VZCZCXRO8891
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSB #0215/01 0790821
ZNR UUUUU ZZH
R 190821Z MAR 08
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC 2603
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHUJA/AMEMBASSY ABUJA 1879
RUEHAR/AMEMBASSY ACCRA 1822
RUEHDS/AMEMBASSY ADDIS ABABA 1946
RUEHRL/AMEMBASSY BERLIN 0525
RUEHBY/AMEMBASSY CANBERRA 1223
RUEHDK/AMEMBASSY DAKAR 1580
RUEHKM/AMEMBASSY KAMPALA 2002
RUEHNR/AMEMBASSY NAIROBI 4433
RHEHAAA/NSC WASHDC
RHMFISS/EUCOM POLAD VAIHINGEN GE
RUEHGV/USMISSION GENEVA 1073
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHDC

UNCLAS SECTION 01 OF 02 HARARE 000215 
 
SIPDIS 
 
AF/S FOR S.HILL 
ADDIS ABABA FOR USAU 
ADDIS ABABA FOR ACSS 
NSC FOR SENIOR AFRICA DIRECTOR B.PITTMAN 
TREASURY FOR J.RALYEA AND T.RAND 
STATE PASS TO USAID FOR L.DOBBINS AND E.LOKEN 
COMMERCE FOR BECKY ERKUL 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: PGOV ECON ASEC ZI
SUBJECT:  ZIM'S INDIGENIZATION BILL - A DAMAGING BUT MOST LIKELY 
IDLE THREAT 
 
REF: Harare 0598 
 
------- 
SUMMARY 
------- 
 
¶1.  (SBU) The announcement that President Mugabe had signed the 
Indigenization and Economic Empowerment Act and its official 
publication on March 7 rocked the business community in Zimbabwe. 
Many businessmen had breathed a sigh of relief believing the Bill 
had been allowed to expire, unsigned, when parliament was dissolved 
in February; however, it now appears that Mugabe had signed the Bill 
before Parliament was dissolved and was holding back the 
announcement to use it as a vote getter during the elections.  Some 
international companies have said privately that they will shut down 
their Zimbabwe operations rather than turn their brand over to 
foreign ownership, reducing already meagre foreign investment. 
Mugabe, however, will most likely allow the Bill to sit on the books 
unimplemented as a threat to business and potential carrot for 
ruling-party cronies. END SUMMARY. 
 
------------------------------- 
Indigenization Bill Still Alive 
------------------------------- 
 
¶2.  (SBU) The announcement on March 7 that President Mugabe had 
signed the Indigenization and Economic Empowerment Act (the 
Indigenization Bill) (reftel) came as a surprise to many who thought 
it had died a procedural death when parliament was dissolved in 
February 2008.  (NOTE: Parliament had passed the Bill on October 2, 
¶2007.  END NOTE.) At a business lunch hosted by the Ambassador on 
March 11, Callisto Jokonya, President of the Confederation of 
Zimbabwe Industries (CZI), said that according to his sources, 
Mugabe had signed the Bill in late 2007 and held back announcement 
until now. 
 
¶3. (SBU) Indigenisation and Empowerment Minister Paul Mangwana gave 
details on the Bill at a press conference on March 11, explaining 
government will set a time frame for the sale of the 51 percent 
non-indigenous shareholding, and indigenous (defined as anyone who 
suffered racial discrimination before Zimbabwe's independence in 
1980) investors will buy the shares after negotiations with the 
foreign-owned firms.  The government would not be involved in 
determining who could buy shares or the price of the shares. 
Mangwana said "This is going to be a partnership...between the 
private company and potential investors.  Companies will be given an 
opportunity to identify the indigenous investor to partner with in 
the business.  Government will not dictate which companies should 
acquire the shares as this would be purely business transactions." 
 
------------------- 
But Not Yet Walking 
------------------- 
 
¶4.  (SBU) Israel Chilimanzi, legislative program advisor at the 
Center for International Development, which is funded by State 
University of New York Zimbabwe (SUNY), also said that the 
Indigenization Bill might never take effect as it requires a 
statutory instrument from Minister Mangwana to be implemented. 
Chilimanzi cited an audit Bill that was drafted and signed in 1997 
and also required a statutory instrument to implement it.  The 
instrument was only passed ten years later.  He suggested that 
Mugabe and Mangwana could sit on the Indigenization Bill 
indefinitely without enacting it. 
 
¶5.  (SBU) If the Indigenization Bill is enacted its implementation 
could bog down in negotiations over the share price.  The companies 
 
HARARE 00000215  002 OF 002 
 
 
would first have to be valued before the price of 51 percent of the 
shares could be negotiated, which could delay any sale 
significantly, according to Phillip Chigumira, the CEO of the Cairns 
Holding Group.  The composition of the 51 percent shareholding also 
would have to be negotiated, which could further delay any 
takeover. 
 
---------------------------------- 
Nonetheless, Investors Are NervoQ 
---------------------------------- 
 
¶6.  (SBU) Subsidiaries of foreign-owned companies in Zimbabwe are 
clearly worried about the Bill, and many U.S. companies have 
contacted the Embassy with questions about its status and 
implications.  At the Ambassador's March 11 lunch, Old Mutual Life 
Assurance Company Zimbabwe Ltd CEO Luke Ngwerume said that Old 
Mutual would close its Zimbabwe arm before it allowed someone else 
to control the company's operations and brand.  The CEOs of Murray 
and Roberts, a South African construction company; Metallon Gold 
Zimbabwe, a black-South African owned mining company; and the Cairns 
Group agreed.  Metallon CEO Collen Gura also noted his company only 
banks with the three foreign-owned banks in Zimbabwe: Standard 
Chartered, Stanbic and Barclays.  If the foreign-owned banks closed 
their Zimbabwe operations rather than sell 51 percent of their 
shareholding, it would significantly weaken the banking sector and 
likely reduce liquidity in Zimbabwe's already strapped economy. 
John Laurie, a Director of Standard Chartered Bank, told us in 
addition that the Indigenization Bill could wipe out the remaining 
assets of white Zimbabweans because they held many of their private 
assets, including farms, as companies. 
 
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COMMENT 
------- 
 
¶7.  (SBU) The timing of the announcement that Mugabe had signed the 
Indigenization Bill certainly suggests it is being used as an 
election gimmick; however, it is unclear how effective it will be. 
Past experience with fast-track land reform has shown most 
Zimbabweans that these so-called redistribution measures have failed 
to enrich them.  Thus, it seems likely that Mugabe is using the Bill 
to scare businesses into supporting him or risk being targeted for 
indigenization, and probably also as a carrot to buy the loyalty of 
ruling party insiders who might be leaning toward supporting rival 
presidential candidate Simba Makoni.  These insiders have already 
benefited from government patronage, so their experience tells them 
it works; they could see in the Indigenization Bill an opportunity 
to enrich themselves further.  Given the limited success indigenous 
Zimbabweans will probably have in actually acquiring 51 percent of 
any foreign-owned company, however, we think the Bill is more of an 
idle threat and promise than reality.  In the meantime, the 
uncertainty over its implementation will deter much needed corporate 
investment and tilt the scales toward more international companies 
exiting Zimbabwe.  END COMMENT. 
 
MCGEE