Bill, noting that Zimbabwe's business 
sector was, in fact, already quite racially balanced.  Most 
Zimbabwean companies are owned and managed by indigenous 
Zimbabweans. Reminiscent of fast-track land reform, it 
concluded the ultimate beneficiaries of the initiative would 
be the politically connected elite.  MDC Secretary General 
Tendai Biti echoed that conclusion in his commentary on the 
Bill, entitled "Another platform to loot and plunder."  He 
called it another avenue of patronage and rent-seeking "by 
the big guns in ZANU-PF." 
 
----------------------------------------- 
"Grab Mentality" Will Spur Capital Flight 
----------------------------------------- 
 
¶4.  (SBU) The SUNY analysis described the Bill as part of the 
GOZ's "scramble" to divvy up a shrinking cake.  Against a 
backdrop of negative economic growth over nearly ten years, 
it predicted that the Bill and the levies required to fund 
its implementation would spur capital flight and hasten 
economic decline.  Addmore Chakurira of Imara Capital 
suggested it would increase the perceived level of political 
risk and thwart development of the country's rich mineral 
deposits, which required huge foreign investment. 
 
¶5.  (SBU) The SUNY paper also lamented the mindset that 
assets must be taken from others in order for indigenous 
Zimbabweans to develop.  It called on the government to 
create an entrepreneurial environment and allow business 
people to choose their own partners freely.  It also noted 
that the "grab" mentality failed to cultivate business 
skills.  In a similar vein, Biti's commentary decried the 
GOZ's apparent willingness to destroy the remaining pockets 
of productivity rather than resuscitate the collapsed supply 
side of the economy. 
 
¶6.  (SBU) Doug Verden, Acting CEO of the Chamber of Mines, 
told econoff that too much power had been concentrated in the 
hands of the Minister, leaving much important detail to be 
clarified at the Minister's discretion without Parliamentary 
approval.  Verden was also troubled by the lack of 
information on levies to be charged, the failure to set a 
timeframe for indigenization, and the overall vagueness of 
the Bill. 
 
----------------------------------------- 
Potential Impact on U.S.-Owned Businesses 
----------------------------------------- 
 
¶7.  (SBU)  Aside from a few dozen distributors of U.S. goods 
and some franchisees, only about a dozen large U.S.-owned 
businesses remain in Zimbabwe.  Unless they seek to merge, 
unbundle or make acquisitions, the new Bill does not put them 
in danger of forced indigenization.  Nonetheless, executives 
from the regional headquarters of several large companies 
have called on us in the past year, uneasy about sustaining 
loss-making ventures in Zimbabwe any longer, and seeking 
advice about Zimbabwe's future.  For those companies, passage 
 
of the Indigenization Bill and the recent faster pace of 
decline could move them to pull the plug on their Zimbabwe 
operation. 
 
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Comment 
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¶8. (SBU)  Business in Zimbabwe is already predominantly 
black-owned/managed.  Rather than robbing from Zimbabwe's 
shrinking economic pie to redistribute for patronage, 
pro-business economic policies would do far more to attract 
investment, spur growth and ultimately increase black 
shareholding and entrepreneurship than legislated 
indigenization.  An example of the GOZ's typical short-term 
thinking, however, especially as it heads into an election 
year, the Bill will probably find populist appeal and sail 
through the ruling-party dominated Parliament and become law 
in a few months.  Whether it is then rigorously implemented 
or shelved is, in the short-term, less significant than its 
passage, which alone will have struck another blow to the 
economy.  In the meantime, the business community's attention 
is riveted less on the Bill than on the GOZ's heavy-handed 
campaign (septel) to roll back prices, which could 
immediately affect day-to-day existence as staples vanish 
from shop shelves. 
DELL