VZCZCXRO6006
PP RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSB #0776/01 2711524
ZNR UUUUU ZZH
P 281524Z SEP 09
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC PRIORITY 4960
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHAR/AMEMBASSY ACCRA 3060
RUEHDS/AMEMBASSY ADDIS ABABA 3173
RUEHRL/AMEMBASSY BERLIN 1602
RUEHBY/AMEMBASSY CANBERRA 2436
RUEHDK/AMEMBASSY DAKAR 2805
RUEHKM/AMEMBASSY KAMPALA 3221
RUEHNR/AMEMBASSY NAIROBI 5666
RUEHGV/USMISSION GENEVA 2353
RUEAIIA/CIA WASHDC
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RHMFISS/EUCOM POLAD VAIHINGEN GE
RHEFDIA/DIA WASHDC
RHEHAAA/NSC WASHDC

UNCLAS SECTION 01 OF 02 HARARE 000776 
 
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 
NSC FOR SENIOR AFRICA DIRECTOR MICHELLE GAVIN 
 
E.O. 12958: N/A 
TAGS: ECON EINV ZI
SUBJECT: ZIMBABWE MERGER GONE WRONG HARMS INVESTMENT CLIMATE (SUCH 
AS IT IS) 
 
¶1. (U) SUMMARY: After the GOZ took control of a Leading business 
group this month, foreign press reports stoked fears of 
expropriations.  But local observers tend to see this story as a 
business merger gone wrong rather than a ZANU-PF plot.  Whatever the 
merits of that view, there will inevitably be damage to external 
confidence in Zimbabwe's investment climate.  END SUMMARY. 
 
------------------------------- 
ZANU-PF Flies with the Vultures 
------------------------------- 
 
¶2. (U) On September 11 the GOZ seized control of Kingdom Meikles 
Africa Limited (KMAL), once the biggest local company on Zimbabwe's 
stock exchange.  Based on an anti-corruption statute, the move 
triggered press reports outside of Zimbabwe that President Mugabe's 
ZANU-PF party was ready to broaden expropriations beyond commercial 
farms. 
 
¶3. (SBU) But the local perception of the KMAL saga is that it is not 
just another ZANU-PF looting spree.  In the view of Embassy business 
contacts, the 2007 merger between Kingdom Financial Holdings (KFH) 
and Meikles Africa was rushed and badly managed.  By the time the 
GOZ first intervened in January by temporarily taking control of 
some Meikles assets, KMAL had run aground.  "ZANU-PF is just a 
vulture circling the carcass, they did not engineer this," said one 
businessman who has served on the boards of several Zimbabwean 
companies.  At the time of the merger, KMAL had a market value of 
USD 500 million.  The company is now worth about USD 90 million. 
 
------------- 
Culture Clash 
------------- 
 
¶4. (SBU) Internal frictions at KMAL emerged from the incompatible 
corporate cultures of Meikles Africa and KFH, the bank built by 
self-made man Nigel Chanakira.  After the merger, Chanakira's 
reportedly fervent Pentecostal style is said to have rubbed Meikles 
executives the wrong way.  The board failed to keep a lid on 
internal disagreements, and a struggle over management control 
boiled over into the press.  Many local observers believe Chanakira 
used money-laundering allegations against Meikles executive John 
Moxon as a way of preventing his own ouster from the KMAL board. 
The main purpose of a KMAL shareholders meeting scheduled for 
September 24 was to dismiss Chanakira and his closest allies from 
the board to reverse the merger.  Chanakira secured a court order to 
postpone the meeting.  A September 25 press report states that 
Chanakira is currently hospitalized in South Africa. 
 
¶5. (U) While Harare businesspeople do not geerally attribute KMAL's 
troubles to ZANU-PF, there is a direct connection to GOZ policies 
that create acute uncertainties for businesses.  Moxon has said in 
public that the KMAL merger was primarily a maneuver to protect 
Meikles Africa from the expected effects of "indigenization" 
legislation the GOZ was preparing in 2007.  Before the merger, 
Meikles Africa already held a 34-percent stake in KFH.  The 
Indigenization and Economic Empowerment Act that President Mugabe 
QIndigenization and Economic Empowerment Act that President Mugabe 
signed in March 2008 seeks to put majority ownership of businesses 
in the hands of "indigenous Zimbabweans," who are defined in the 
statute as "any person who before the 18th of April 1980 was 
disadvantaged by unfair discrimination on the grounds of his or her 
race, and any descendant of such person." 
 
------- 
COMMENT 
------- 
 
¶6. (SBU) Local perceptions notwithstanding, the GOZ's seizing of 
KMAL will inevitably undermine external confidence in what is 
called, for want of a better expression, Zimbabwe's investment 
 
HARARE 00000776  002 OF 002 
 
 
climate.  Despite claims by ZANU-PF and MDC officials alike that the 
current indigenization law will be used "flexibly," a more practical 
law and repeal of onerous statutes like the one the GOZ used to 
seize KMAL are necessary to restore investor confidence.  But 
indigenization is a highly-charged issue, and it is unlikely the 
government, even its MDC members, will soon be willing to tackle 
this.  END COMMENT. 
 
PETTERSON