VZCZCXRO3582
PP RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSB #0280/01 0951321
ZNR UUUUU ZZH
P 041321Z APR 08
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC PRIORITY 2704
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHUJA/AMEMBASSY ABUJA 1902
RUEHAR/AMEMBASSY ACCRA 1884
RUEHDS/AMEMBASSY ADDIS ABABA 2007
RUEHBY/AMEMBASSY CANBERRA 1284
RUEHDK/AMEMBASSY DAKAR 1641
RUEHKM/AMEMBASSY KAMPALA 2063
RUEHNR/AMEMBASSY NAIROBI 4494
RUEAIIA/CIA WASHDC
RUEHGV/USMISSION GENEVA 1134
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
RUAEJAA/JAC MOLESWORTH RAF MOLESWORTH UK//DOOC/ECMO/CC/DAO/DOB/DOI//
RUZEHAA/CDR USEUCOM INTEL VAIHINGEN GE//ECJ23-CH/ECJ5M//

UNCLAS SECTION 01 OF 03 HARARE 000280 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
AF/S FOR S. HILL 
NSC FOR SENIOR AFRICA DIRECTOR B. PITTMAN 
STATE PASS TO USAID FOR L.DOBBINS AND E.LOKEN 
TREASURY FOR J. RALYEA AND T.RAND 
COMMERCE FOR BECKY ERKUL 
ADDIS ABABA FOR USAU 
ADDIS ABABA FOR ACSS 
 
E.O. 12958: N/A 
TAGS: ECON ETRD PGOV ASEC ZI
SUBJECT: THE TALE OF TWO U.S. COMPANIES' EXIT FROM ZIMBABWE 
 
 
------- 
SUMMARY 
------- 
 
¶1.  (SBU) In the past several months both Colgate-Palmolive 
and Johnson & Johnson have shut down their local production 
facilities, driven out by corporate prohibitions on dealing 
in the parallel foreign exchange market, ever-shifting 
monetary policy including a punishing rate of forex 
retention, and limited access to legal foreign exchange, plus 
draconian price controls.  Their products nevertheless remain 
on sale under license, but at unaffordable prices.  One 
former manager, freed of the forex dealing constraint, seized 
the opportunity to open his own medical supplies import 
business.  He now supplies the market with desperately needed 
products at local currency prices indexed to the black 
market.  He hopes to break even and gain market share until 
an economic recovery allows him to operate profitably.  END 
SUMMARY. 
 
--------------------------------------------- -------- 
Nine Years of Decline at Colgate-Palmolive (Zimbabwe) 
--------------------------------------------- -------- 
 
¶2.  (SBU) Former Managing Director of Colgate-Palmolive 
Company (Zimbabwe) Inc. Davis Kanyama related to econoff in 
March 2008 the tale of the company's decline from 1999 until 
headquarters' decision to close the Zimbabwe operation 
earlier this year. At peak production in 1999, 
Colgate-Palmolive employed 410 people and manufactured 
toothpaste, soap, detergent powder and fabric softener for 
the local market and, from 2002 to 2005, for export to Malawi 
and Zambia; 1999 was also the last year in which the local 
company paid a dividend. 
 
¶3.  (SBU) As the economy contracted and, later, as the 
official and informal exchange rates started to diverge, 
Colgate's profitability fell. Corporate policy prohibited 
trading foreign exchange on the parallel market, which 
constrained operations further.  Frequent shifts in monetary 
policy wreaked havoc with planning and also contributed to 
the waning of headquarters, support for the local operation. 
The high rate of 35 percent foreign exchange retention by the 
RBZ acted effectively as a punishing tax on exports.  In 
addition, Colgate was unable to access sufficient foreign 
exchange from the RBZ to maintain the needed flow of inputs 
for production.  By early 2003, Colgate had shut down 
toothpaste and soap production in Zimbabwe. 
 
------------------------------- 
Price Controls ) The Final Blow 
------------------------------- 
 
¶4. (SBU) Price controls in June 2007 were the mortal blow to 
Colgate Zimbabwe.  With the price control frenzy focusing on 
producers of food and consumer goods, Kanyama found himself 
undergoing hours of intimidating interrogation and 
accusations of overcharging and hoarding at the hands of the 
price task force.  Within a month, the company had slipped 
into the red and, over the next months, never managed to get 
price increase approvals fast enough to stay ahead of 
hyperinflation and turn a profit again.  In the meantime, the 
Colgate work force had shrunk to 36.  Early this year 
headquarters shut down the operation, paying out all 
employees and mothballing the 8,000 square meter plant, 
 
HARARE 00000280  002 OF 003 
 
 
warehouse and offices. 
 
¶5. (SBU) Colgate is still distributing products in Zimbabwe 
from its centralized production site in South Africa to 
maintain the brand, but prices are well beyond the reach of 
ordinary Zimbabweans, Kanyama noted.  He himself, a 
Zimbabwean, is currently negotiating an agreement to head up 
Colgate-Palmolive,s operations in Ghana, but despondent at 
leaving home. 
 
--------------------------------------------- ------- 
But Medical Supplies Desperately Needed At Any Price 
--------------------------------------------- ------- 
 
¶6.  (SBU) Chris Muyeye, former Managing Director of Johnson & 
Johnson, suffered the same problems as Colgate over the last 
years: failure to access adequate foreign exchange to import 
production inputs or to purchase finished products from 
abroad, a prohibition from headquarters on black market 
currency trading, an inability to plan due to zig-zagging 
monetary policy, and the declining purchasing power of 
Zimbabweans.  Muyeye saw the writing on the wall and sought, 
unsuccessfully, to negotiate the Johnson & Johnson 
distributorship in Zimbabwe.  The arrangement would have 
freed him to purchase foreign exchange on the parallel market 
and keep the business going.  Johnson & Johnson, however, 
sold the distribution rights and its production facility to 
Zimbabwean conglomerate Innscor in late 2007, but Innscor, 
lacking expertise in the field, has not yet started 
distribution, according to Muyeye. 
 
------------------ 
Filling the Vacuum 
------------------ 
 
¶7.  (SBU) With their generous compensation packages and long 
experience in the business, five former Johnson & Johnson 
employees, led by Muyeye, proceeded to set up J-Med Supplies 
(Pvt) Ltd. to import medical supplies, primarily from the 
U.S. and Germany, for the Zimbabwean market.  In late 2007, 
when it became known in the health sector that Johnson & 
Johnson was exiting Zimbabwe, Muyeye told us he had finally 
been able to secure a meeting with Health Minister 
Parirenyatwa, who promised him "support" to ensure that 
Zimbabwe could continue to import key medical supplies. 
Muyeye told us that price was not an issue for his public 
hospital customers; they had sufficient funds to pay the 
parallel market equivalent of the import price of the 
products; J-Med Supplies' quotations are valid only for 48 
hours. Private clinics, for their part, simply passed along 
the high prices to their patients.  Muyeye's goal as Finance 
Director is to keep his new company from incurring losses and 
to secure market share.  He hopes to be well positioned to 
operate profitably when the economy recovers. 
 
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COMMENT 
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¶8.  (SBU) Foreign-owned manufacturers need a strong stomach 
for risk in these trying times in Zimbabwe as well as a 
high-profile brand and market share worth protecting. 
Apparently neither Colgate-Palmolive nor Johnson & Johnson 
could justify their loss-making presence in Zimbabwe any 
longer, and the prospects for recovery were too distant. 
 
HARARE 00000280  003 OF 003 
 
 
Scrappy entrepreneurs with good government connections and a 
willingness to sail close to the wind on matters of legality 
are filling the gaps left behind by name-brand players in 
some cases.  Lamentably, the exit of blue chip companies 
further weakens corporate governance in this increasingly 
no-rules-barred business environment.  END COMMENT. 
 
MCGEE