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R 311409Z JUL 08 ZDS PER SVC RUEHZC #2880
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC 3235
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHUJA/AMEMBASSY ABUJA 2029
RUEHAR/AMEMBASSY ACCRA 2186
RUEHDS/AMEMBASSY ADDIS ABABA 2305
RUEHRL/AMEMBASSY BERLIN 0837
RUEHBY/AMEMBASSY CANBERRA 1582
RUEHDK/AMEMBASSY DAKAR 1940
RUEHKM/AMEMBASSY KAMPALA 2361
RUEHNR/AMEMBASSY NAIROBI 4792
RHEHAAA/NSC WASHDC
RHMFISS/EUCOM POLAD VAIHINGEN GE
RUEHGV/USMISSION GENEVA 1451
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RHEFDIA/DIA WASHDC
RUEAIIA/CIA WASHDC

UNCLAS SECTION 01 OF 03 HARARE 000646 
 
SENSITIVE 
SIPDIS 
 
AF/S FOR G. GARLAND 
ADDIS ABABA FOR USAU 
ADDIS ABABA FOR ACSS 
NSC FOR SENIOR AFRICA DIRECTOR B.PITTMAN 
TREASURY FOR D.PETERS AND T.RAND 
STATE PASS TO USAID FOR L.DOBBINS AND E.LOKEN 
COMMERCE FOR BECKY ERKUL 
 
E.O.12958: N/A 
TAGS: PGOV PREL ASEC PHUM ECON EAGR EFIN EMIN ZI
SUBJECT: BUSINESS CONGRESS BLASTS GOVERNMENT OVER POLICIES 
 
Ref: Harare 627 
 
HARARE 00000646  001.2 OF 003 
 
 
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Summary 
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¶1. (U) Members of the Zimbabwe National Chamber of Commerce blasted 
the government's anti-growth economic policies in the public forum 
of their annual congress.  They bemoaned policy inconsistencies and 
reversals, the usurpation by the Reserve Bank of Zimbabwe (RBZ) of 
fiscal policy, price controls, the indigenization policy, and the 
cash crisis.  Striking, and encouraging, was the bluntness of 
business owners' public criticism of policy.  END SUMMARY. 
 
--------------------------------------------- --------- 
Business Blames Shifting Policies for Poor Performance 
--------------------------------------------- --------- 
 
¶2. (U) At the Annual Congress of the Zimbabwe National Chamber of 
Commerce (ZNCC), held in Kadoma July 23-25, 2008 and attended by 
econ specialist, speakers and delegates bemoaned the government's 
misguided macroeconomic policies.  In business' view, they were 
inimical to economic growth.  In particular, participants in the 
Congress complained about policy inconsistencies and reversals, 
price controls, indigenization, and the cash crisis.  The 
approximately 200 ZNCC members at the Congress also discussed the 
ways in which business was trying to cope. 
 
¶3. (U) Most delegates maintained that policy inconsistency had 
rendered planning impossible and contributed to the prevailing 
hyperinflationary environment.  Monetary policy had been highly 
accommodating of fiscal policy for much of Gideon Gono's tenure as 
Governor of the RBZ.  Delegates also bemoaned the lack of policy 
synchronization between the Ministry of Finance and the RBZ.  In 
particular, they accused the latter of assuming the main functions 
of the Finance Ministry. 
 
¶4.  (U) In the delegates' view, the RBZ was injecting money, not 
backed by production, into the economy and thus funding government 
profligacy by printing money.  In this regard the RBZ was 
undermining its mandate to stabilize prices.  On top of that, the 
central bank was applying ineffective instruments in an attempt to 
control problems of its own creation.  Delegates and speakers alike 
called on the RBZ to concentrate on its core business of ensuring 
growth, price and exchange rate stability, a sustainable balance of 
payments position, and full employment. 
 
--------------------------------------- 
Subsidized Funds Fuel Bull Stock Market 
--------------------------------------- 
 
¶5.  (U) In discussing subsidized RBZ lending, ZNCC members felt that 
business faced more pressing constraints than the lack of credit. 
In fact, they said most firms redirected concessionary funds into 
the Zimbabwe Stock Exchange (ZSE) where they could earn real 
positive returns, rather than using them to undertake the risky 
business of production.  Addressing the congress, Emmanuel Munyukwi, 
CEO of the ZSE, said the bourse grew by 15,034 percent on a 
month-on-month basis in June 2008, which exceeded the 6,900 percent 
depreciation of the Zimbabwe dollar against the U.S. dollar on the 
parallel market in the same period.  In the same vein, most 
delegates believed that the recently launched BACOSSI 2 "supply 
enhancement" program would cause the economy more harm than good. 
The program used scarce foreign exchange to import goods at the 
expense of local producers who could manufacture the same 
commodities if they only had foreign exchange.  Commodity imports 
equated to job exports and higher unemployment, in the members' 
view. 
 
HARARE 00000646  002.2 OF 003 
 
 
 
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Cash Crisis Blamed on RBZ 
------------------------- 
 
¶6. (U) Congress participants noted with concern the prevailing cash 
crisis (reftel), and attributed it to the low daily cash withdrawal 
limit of Z$100 billion (about 65 U.S. cents on the parallel cash 
market) imposed by the RBZ.  (NOTE: The RBZ raised the limit to Z$2 
trillion effective August 1.  END NOTE.)  They blamed the wide 
divergence between the parallel market rate for cash and the 
bank-transfer (RTGS) rate on the cash crisis, and appealed for the 
elimination of daily cash withdrawal limits and for a single foreign 
exchange rate.  Simukai Mutamangira, the Managing Director of the 
POSB (People's Own Savings Bank, formerly Post Office Savings Bank) 
maintained that the informal sector held the bulk of cash in 
circulation.  He criticized RBZ policies as well as the practice by 
some commercial banks of purchasing foreign exchange on the parallel 
market; it had the double negative effect of creating cash shortages 
as well as fuelling depreciation of the currency.  He called on the 
RBZ to end its denial, recognize that businesses were quoting prices 
in U.S. dollar terms to preserve value, even though it was illegal, 
and adjust policies accordingly.  At the individual level, many 
delegates admitted that they regularly converted their own local 
currency earnings into U.S. dollars on the parallel market to 
preserve value. 
 
--------------------------------------------- -------- 
Price Controls - Another Blow to a Struggling Economy 
--------------------------------------------- -------- 
 
¶7. (U) Delegates concurred that rather than reduce inflation, price 
controls had fuelled it and spawned the current commodity shortages. 
 The controls had forced manufacturers either to cut production or 
close down completely.  They had also distorted the incentive 
structure within the economy by implicitly encouraging manufacturers 
to sell their output through informal markets to remain viable 
rather than through price-controlled formal channels.  In the end, 
the average Zimbabwean paid far higher prices for goods than if the 
government had never imposed price controls. 
 
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Wrong-Headed Indigenization Policy 
---------------------------------- 
 
¶8. (U) Delegates in general were critical of the government's track 
record in indigenization of the economy.  It had benefited only a 
few politically connected people at the expense of the majority. 
ZSE's Munyukwi disagreed with the government's assertion that the 
economy was dominated by foreigners, and said the government should 
have consulted more closely with the business community before 
enacting the indigenization bill.  He said 90 percent of investors 
in the ZSE were institutional investors, 8 percent were retail 
investors, and only 2 percent were foreign investors.  Furthermore, 
foreign ownership on the ZSE had declined from 30 percent in 1997 to 
the current 2 percent.  Delegates then asked whether the government 
was "barking up the right tree," as the economy appeared to be 
already largely in the hands of indigenous Zimbabweans. 
 
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Re-Capitalizing SMEs 
-------------------- 
 
¶9.  (U) Unsurprisingly, as most ZNCC members are small to 
medium-sized enterprises (SMEs), the delegates welcomed a proposal 
by Munyukwi to establish a secondary bourse to cater for SMEs that 
otherwise had limited sources of funds.  Lamenting the deplorable 
state of their factories, most delegates saw the stock exchange as 
 
HARARE 00000646  003.11 OF 003 
 
 
an attractive funding source for their re-capitalization. 
 
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COMMENT 
------- 
 
¶10. (SBU) Striking, and encouraging, was the bluntness of business 
owners' public criticism of Zimbabwe's economic policy.  In private 
discussions they recommended drastic political and economic reforms. 
 There is clearly no lack of understanding in the Zimbabwe business 
community as to where the GOZ has gone wrong in policies - what it 
comes down to now is mustering the political will to reform.  In 
that regard, the business community has set its hopes on the current 
inter-party negotiations.  In the meantime, more of the same 
policies will only accelerate the economy's free fall.  END 
COMMENT. 
 
MCGEE