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PP RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSB #1002/01 3111448
ZNR UUUUU ZZH
P 071448Z NOV 07
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC PRIORITY 2099
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHUJA/AMEMBASSY ABUJA 1761
RUEHAR/AMEMBASSY ACCRA 1637
RUEHDS/AMEMBASSY ADDIS ABABA 1768
RUEHBY/AMEMBASSY CANBERRA 1045
RUEHDK/AMEMBASSY DAKAR 1394
RUEHKM/AMEMBASSY KAMPALA 1825
RUEHNR/AMEMBASSY NAIROBI 4253
RUEHGV/USMISSION GENEVA 0891
RHEHAAA/NSC WASHDC
RHMFISS/JOINT STAFF WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEFDIA/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 05 HARARE 001002 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE PASS TO USAID FOR L.DOBBINS AND E.LOKEN 
TREASURY FOR J. RALYEA AND T.RAND 
COMMERCE FOR BECKY ERKUL 
EEB/EX GAYLE GRAY 
EEB/CBA DENNIS WINSTEAD 
 
E.O. 12958: N/A 
TAGS: ECON EINV PGOV ZI
SUBJECT: BFIF FUNDING ONCE AGAIN CATALYZES PRIVATE SECTOR 
DISCUSSIONS ON TURNAROUND 
 
REF: A. HARARE 0964 
 
     ¶B. HARARE 0951 
     ¶C. HARARE 0657 
     ¶D. HARARE 0598 
     ¶E. 2006 HARARE 01317 
 
¶1. (U) This is an action request. Please see paragraph 13. 
 
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Summary 
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¶2. (SBU) On October 2, for the second consecutive year, the 
American Business Association of Zimbabwe (ABAZ), generously 
supported by the Business Facilitation and Incentive Fund 
(BFIF) and the private sector, held a high-profile day-long 
economic forum under the theme "Just Business" to identify 
and deliberate over solutions to Zimbabwe's economic 
problems.  Presentations by speakers from the World Bank, 
academia, government and business focused on two subjects: 
other developing countries' experience in taming 
hyperinflation; and the importance of secure property rights 
in creating wealth and attracting investment.  About 220 
delegates attended the forum and accompanying mini-trade fair 
at which 26 companies found the courage, in an 
anti-business/anti-American climate, to exhibit under the 
banner of an American association.  Due to unforeseen 
circumstances, the event made a small loss.  Post is seeking 
early FY08 BFIF funding to close the gap and enable ABAZ to 
continue its outreach.  Looking ahead, ABAZ intends to 
disseminate the proceedings to the media, take key messages 
directly to government officials and parliamentarians, and 
begin a series of workshops on the South African experience 
with black economic empowerment as an alternative to the 
indigenization policy now under discussion. End Summary 
 
------------------------------------------- 
BFIF Support Spurs Business Group to Action 
------------------------------------------- 
 
¶3. (U) On October 2, the American Business Association of 
Zimbabwe, supported generously by the State Department's 
Business Facilitation and Incentive Fund (BFIF) and by 12 
leading companies as primary sponsors, including Stanbic 
Bank, RioTinto and Murowa Diamonds, held a high-profile 
day-long economic forum under the theme "Just Business" at 
Harare's premier convention facility, the Celebration Center. 
 This was a sequel to last year's forum (Ref E) that opened 
up a private sector-led public discussion about the key 
economic policy reforms needed to right Zimbabwe's course. 
This year, in an especially daunting anti-business, 
anti-American climate (Ref C), the organizing committee drew 
on speakers from Zambia, the U.K. and the U.S. to engage in 
constructive discussion of the way forward for the Zimbabwean 
economy. 
 
--------------------------------------------- -------------- 
Macroeconomic Stabilization ) Lessons From Around The World 
--------------------------------------------- -------------- 
 
¶4. (U) Opening the forum was Dr. Kapil Kapoor, the World 
Bank's country manager in Zambia and former deputy country 
manager in Zimbabwe.  He reviewed Zimbabwe's deteriorating 
economic and social indicators and described the experiences 
of 24 countries with hyperinflation between 1980 and 2005. 
He pointed out that high inflation could last as long as 48 
months (Zaire in 1991-1994), then described three key 
 
HARARE 00001002  002 OF 005 
 
 
elements of successful economic stabilization: up-front large 
fiscal adjustment, including elimination of quasi-fiscal 
activities; monetary adjustment with a focus on price 
stability and the establishment of monetary credibility 
through central bank independence; and exchange rate 
adjustment, again, up-front and close to the prevailing 
parallel market rate.  The measures should be accompanied by 
social safety nets for vulnerable people and policy reforms 
to remove microeconomic distortions (civil service reform, 
agricultural reform, etc.).  Kapoor summarized that 
front-loaded programs were more successful in gaining 
credibility and taming inflationary expectations than a 
gradual approach; positive stabilization results could be 
achieved quickly; and about half of the cases examined had 
official external financing similar to that of Zimbabwe (4 
percent of GDP) and no IMF program at the outset.  In all 
cases, private capital flows tended to follow stabilization. 
 
¶5. (U) Widely regarded as the most effective speaker of the 
day, elder statesman, Vice Chancellor of the University of 
Zambia, and former Governor of the Reserve Bank of Zambia in 
the 1990s, Dr. Jacob Mwanza recounted one failed Zambian 
policy after another during Zambia's 25-year long pursuit of 
a socialist development model.  His recitation of past price 
and foreign exchange controls, empty foreign currency 
coffers, falling production, record-breaking sovereign debt 
and budget deficits in Zambia, eerily echoed the Zimbabwe 
situation today.  The cornerstone of Zambia's reforms as it 
embraced a capitalist development model consisted of the 
privatization of state-owned entities, freeing up the prices 
of goods and services, repealing the Exchange Control Act, 
allowing the market to determine exchange rates, and civil 
service reform.  Mwanza also described Zambia's successes in 
diversifying the economy beyond its core copper industry into 
agriculture and tourism, and the strong growth, foreign 
reserves, and trade balance that Zambia now enjoyed, along 
with low inflation. 
 
¶6.  (U) Professor Steve Hanke of Johns Hopkins University 
presented on "Overcoming Hyperinflation ) Possible 
Solutions" in an audiovisual recording, as he was unable to 
attend the forum in person.  Having served as advisor to an 
impressive list of governments in Latin America, the Balkans 
and former Soviet Union, he drew upon his forthcoming book 
"Zimbabwe: Hyperinflation to Growth," and zeroed in on the 
pros, cons and mechanics of exchange rate stabilization using 
dollarization or currency boards. 
 
--------------------------------------------- -------------- 
Property Rights and Resuscitating the Ag and Mining Sectors 
--------------------------------------------- -------------- 
 
¶7. (SBU) Craig Richardson, Professor of Economics at Salem 
College in North Carolina, returned to the ABAZ forum this 
year to address "Property Rights and their Implications for 
Investment and Economic Growth."  Once again, he showed 
striking visual evidence of the cost of destroying property 
rights in the agricultural sector.  Using satellite photos of 
abutting commercial and communal properties, he demonstrated 
that those who owned their own land had greater incentives to 
maintain and enhance it.  Using examples of strengthened 
property rights in Tanzania and Niger, Richardson argued that 
all citizens should hold secure property rights to prevent 
land degradation and gain collateral for land improvements. 
On the margins of the event, we arranged meetings for Prof 
Richardson with leaders of the Confederation of Zimbabwe 
Industries (CZI), the Commercial Farmers' Union (CFU), the 
 
HARARE 00001002  003 OF 005 
 
 
Horticultural Promotion Council, and the Compensation 
Coalition.  In the expectation that Prof. Richardson would 
continue to publish articles on property rights in Zimbabwe, 
as he did after last year's visit, we also arranged visits 
for him to commercial, communal and resettled farms over the 
course of his six-day stay. 
 
¶8. (U) Closing the forum was Dr. Andrew Mackenzie, chief 
executive of diamonds and minerals at Rio Tinto, which owns 
77.8 percent of Zimbabwe's Murowa diamond mine.  He recalled 
Zimbabwe's bygone strength as an African mining country, 
mining legislation that he said was once the best in Africa, 
and the strong infrastructure that supported the industry in 
Zimbabwe.  Mackenzie called attention to Rio Tinto's 
leadership in respecting the rights of traditional people and 
its foundation membership of the Kimberley Process.  Striking 
in Mackenzie's slides was Rio Tinto's net investment in 
developing the Murowa site and the size of the monetary 
benefits to Zimbabwe in wages paid, payments to the 
state-owned Minerals Marketing Corporation of Zimbabwe 
(MMCZ), withholding taxes, corporate taxes, royalties, 
dividends and payments to local suppliers. Mackenzie did not 
neglect to describe Rio Tinto's more than 50 years of 
financial and social investment in Zimbabwe. He also 
emphasized Rio Tinto's endorsement of broad-based economic 
empowerment and local partnerships in its South African 
operations, while also advocating for risk protection for 
local investors. 
 
--------------------------------------------- ----------- 
U.S.-Friendly Companies Wave the Flag at Mini-Trade Fair 
--------------------------------------------- ----------- 
 
¶9. (SBU) Despite strong anti-business/anti-U.S. rhetoric in 
the state-owned press and government circles in the months 
ahead of the event, 26 companies exhibited at the 
concurrently held mini-trade fair.  The exhibitors 
represented a range of U.S. or U.S.-affiliated companies 
(Cargill, Chevron, Schweppes, Ernst & Young, Deloitte, 
Western Union, Pioneer Seed, among others), companies with 
significant U.S. investment or shareholding (Imara Asset 
Management, Murowa Diamonds), and also several small or 
U.S.-friendly local companies (PSI condom distributor, 
Econet, The Independent local newspaper, several electronics 
distributors).  Except for the aggressive young mobile 
telephone company Econet, owned by Zimbabwe exile Strive 
Masiyiwa, which offered free GPRS service to all delegates, 
none of the companies appeared to use the forum as an 
opportunity to win new business; their intent for the most 
part was to show solidarity with the vision of the American 
Business Association of Zimbabwe: "to promote optimum 
conditions for business to make maximum contributions to 
economic growth in Zimbabwe." 
 
------------------------ 
But Others - Intimidated 
------------------------ 
 
¶10. (SBU) Dishearteningly, PricewaterhouseCoopers (PWC), 
which was the primary sponsor of last year's forum, and U.S. 
tobacco giant AllianceOne, explicitly requested no public 
recognition of any sort for their financial support of the 
event.  Similarly, numerous ABAZ members and other companies 
with U.S. interests told the organizers that they declined 
even the lowest level of sponsorship out of fear of 
recrimination by government.  The Independent was only able 
to secure two advertisers for its supplement on the forum, 
 
HARARE 00001002  004 OF 005 
 
 
but Group Chief Executive Officer Raphael Khumalo, who 
attended the forum, told econoff on October 26 that he had no 
regrets about sponsoring the event and looked forward to 
publishing excerpts of the proceedings in the weekly 
newspaper.  PWC senior partner Tinashe Rwodzi told econoff on 
November 7 that in reviewing the event, which he attended, 
PWC decided it had erred in not lending greater public 
support. 
 
--------------------------------------------- ----------- 
A Multitude of Challenges in a Strained Business Climate 
--------------------------------------------- ----------- 
 
¶11. (U) About 220 delegates, including CEOs, managing 
directors and finance directors of major Zimbabwean companies 
and financial institutions, attended the forum and a gala 
closing cocktail reception hosted by ABAZ at the Ambassador's 
residence.  Unfortunately, the Forum occurred the morning 
after an unscheduled Mid-Year Monetary Policy Statement by 
Reserve Bank of Zimbabwe Governor Gono (Ref B), which 
probably accounted for the especially high number of 
pre-registered delegates ) 70 (for whom catering had been 
ordered) ) who did not attend the forum.  Apart from Deputy 
Minister of Agriculture David Chapfika, no high-level GOZ 
officials attended although ABAZ extended complimentary 
invitations to two dozen GOZ ministers, deputies and 
permanent secretaries. 
 
¶12. (SBU) Despite strong financial sponsorship by major 
companies and BFIF (Ref A), the Just Business forum closed 
its books US$2,500 in the red.  The loss was primarily due to 
two factors: no-shows of pre-registered delegates (ABAZ has 
not been able to collect the registration fee from these 
registrants); and the sharp depreciation in value of 
sponsorship money during planning.  The Zimbabwe dollar 
depreciated 78 percent on the parallel market from July 1 to 
October 1, unbalancing the budget which included unavoidable 
foreign currency denominated expenses. 
 
-------------- 
Action Request 
-------------- 
 
¶13. (SBU) Since last year's event, ABAZ has approved a 
constitution, hired a professional secretariat and begun to 
collect modest dues.  However, the Association has not yet 
built up reserves that enable it to meet a financial 
shortfall.  In support of the Association's role as a 
catalyst in convincing the Zimbabwean business community to 
pressure the GOZ for reform, and in light of the "Just 
Business" track record under extremely taxing circumstances, 
post requests US$2,500 from FY08 BFIF funds to pay the 
outstanding balance. 
 
---------- 
Next steps 
---------- 
 
¶14. (SBU) ABAZ took a leap forward in establishing its 
identity as a business organization at the forefront of 
public discussion on economic reform.  It also strengthened 
the well-chosen "Just Business" brand and began to 
institutionalize the "Just Business" private sector economic 
forum as an annual business event in Zimbabwe.  Delegates 
commended the substance of the presentations and the superb 
networking opportunity.  Looking ahead, ABAZ plans to 
circulate the forum proceedings widely to delegates, 
 
HARARE 00001002  005 OF 005 
 
 
interested parties and GOZ officials, and place excerpts of 
the presentations in the press. 
 
¶15. (SBU) Emboldened by positive feedback, ABAZ is also 
reaching out to its members in the financial and mining 
sectors to sponsor a series of workshops on South Africa's 
experience with black economic empowerment.  As long as 
President Mugabe has not signed the Indigenization and 
Economic Empowerment Bill (Ref D) into law and parliament has 
not passed enabling legislation, ABAZ sees value in focusing 
public attention on the more investor-friendly black 
empowerment policies of South Africa as an indigenization 
alternative.  The Association is also riding the momentum of 
a successful event by shoring up its numbers and its 
financial strength in a new membership drive. 
 
------- 
Comment 
------- 
 
¶16. (SBU) As democratic space shrinks in Zimbabwe, we believe 
that business organizations such as ABAZ and fora like "Just 
Business" have a significant role to play in bringing 
pro-reform pressure to bear on the GOZ and planting ideas 
about the shape of the post-Mugabe future in Zimbabwe. 
Clearly, the deteriorating economic and business climate made 
it harder this year for an association that starts with "the 
A word" to win the necessary sponsorship and pack a 
conference hall.  In the planning phase, during the worst 
weeks of the price taskforce crackdown, it was also a 
struggle for ABAZ to convince prominent international 
speakers to travel to Zimbabwe to describe other troubled 
economies, embrace of economic reform.  But the young 
business association, not intimidated, is tenaciously 
developing its voice, forging ahead, growing its membership, 
and leaving a footprint in reform minded circles.  The 
US$10,500 BFIF grant was money well spent and we hope that 
EB/CBA will give our request for top-up funding to cover the 
financial shortfall generous consideration. 
 
DHANANI