VZCZCXRO4639
PP RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSB #0838/01 2611033
ZNR UUUUU ZZH
P 171033Z SEP 08
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC PRIORITY 3442
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHUJA/AMEMBASSY ABUJA 2075
RUEHAR/AMEMBASSY ACCRA 2295
RUEHDS/AMEMBASSY ADDIS ABABA 2414
RUEHBY/AMEMBASSY CANBERRA 1691
RUEHDK/AMEMBASSY DAKAR 2047
RUEHKM/AMEMBASSY KAMPALA 2468
RUEHNR/AMEMBASSY NAIROBI 4900
RUEAIIA/CIA WASHDC
RUEHGV/USMISSION GENEVA 1563
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 000838 
 
SENSITIVE 
SIPDIS 
 
AF/S FOR G. GARLAND 
AF/EPS FOR ANN BREITER 
EEB/CBA FOR DENNIS WINSTEAD 
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 EFIN ETRD PGOV ZI
SUBJECT: BFIF-FUNDED FORUM STIMULATES PUBLIC DEBATE ON 
 
REFORM IN ZIMBABWE 
 
REF: A. HARARE 0777 
     ¶B. HARARE 0034 
 
¶1. (U) This is an action request. See para 12. 
 
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Summary 
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¶2. (U) On August 21, the American Business Association of 
Zimbabwe (ABAZ), supported by the State Department's Business 
Facilitation and Incentive Fund (BFIF) and by local 
companies, held an economic forum on tackling hyperinflation, 
stabilizing economies, and trade and investment challenges 
and opportunities in Zimbabwe.  Distinguished economists 
offered their advice to 285 delegates on sustainable 
recovery.  They also dwelled on the challenge of dealing with 
special interest groups.  Representatives of the USAID-funded 
Trade Hub in Gaborone, Botswana described the benefits that 
neighboring countries had reaped from AGOA eligibility.  The 
CEO of Lonzim described Zimbabwe's investment opportunities 
and challenges, and two speakers addressed both the crisis 
and the potential of Zimbabwe's minerals sector.  In later 
well-attended breakaway sessions, lively discussion ensued on 
the path forward for Zimbabwe.  Press coverage of the forum 
was broad and of high quality, including in the 
government-owned daily newspaper.  The funding provided by 
BFIF and 21 companies in Zimbabwe's challenging 
hyperinflationary came slightly short of cost; ABAZ has 
requested additional BFIF funding to cover the loss.  End 
Summary. 
 
-------------------------------------- 
Lessons in Macroeconomic Stabilization 
-------------------------------------- 
 
¶3. (U) On August 21, the American Business Association of 
Zimbabwe, supported generously by the State Department,s 
Business Facilitation and Incentive Fund (BFIF) and 
sponsorship by a record 21 Zimbabwean companies, held a 
one-day economic forum, "Zimbabwe*Beyond Tomorrow."  Under 
the theme "Just Business," newly appointed non-executive 
mayor of Harare Muchadeyi Masunda moderated the event, 
attended by 285 delegates including numerous CEOs, managing 
directors, and finance directors of major Zimbabwean 
businesses and financial institutions.  Speakers described 
international experience in taming hyperinflation and in 
stabilizing economies, and offered advice for Zimbabwe.  The 
forum also addressed trade in the region and the challenges 
and benefits of investing in Zimbabwe, with a focus on the 
minerals industry.  In breakaway sessions the next day, 
speakers led four well-attended and lively discussions on the 
same areas. 
 
¶4. (U) Keynote speaker World Bank Senior Economist John 
Panzer (Ref A) emphasized that the success of economic 
stabilization and the speed of recovery would depend on 
Zimbabwe's commitment to policy reform and the consistency of 
reform implementation.  Brazilian economist Caio Megale, 
returning to Harare after having addressed the first "Just 
Business" forum in 2006, provided lessons from South America 
in "Taming the Monster" (inflation).  He emphasized the 
 
HARARE 00000838  002 OF 004 
 
 
importance of consolidating democratic institutions and 
accepting the rule of law, and the imperative of central bank 
independence.  The central bank should operate with autonomy, 
accountability, and transparency, and with a single mandate: 
to achieve price stability.  He related the Latin American 
experience with currency boards and fixed exchange rates, and 
the negative consequences of high unemployment and high real 
interest rates when the exchange rate was not allowed to 
float freely after stabilization.  Citing examples from Latin 
America, he cautioned against the rise of populism, and 
underlined the ongoing challenges of addressing social 
distress and income inequality once an economy had stabilized. 
 
¶5. (U) University of Zimbabwe Economics Professor Robert 
Davies zeroed in on hyperinflation in Zimbabwe.  As the two 
previous economists had also done, he drew on concepts in 
political economy and the power of special interest groups in 
answering the question why, with well known tools to solve 
hyperinflation, the GOZ had not yet reduced monetary growth. 
He concluded that the state elite was benefiting from the 
explosive rate of money supply growth.  In his view, 
"schemes" to offset the effects of hyperinflation provided 
further incentives to corruption.  Furthermore, price and 
foreign exchange controls had intensified shortages and had 
caused overvaluation of the currency.  The sine qua non of 
economic stabilization was to stop printing money, but the 
political reasons for which the explosive rate of money 
creation had occurred in the first place had to be addressed. 
 In conclusion, he warned of interest rate shocks during the 
stabilization phase, local firms' vulnerability to takeover 
as capital flowed into the country, and the likely lag in 
output response behind demand. 
 
¶6. (U) Amanda Hilligas and Maxine Kennett representing the 
USAID-funded Southern Africa Global Competitiveness Hub 
(Trade Hub) in Gaborone, Botswana described the work of the 
Trade Hub in creating a trade and investment enabling 
environment and in promoting competitiveness in the private 
sector.  They noted the eligibility requirements for AGOA and 
the positive trends in exports from Africa to the U.S. 
(Note: Zimbabwe is not AGOA-eligible.  End Note)  The 
co-presenters illustrated case studies on successful 
furniture, textile and apparel exports, and described their 
work in the region in the area of modern energy services and 
in transportation.  They concluded their presentation with a 
short film on the Hub's support of a key transport initiative 
that promotes regional corridors in southern Africa. 
 
------------------------------------------ 
Time to Jump in? ) A Major Investor's View 
------------------------------------------ 
 
¶7. (U) Geoff Goss, CEO of LonZim, which raised US$65 million 
on the London AIM in December 2007 for investment in 
Zimbabwe, explained what opportunities LonZim saw in 
Zimbabwe.  LonZim aimed to build a low-cost diversified 
portfolio of strategic investments in sectors with potential 
for rapid recovery.  He pointed out the undervaluation of 
companies listed on the Zimbabwe Stock Exchange (the ZSE is 
trading at only 10 percent of its 1997 market 
capitalization), and Zimbabwe's other notable assets: tourism 
destinations; mineral resources; a large diaspora "itching" 
 
HARARE 00000838  003 OF 004 
 
 
to return with skills, money, and ideas; a population under 
serviced in telecoms, utilities, and transport; a hardworking 
labor force; a functioning banking system; a tired but still 
serviceable infrastructure.  He admitted Zimbabwe was a 
minefield in which to operate, but predicted that economic 
and political change was "only a matter of time," and now was 
the time to invest.  He advised Zimbabwean companies to 
prepare for competition by making capital investments now and 
expanding their market share.  He suggested they seek 
partners for working capital and capital investment.  In 
closing he said LonZim did not fear indigenization of 
business in Zimbabwe, as long as it emphasized empowerment 
over endowment. 
 
------------------------------------ 
Minerals Sector Challenges/Potential 
------------------------------------ 
 
¶8. (U) Collen Gura, CEO of Zimbabwe's largest (South 
African-owned) gold company, enumerated the constraints and 
opportunities in the golds sector.  Historically underpinned 
by small-scale mining operations, gold production dropped 
from 27 MT in 1999 to 7 MT in 2007.  Gura forecast production 
of 4.5 MT this year.  Vexing the industry were: the 
overvalued exchange rate, nonpayment of gold deliveries, 
power outages, shortages of spares, inputs, foreign currency 
and food for the labor force, the skills exodus, and low 
investor confidence.  Exploration had become a luxury, yet it 
determined the industry's future.  For the sector to recover, 
Gura called for payment of the market price for gold upon 
delivery, tax incentives for new gold mining projects, and 
replication of the platinum model (off-shore based) for gold. 
 He concluded that, under the right policies, gold could 
drive economic growth, increase export earnings, provide 
abundant jobs, increase tax revenue, and create many new 
businesses downstream in Zimbabwe. 
 
¶9. (U)  Dolf Prinsloo, Chief Operating Officer of Deloitte 
Mining Consultancy and Advisory Services in Johannesburg, 
South Africa, closed the day with an overview of mining in 
Zimbabwe and a SWOT (strengths, weaknesses, opportunities, 
and threats) analysis of the industry.  He emphasized the 
need for foreign direct investment in the sector to take 
advantage of high minerals prices and high demand, especially 
from China.  He concluded it was "now or never" for the 
mining industry to play a major role in Zimbabwe's recovery 
and sustainable growth. 
 
------------------------------------ 
Workshops Generate Lively Discussion 
------------------------------------ 
 
¶10. (U)  On the morning of August 22, ABAZ held four 
participatory workshops in focus areas of the forum.  Panzer, 
Megale and Davies were joined by 70 delegates in a 
particularly lively discussion about the way forward for 
Zimbabwe's economy.  Panzer commented to econoff that he was 
especially impressed with the quality of discussion and the 
delegates, boldness in asserting their views during the 
two-hour session.  Hilligas and Kennett led a workshop 
attended by 25 delegates on the Trade Hub's work in the 
textile and apparel industry, and a second session attended 
 
HARARE 00000838  004 OF 004 
 
 
by 40 delegates on its work promoting exports from southern 
Africa to the U.S. specialty food sector.  Prinsloo, 
accompanied by Zimbabwe Chamber of Mines President David 
Murangari focused on Zimbabwe's mining industry. 
 
-------------------------------------------- 
Favorable Press Coverage, Even by Government 
-------------------------------------------- 
 
¶11. (U) The breadth and quality of press coverage of the 
forum was exceptionally good this year, which was especially 
welcome as ruling party politicians failed to attend, despite 
the offer of complimentary tickets from ABAZ.  Notably, the 
government mouthpiece The Herald covered the event in a fair 
and evenhanded manner, quoting the speakers extensively in 
three separate articles over the course of several days after 
the forum.  The weekly The Standard ran a supplement on the 
forum and the weeklies The Financial Gazette and The Zimbabwe 
Independent, as well as various electronic news services, 
reported accurately and in-depth on the event.  ABAZ will 
distribute the proceedings of the event to delegates in the 
next days. 
 
-------------------------------------- 
Challenging to Finance; Action Request 
-------------------------------------- 
 
¶12. (SBU)  In Zimbabwe's daunting hyperinflationary business 
environment, six of the 21 sponsoring companies provided 
sponsorship in kind (accommodation for speakers, website 
hosting, fuel coupons which were then bartered for services, 
etc.), six companies provided US dollar funding, and nine 
companies sponsored in rapidly depreciating local currency. 
(Note: Private sector estimates of the annual rate of 
inflation have reached billions of percent.  End note) 
Supported also by US$7,000 in BFIF funding, the event closed 
US$3,200 in the red.  The shortfall arose primarily because 
numerous expenses were no longer payable in local currency in 
Zimbabwe's increasingly dollarized economy.  The ABAZ 
executive committee has asked the Embassy to submit a request 
to meet the shortfall with additional funding from this 
year's or next fiscal year's BFIF.  Post supports the request 
and asks EEB/CBA to provide the funding, if possible. 
 
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Comment 
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¶13. (SBU)  The annual ABAZ Just Business forum once again 
catalyzed public discussion on economic reform.  This year, 
delegates were more emboldened than ever to speak out 
publicly for far-reaching reforms and an end to the 
privileges of special interest groups.  In this regard, the 
forum plays a useful role in broadening dialog among civil 
society members in Zimbabwe and merits USG financial support. 
 
MCGEE