VZCZCXRO3528
OO RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSB #0601/01 2031402
ZNR UUUUU ZZH
O 221402Z JUL 09
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4734
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHAR/AMEMBASSY ACCRA 2954
RUEHDS/AMEMBASSY ADDIS ABABA 3071
RUEHRL/AMEMBASSY BERLIN 1500
RUEHBY/AMEMBASSY CANBERRA 2334
RUEHDK/AMEMBASSY DAKAR 2701
RUEHKM/AMEMBASSY KAMPALA 3119
RUEHNR/AMEMBASSY NAIROBI 5562
RUEAIIA/CIA WASHDC
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RHMFISS/EUCOM POLAD VAIHINGEN GE
RHEFDIA/DIA WASHDC
RUEHGV/USMISSION GENEVA 2249
RHEHAAA/NSC WASHDC

UNCLAS SECTION 01 OF 03 HARARE 000601 
 
SENSITIVE 
SIPDIS 
 
AF/S FOR B. WALCH 
DRL FOR N. WILETT 
ADDIS ABABA FOR USAU 
ADDIS ABABA FOR ACSS 
STATE PASS TO USAID FOR J. HARMON AND L. DOBBINS 
STATE PASS TO NSC FOR SENIOR AFRICA DIRECTOR MICHELLE GAVIN 
 
E.O. 12958: N/A 
TAGS: ECON EINV PGOV ZI
SUBJECT: BUSINESS SECTOR WANTS MORE MARKET-FRIENDLY REFORMS 
 
------- 
SUMMARY 
------- 
 
¶1.  (SBU) The Zimbabwe National Chamber of Commerce (ZNCC) 
held its annual congress in Bulawayo from June 24 to 26 and 
stressed the need for government to redefine its role: move 
out of the production of goods and services and concentrate 
on creating a more conducive macroeconomic environment for 
business growth.  The government was further urged to go into 
partnerships with the private sector as a means of mitigating 
and sharing risk in infrastructure projects.  Participants 
agreed that successful partnerships are dependent upon an 
improved investment climate which must be facilitated by 
political and economic reform.  END SUMMARY. 
 
--------------------------------------------- -------- 
Government must support more market-friendly policies 
--------------------------------------------- -------- 
 
¶2.  (SBU) Deputy Prime Minister Thokozani Khupe told 
delegates that government will concentrate on creating a 
favorable macroeconomic environment for businesses to thrive. 
 She said that the State will only participate in 
infrastructure projects alongside private partners to share 
risks.  This was echoed by the chairman of the Institute of 
Directors, David Mutambara, who stated that government has no 
business in the production of goods and services in the 
economy.  He went on to say that government itself needed to 
implement good governance principles and make itself more 
accountable to the electorate. 
 
¶3.  (SBU) Daniel Ndlela, a director of the economic 
consulting firm Zimconsult, told delegates that the current 
poor state of infrastructure was inimical to growth in 
investment and trade in Zimbabwe.  Indeed, Charles Chikaura, 
the Chief Executive of the Infrastructure Development Bank of 
Zimbabwe (IDBZ), said that 25 percent of the barriers to 
trade are attributable to poor infrastructure.  He explained 
that there is a serious lack of funds even within his own 
organization to upgrade the state of Zimbabwe's 
infrastructure.  He therefore supported the adoption of smart 
partnerships between government and the private sector 
through mechanisms such as build-operate-and-transfer or 
build-transfer-and-operate. 
 
--------------------------------------------- ---------- 
Utilities and private sector need to "get prices right" 
 --------------------------------------------- -------- 
 
¶4.  (SBU) Most presenters stated that high utility prices 
were a major constraint to implementing sustainable 
turnaround strategies.  ZNCC President Obert Sibanda told 
delegates that companies cannot increase capacity utilization 
until utilities have been priced more competitively.  He also 
blamed poor service delivery by most parastatal utilities for 
being a hindrance to corporate performance.  Khupe pointed 
out that most private companies were not basing prices on 
costs.  She stressed the need for companies to get out of the 
hyperinflationary mindset of the past four years, given the 
Qhyperinflationary mindset of the past four years, given the 
price stability brought about by dollarization.  Ndlela 
recommended that local companies look beyond the domestic 
market and attempt to expand exports.  Quoting a survey done 
by his company, Ndlela said 82 percent of the 40 firms 
interviewed concentrated on producing for the local market. 
 
--------------------------------------------- --------- 
GOZ's responsibility to improve the investment climate 
--------------------------------------------- --------- 
 
 
HARARE 00000601  002 OF 003 
 
 
¶5.  (SBU) Ndlela told the conference that very little foreign 
investment has come into Zimbabwe since 1997 because of a 
number of problems.  He identified macroeconomic instability, 
poor infrastructure, and a poor investment climate 
characterized by lack of property rights and disregard for 
the rule of law as the major impediments.  Ndlela also said 
that in recent months, lack of credit has become a major 
problem as local manufacturers cannot get access to credit 
due to illiquidity in the banking sector.  The Principal 
Director in the Ministry of Finance, Mutasa Dzinotizei, said 
that liquidity problems were a result of the loss of 
confidence in the banking system arising from hyperinflation. 
 
 
----------------------- 
Investors need a "kiss" 
----------------------- 
 
¶6.  (SBU) Nyasha Zhou, the Chief Executive Officer of PG 
Industries Limited, which manufactures wood and furniture 
products, said that high levels of corruption in government 
drove away potential investors.  Zhou added that the 
political environment had not improved sufficiently to 
encourage foreign financial inflows.  Sibanda urged 
politicians to quickly resolve the outstanding issues of the 
global political agreement (GPA) to improve the country's 
credit risk profile.  He proposed that rather than ask for 
"no strings attached" aid, government should "kiss" foreign 
investors and entice them into coming to Zimbabwe. 
 
¶7.  (SBU) The suggestion that it was necessary to court 
investors infuriated the Minister of Mines and Mineral 
Development, Obert Mpofu, who angrily declared that the 
political environment had improved greatly.  He told the 
congress that his ministry had withdrawn the controversial 
proposed amendment to the Mines and Minerals Act that sought 
to require that indigenous black Zimbabweans hold a 51 
percent ownership stake in any Zimbabwe-based foreign mining 
operation.  He said the Act should be more investor-friendly 
and in line with the changing political environment.  Mpofu 
attacked businesses for not acknowledging the changes taking 
place.  Then, instead of waiting for discussions that 
followed the presentations, he stormed out of the conference 
hall. 
 
---------------------------- 
Benefits of Dollarization... 
---------------------------- 
 
¶8.  (SBU) Delegates applauded government for the 
dollarization of the Zimbabwean economy because it stopped 
hyperinflation overnight.  Dzinotizei stated that 
dollarization represented a voluntary substitution of foreign 
currencies for the local dollar caused by the rapid loss of 
value in the Zimbabwe dollar due to hyperinflation, the loss 
of confidence in the banking sector as cash withdrawals were 
limited by the Reserve Bank of Zimbabwe, and a shortage of 
foreign exchange and uncertainty leading to postponement of 
investment.  He noted that the dollarization of the economy 
resulted in some degree of policy credibility, price 
stability, elimination of exchange rate volatility and a fall 
Qstability, elimination of exchange rate volatility and a fall 
in the cost of doing business in Zimbabwe. 
 
---------------------- 
... and its challenges 
---------------------- 
 
¶9.  (SBU) Dzinotizei told the conference that there were 
challenges arising from the dollarization of the Zimbabwean 
economy, such as the loss of exchange rate and interest rate 
 
HARARE 00000601  003 OF 003 
 
 
manipulation as policy tools.  He also acknowledged that 
there were shortages of foreign exchange -- particularly in 
rural areas -- which adversely affected aggregate demand, and 
pointed to the need for dollarization to be accompanied by 
other reforms if it is to result in increased benefits to the 
economy.  Dzinotizei suggested that dollarization was not a 
substitute for deeper institutional reforms that are required 
in government, and in particular, in the central bank. 
 
-------------------------------- 
No return to Zimbabwe dollar yet 
-------------------------------- 
 
¶10.  (SBU) In spite of these challenges, Dzinotizei told 
delegates that calls for the return of the Zimbabwe dollar as 
a medium of exchange were misplaced.  He said Zimbabwe can 
only revert to the use of the Zimbabwe dollar in the event of 
a consistent record of credible and predictable policies 
coupled with a sound payments system.  Additionally, 
Dzinotizei stated that there was need to raise bank 
capitalization levels to underpin greater liquidity.  He 
advised the group that the authorities were considering using 
the Rand as a reference currency in light of its utility in 
promoting deeper regional integration.  However, Dzinotizei 
said that there were problems attached to this given that 
most cost structures are now denominated in US dollars. 
 
------- 
COMMENT 
------- 
 
¶11.  (SBU) Recovery of the private sector in Zimbabwe is 
predicated on enhanced policycredibility and implementation 
of additional economic reforms.  These will also lead to 
increased foreign financial inflows required to boost 
investment.  For credibility, the government needs to quickly 
address the outstanding issues of the Global Political 
Agreement, including the restoration of the rule of law and 
sanctity of property rights.  Finally, reconstruction of the 
country's dilapidated infrastructure will depend on the 
adoption of genuine public-private partnerships and the 
advantages they present in bringing in resources and reducing 
risk and cost to the government.  END COMMENT. 
 
DHANANI