VZCZCXRO3896
PP RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSB #0549/01 1781403
ZNR UUUUU ZZH
P 261403Z JUN 08
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC PRIORITY 3087
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHUJA/AMEMBASSY ABUJA 1996
RUEHAR/AMEMBASSY ACCRA 2089
RUEHDS/AMEMBASSY ADDIS ABABA 2209
RUEHBY/AMEMBASSY CANBERRA 1486
RUEHDK/AMEMBASSY DAKAR 1844
RUEHKM/AMEMBASSY KAMPALA 2265
RUEHNR/AMEMBASSY NAIROBI 4696
RUEAIIA/CIA WASHDC
RUEHGV/USMISSION GENEVA 1355
RHEHAAA/NSC WASHDC
RHMFISS/JOINT STAFF WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEFDIA/DIA WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RUZEHAA/CDR USEUCOM INTEL VAIHINGEN GE

UNCLAS SECTION 01 OF 04 HARARE 000549 
 
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: EMIN EINV PGOV ASEC ZI
SUBJECT: CHAMBER OF MINES CALLS FOR FAVORABLE, CONSISTENT 
POLICIES 
 
REF: A. HARARE 459 
 
     ¶B. HARARE 416 
     ¶C. 07 HARARE 998 
 
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SUMMARY 
------- 
 
¶1. (SBU) The Chamber of Mines of Zimbabwe presented an 
overview of the state of the sector at its Annual General 
Meeting (AGM) on May 30, 2008.  The mining sector is 
Zimbabwe's largest foreign exchange generator.  It earned the 
country US$1 billion in 2007 and contributed about 6 percent 
to GDP.  Production of most minerals, however, is in steady 
decline due to an unfriendly investment environment 
characterized by distorted pricing, retention of foreign 
exchange earnings by the Government of Zimbabwe (GOZ), 
shortages of foreign exchange, electric power and skilled 
labor, plus lack of policy clarity on foreign investment in 
the sector.  While the latest shifts in monetary policy 
provided some reprieve, before foreign currency flows back 
into the sector investors need confidence that favorable 
policies are here to stay and that more reforms will be 
forthcoming.  Under the present political and economic 
environment we are pessimistic that this will be the case, 
and concerned that the GOZ could target foreign-owned mineral 
assets for seizure in line with the election rhetoric of "100 
percent empowerment, 100 percent control." END SUMMARY. 
 
------------------------------------------- 
Mining ) Zimbabwe's Largest Forex Generator 
------------------------------------------- 
 
¶2. (U) At the May 30 Annual General Meeting of the Chamber of 
Mines of Zimbabwe in Victoria Falls, attended by econoff, 
outgoing Chamber president Jack Murewa outlined the state of 
Zimbabwe's largest foreign exchange generator * the mining 
sector.  Mines and Mining Development Minister Amos Midzi 
noted in his address that mining earned the country US$860 
million in 2007, in addition to US$153 million from gold that 
was sold directly to the Reserve Bank of Zimbabwe.  Mining 
contributes about 6 percent to GDP, up from about 4.5 percent 
in the 1990s, and it directly employees 32,000 people, down 
from 46,000 in the mid-1990s.  The GOZ's Export Directory of 
Zimbabwe 2008 states that minerals and metals contribute 20 
percent of Zimbabwe's exports while the mining sector is the 
source of more than 30 percent of all foreign currency 
inflow. 
 
------------------------------------ 
But Unfriendly Operating Environment 
------------------------------------ 
 
¶3. (SBU) Very few mining investments are underway in 
Zimbabwe, aside from the development of a new nickel mine and 
investments in the platinum industry, which enjoys unique and 
favorable operating conditions (Ref A).  Murewa recited a 
litany of constraints that explained the lack of investment 
in the past year: 
 
-- An overvalued Zimbabwe dollar that prevented companies 
from realizing the full value of high prevailing 
international commodity prices and that discouraged 
investment; 
 
HARARE 00000549  002 OF 004 
 
¶4. (U) Murewa acknowledged several favorable developments for 
the sector announced by RBZ Governor Gono in his April 30, 
2008 Monetary Policy Statement (Ref B): 
 
-- the replacement of the gold support price with a price 
closer to the real value of the precious metal; 
-- allowing the 35 percent of foreign exchange earnings 
surrendered to the RBZ to be exchanged at the new inter-bank 
exchange rate; 
-- moving Foreign Currency Accounts back to commercial banks 
from the RBZ, which should make the funds more accessible. 
 
He also commended Zimbabwe's stable and investor-friendly 
fiscal policies.  On the downside, however, Gono had reduced 
the retention period for earned foreign exchange from 
indefinite to 21 days; Murewa maintained the industry needed 
a 120 day hold on its forex earnings.  Gono also had failed 
to clarify how or when the RBZ would pay the foreign exchange 
component of gold deliveries. 
 
--------------------------------------------- - 
Production at Lowest Levels Since Independence 
--------------------------------------------- - 
 
¶5. (SBU) Against these constraints, production of most 
minerals was at its lowest level last year since 
independence.  From 2001 to 2007, among the six largest 
mineral foreign exchange earners for Zimbabwe in order of 
value: 
 
-- Gold production fell from 18,049 kg to 7,017 kg; 
-- Chrome fell from 780,150 tons to 614,558 tons and high 
carbon ferrochrome fell from 243,534 tons to 187,327 tons, 
both due to their high dependence on the country,s 
deteriorating electric power supplies, skills flight, and 
high requirements for imported inputs; 
-- Nickel production held steady (8,144 tons in 2001 and 
8,581 tons in 2007) but Chamber of Mines economist David 
Matyanga explained to us that production by the country's 
leading nickel company--Bindura Nickel Corporation 
(BNC)--had, in fact, steadily declined, only to be offset by 
"the platinum factor," i.e. nickel production as a by-product 
of platinum mining; 
-- Platinum production climbed from a start-up of 519 kg in 
2001 to 5,085 kg; and 
 
HARARE 00000549  003 OF 004 
 
 
-- Coal production halved from 4,064,497 tons to 2,080,221 
tons. 
 
A Chamber of Mines spreadsheet of Zimbabwe's mineral 
production from 2001 through March 2008 is available on the 
Mission Harare SIPRNet under "Special Reports." 
 
------------------------ 
The Special Case of Gold 
------------------------ 
 
¶6. (SBU) Murewa defended gold mining companies against 
persistent government allegations of "leakage" (i.e. theft by 
the producers), noting that although four government agencies 
and one private company were now policing the sector, 
production still had not increased.  Privately, he said it 
was impossible to conceal the additional amount of earth that 
would have to be moved to produce the quantity of gold 
allegedly being smuggled.  Price distortions were the root 
cause of decline, not theft. 
 
¶7. (SBU) Until the reforms contained in the last Monetary 
Policy Statement, gold output, based on Jan-March production 
figures, appeared likely to fall to about 4 tons in 2008 (the 
country's installed annual gold production capacity is 30 
tons).  Minister Midzi maintained at the AGM that production 
had already responded positively to the new policies, but 
Peter Dell, Finance Director of Canadian-owned Caledonia 
Mining, which operates the Blanket gold mine, countered to 
econoff that it would take six months for his large mine to 
reverse the downward production trend.  Murewa cautioned 
against expecting immediate growth in the industry, as 
investment decisions needed 1-3 years to yield results.  In 
addition, the industry needed confidence that the reforms 
were here to stay after years of frequently shifting monetary 
policy. 
 
¶8.  (U) Murewa commended companies for staying in business in 
the face of up to six months payment arrears from the RBZ, 
and he lauded the deal brokered by the industry with the 
Zimbabwe Electricity Supply Authority (ZESA) to pay for power 
in forex (Ref C). He emphasized the industry's strong record 
of stepping up to the plate, in the face of a vacuum on 
government's part, in infrastructure development plus health 
and education services, over and above all taxes and 
royalties paid.  In closing, and in passing the Chamber 
presidency over to David Murangari, MD of Bindura Nickel 
Corporation, he underlined that the mining industry stood 
ready to marshal its own resources without burdening the 
fiscus, if given a favorable operating environment. 
 
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COMMENT 
------- 
 
¶9. (SBU) We are pessimistic in the present political 
environment and under escalating hyperinflation that the GOZ 
will introduce further monetary policy reforms, or even stick 
with the recent partial liberalization of the foreign 
exchange market, which, if continued, would be a much needed 
shot in the arm for the mining sector.  Nor are the prospects 
good for investor-friendly implementation of the 
Indigenization and Economic Empowerment Act. Alarmingly, 
election campaign rhetoric has centered around "100 percent 
 
HARARE 00000549  004 OF 004 
 
 
empowerment, 100 percent control," which bodes ill for the 
development of Zimbabwe's crown asset--its mines and mineral 
resources, a significant amount of which is still 
foreign-owned.  END COMMENT. 
 
McGee