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OO RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSB #1000/01 3111128
ZNR UUUUU ZZH
O 061128Z NOV 08
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3659
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHAR/AMEMBASSY ACCRA 2411
RUEHDS/AMEMBASSY ADDIS ABABA 2531
RUEHRL/AMEMBASSY BERLIN 1031
RUEHBY/AMEMBASSY CANBERRA 1807
RUEHDK/AMEMBASSY DAKAR 2162
RUEHKM/AMEMBASSY KAMPALA 2587
RUEHNR/AMEMBASSY NAIROBI 5015
RUEAIIA/CIA WASHDC
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RHMFISS/EUCOM POLAD VAIHINGEN GE
RHEFDIA/DIA WASHDC
RUEHGV/USMISSION GENEVA 1680
RHEHAAA/NSC WASHDC

UNCLAS SECTION 01 OF 03 HARARE 001000 
 
SENSITIVE 
SIPDIS 
 
AF/S FOR B. WALCH 
DRL FOR N. WILETT 
ADDIS ABABA FOR USAU 
ADDIS ABABA FOR ACSS 
STATE PASS TO USAID FOR E. LOKEN AND L. DOBBINS 
STATE PASS TO NSC FOR SENIOR AFRICA DIRECTOR B. PITTMAN 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ASEC PHUM ZI
SUBJECT: INDUSTRY URGES GOVERNMENT TO ADOPT PRO-MARKET 
POLICIES 
 
REF: HARARE 646 
 
------ 
SUMMARY 
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¶1. (U) At its recent annual congress held in Harare from 
October 28 to 29, 2008 and attended by econ specialist, the 
Confederation of Zimbabwe Industries (CZI), with a membership 
of around 400 companies covering all sectors of the economy, 
condemned the GOZ and the Reserve Bank of Zimbabwe (RBZ) for 
implementing poor macroeconomic policies that are inimical to 
business growth.  Industrialists complained about the policy 
inconsistencies and reversals, price controls, collapsing 
infrastructure, and absence of property rights and rule of 
law.  While statistics are notoriously out of date, they 
estimated that the manufacturing sector declined by over five 
percent in 2007.  Members recommended the implementation of 
market-friendly policies consistent with those enunciated by 
the World Bank and the IMF.  In an encouraging development, 
the industrial body (heretofore timid)  resolved to get more 
involved in political and economic discourse to promote 
industrial production.  END SUMMARY. 
 
---------------------------------------- 
Policies Blamed for Collapse of Industry 
---------------------------------------- 
 
¶2. (U) In a paper presented by the CZI Economic Affairs 
Committee, Nigel Chanakira, the Chief Executive Officer of 
Kingdom Meikles Limited, identified lack of credit lines due 
to arrears, cash and foreign exchange shortages, low capacity 
utilization, and poor equipment maintenance as the major 
challenges facing industry.  He also blamed the shortage of 
agricultural inputs for the collapse of most agro-processing 
firms.  The poor state of the agricultural sector was also 
directly linked to the policies of both the GOZ and the RBZ. 
 
¶3. (U) According to Joseph Kanyekanye, the Group Chief 
Executive Officer of Allied Timbers Holdings--who spoke on 
the state of the agricultural sector and how it failed to 
supply the manufacturing sector with sustainable 
inputs--agriculture has declined because of a combination of 
adverse weather conditions and poor policies.  He stated that 
the RBZ had mis-targeted its interventions and had given 
people what they did not require.  For instance, the RBZ gave 
tractors to resettled farmers.  Kanyekanye suggested it would 
have been wiser to provide them with seed and fertilizer, 
rather than with machinery that would require servicing. 
 
¶4. (U) All of the speakers criticized the RBZ for being 
excessively intrusive by taking on the position of a 
supra-ministry and dishing money out to all comers.  Concerns 
were also raised about the unsolicited gift of eight vehicles 
that had been donated to CZI by RBZ governor Gideon Gono. 
Most delegates felt that Gono was trying to buy favors and 
avoid criticism from the industrial sector.  Some members 
wanted the CZI to devise a plan of paying for the vehicles 
since accepting the "gift" would compromise their stance on a 
number of negative policies implemented by the central bank. 
 
--------------------------------------------- -- 
Restore Infrastructure to Restore Manufacturing 
--------------------------------------------- -- 
 
¶5. (U) The decay of infrastructure was blamed for reduced 
capacity utilization.  According to Nyasha Zhou, the Chief 
Executive Officer of PG Industries (Zimbabwe) Limited, 
pricing controls on electricity, water, phone, and fuel had 
 
HARARE 00001000  002 OF 003 
 
 
led to under-investment in these areas.  In fact, the rate of 
investment is less than the asset's usable life, which is 
driving down infrastructural quality. 
 
----------------------------- 
Implement Pro-Market Policies 
----------------------------- 
 
¶6. (U) Despite the problems afflicting industry, the CZI 
believes recovery is possible because Zimbabwe possesses a 
well trained and highly-skilled labor force, fertile land, 
and mineral deposits, which would form the foundation for 
sustainable growth.  They contended that these strengths 
could only be exploited if the country quickly achieved a 
political settlement and implemented sensible macroeconomic 
policies that address hyperinflation.  In particular, the CZI 
proposed that the RBZ concentrate on its core business of 
achieving price and exchange rate stability and ensuring a 
sustainable balance of payments position, rather than 
monetary expansion to support government profligacy.  The CZI 
recommended that the RBZ desist from involvement in 
quasi-fiscal activities that have been at the heart of money 
supply growth and inflation. 
 
¶7. (U) Additionally the CZI proposed that the country 
implement policies consistent with those enunciated by the 
World Bank and the IMF, namely fiscal rectitude, tight 
monetary policies, price liberalization encompassing interest 
and exchange rates, and the restoration of property rights. 
The foreign exchange constraint was identified as the main 
reason for operating below capacity, and could only be 
addressed by liberalizing the trade and payments systems. 
Although industrialists stated that multilateral and 
bilateral financial inflows for balance of payments support 
could help, these were not seen as short-term solutions 
because the country had to first clear the over US$1.4 
billion arrears owed to the multilateral institutions. 
Exchange rate liberalization appeared the most appropriate 
policy to the CZI as it would generate incentives that would 
make it more profitable to export within the short term. 
 
¶8. (U) The CZI also supported government deregulation of the 
agricultural sector by depoliticizing the distribution of 
agricultural inputs and the pricing of agricultural produce. 
The CZI proposed that there should be a timely disbursement 
of inputs while denominating prices in US dollars to preserve 
value.   They also proposed that resettled farmers be given 
security of tenure in order to enable them to use land as 
collateral when borrowing from banks, and that government 
limit its focus on communal farmers with regard to food 
production. 
 
¶9. (U) While discussing industrial policies, the CZI 
emphasized the need to undertake an audit of which firms need 
support and which ones have to be allowed to fail based on a 
study of dynamic comparative advantages. This would call for 
the calculation of potential rather than current effective 
rates of protection in order to identify firms that have 
future potential comparative advantages.  However, in order 
to avoid pervasive deindustrialization, delegates proposed 
that enterprises be given time to carry out structural 
adjustments required to improve their competitive strengths 
given that they have not been able to upgrade their plant and 
equipment over the past ten years due to the adverse economic 
conditions. 
 
¶10. (U) The CZI called on government to reposition a number 
of parastatals that provide utilities but suffer from poor 
efficiency.  This repositioning would encompass 
 
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private-public partnerships with local and foreign investors 
working to resuscitate Zimbabwe's crumbling infrastructure. 
Success would be dependent on pricing services with regard to 
actual costs incurred, without burdening the consumer with 
high administrative costs. 
 
----------------------------------- 
Political Settlement a Prerequisite 
----------------------------------- 
 
¶11. (U) In an encouraging sign that industry is now concerned 
with the slow pace of political reforms, the CZI resolved to 
send a high-powered delegation to President Mugabe, MDC-T 
leader Morgan Tsvangirai, and MDC-M leader Arthur Mutambara 
to advise them of the dire food situation in the country. 
This, they believe, would propel the leaders to quickly 
resolve their differences and form an all-inclusive 
government required to implement the recommended policies. 
The CZI also resolved to get more involved in designing 
policies that affected its members. 
 
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Comment 
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¶12. (SBU) This year's CZI congress marked a significant 
departure from previous ones in that delegates openly 
criticized bad government policies that have negatively 
affected the manufacturing sector.  This is an encouraging 
sign of possible activism by an industrial body that would be 
core to a Zimbabwean recovery.  When combined with the 
Zimbabwe National Chamber of Commerce's similar recent stance 
(reftel), CZI's criticism of the government and proposals 
reflect an understanding of Zimbabwe's dire economic 
conditions as well as desperation by Zimbabwean business 
interests.  We are not optimistic, however, that the GOZ will 
take note.  END COMMENT. 
 
 
MCGEE