Cablegate: Zimbabwe 2002 National Trade Estimate Report

This record is a partial extract of the original cable. The full text of the original cable is not available.

091341Z Jan 02

UNCLASSIFIED PTQ8457

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E-00 FAAE-00 UTED-00 VC-00 FRB-00 H-01 TEDE-00
INR-00 ITC-01 LAB-01 L-00 VCE-00 AC-01 NSAE-00
NSCE-00 OES-01 OMB-01 OPIC-01 PC-01 ACE-00 SP-00
SSO-00 SS-00 STR-00 TEST-00 TRSE-00 USIE-00 FMP-00
DRL-02 G-00 NFAT-00 SAS-00 /011W
------------------5555CA 091637Z /38
FM AMEMBASSY HARARE
TO SECSTATE WASHDC 0675
INFO SOUTHERN AFRICAN DEVELOPMENT COMMUNITY

UNCLAS SECTION 01 OF 06 HARARE 000081

SIPDIS

STATE PASS USTR FOR LESLIE YANG/G. BLUE
STATE FOR AF/S, AF/EPS, EB/MTA/STA/M. ENIS

E.O. 12958: N/A

TAGS: ETRD ECON EFIN ZI
SUBJECT: ZIMBABWE 2002 NATIONAL TRADE ESTIMATE REPORT
SUBMISSION

REFS: A) STATE (01) 201265, B) STATE (01) 213042,C)

STATE 02034

1. BELOW FIND OUR SUBMISSION OF THE 2002 ZIMBABWE
CHAPTER FOR THE NATIONAL TRADE ESTIMATE REPORT. PER
REF A INSTRUCTIONS WE HAVE MADE NO CHANGES TO THE
TRADE DATA IN THE FIRST PARAGRAPH, LEAVING THE UPDATE
TO USTR.

2. BEGIN TEXT OF ZIMBABWE NTE 2002 CHAPTER.

TRADE SUMMARY

IN 2000, THE U.S. TRADE DEFICIT WITH ZIMBABWE DECLINED
TO $59 MILLION, A DECREASE OF $14 MILLION FROM THE
1999 DEFICIT. U.S. MERCHANDISE EXPORTS TO ZIMBABWE IN
2000 TOTALED $53 MILLION, A DECREASE OF $7 MILLION
FROM 1999. ZIMBABWE WAS THE UNITED STATES' 134TH
LARGEST EXPORT MARKET IN 2000. U.S. MERCHANDISE
IMPORTS FROM ZIMBABWE WERE $112 MILLION, DOWN $20
MILLION FROM 1999.

THE STOCK OF U.S. FOREIGN DIRECT INVESTMENT IN
ZIMBABWE WAS APPROXIMATELY $128 MILLION IN 2001, A
FIGURE UNCHANGED FROM THE PREVIOUS YEAR. HOWEVER WE
POINT OUT THAT ZIMBABWE'S RECENT, SERIOUS ECONOMIC
PROBLEMS WOULD LIKELY MAKE THE MARKET VALUE MUCH
LOWER, AND HARD CURRENCY SHORTAGES AND THE EXISTENCE
OP BOTH OPPICIAL AND PARALLEL FOREIGN EXCHANGE MARKETS
COULD CAUSE DIFFICULTY AND POSSIBLE FURTHER
DEVALUATION OF ANY REPATRIATED INVESTMENT VALUES.

IMPORT POLICIES
UNCLASSIFIED

PAGE 03 HARARE 00081 01 OF 06 091619Z

ZIMBABWE'S ECONOMY, INCLUDING ITS TARIFF REGIME, BEGAN
A TRANSITION IN 1991 FROM A HIGHLY CONTROLLED,
MARXIST-MODELED, STATIST SYSTEM TO A MORE OPEN,
MARKET-BASED ECONOMIC SYSTEM. DURING THE FIRST PHASE
OF ITS STRUCTURAL ADJUSTMENT PROGRAM, WHICH ENDED IN
1995, ZIMBABWE ABOLISHED QUANTITATIVE RESTRICTIONS IN
FAVOR OF A TARIFF-BASED TRADING SYSTEM. IN EARLY 1996,
ZIMBABWE UNDERTOOK A COMPREHENSIVE REVIEW AND
RATIONALIZATION OF ITS TARIFF POLICIES AND RATES WITH
SUBSTANTIAL WORLD BANK INPUT AND THE COOPERATION OF
THE CONFEDERATION OF ZIMBABWE INDUSTRIES (CZI). A NEW
TARIFF REGIME, EFFECTIVE MARCH 1, 1997, LOWERED DUTIES
ON RAW MATERIALS AND OTHER INPUTS IN AN EFFORT TO
REMOVE MOST CASES OF THE PREVIOUS ANOMALY WHERE THERE
WERE HIGHER DUTIES ON RAW MATERIALS THAN ON FINISHED
PRODUCTS. RAW MATERIALS NOW INCUR A DUTY RATE OF FIVE
TO 15 PERCENT, THOUGH ADDITIONAL IMPORT SURCHARGES ARE
VERY LIKELY TO BE APPLIED.

PROBABLY THE MOST SIGNIFICANT CURRENT BARRIER TO NEW
OR ONGOING TRADE OR IMPORTS TO ZIMBABWE IS THE VERY
POOR BALANCE OF PAYMENTS SITUATION, AND THE RESULTANT
SEVERE HARD CURRENCY SHORTAGE. THE CAUSES ARE MYRIAD:
DECLINING GDP (IN REAL TERMS); HIGH INFLATION (THAT
HAS RECENTLY EXCEEDED 100 PERCENT); AN OVERVALUED
PEGGED CURRENCY; AN UNSUSTAINABLY HIGH GOVERNMENT
BUDGET DEFICIT (ESTIMATED TO BE ABOUT 25 PERCENT OF
GDP FOR 2000, AND 15 PERCENT FOR 2001); OVERALL POOR
EXPORT AND DOMESTIC INVESTMENT PERFORMANCE THAT IS
EXPECTED TO WORSEN; THREATS TO THE COUNTRY'S CORE
UNCLASSIFIED

PAGE 04 HARARE 00081 01 OF 06 091619Z
COMMERCIAL FARMING SECTOR; CONTINUED AND SPREADING
CORRUPTION; AND CONTINUED FUEL AND OTHER KEY INPUT
SHORTAGES (CAUSED BY THE LACK OF FOREIGN CURRENCY).
ECONOMIC CONDITIONS ARE EXPECTED TO DETERIORATE
FURTHER BEFORE THEY IMPROVE, AND A TURNAROUND WOULD
LIKELY NEED TO BE PROCEEDED BY A RESUMPTION OF
POSITIVE WORKING RELATIONS WITH THE INTERNATIONAL
DONOR AND MULTILATERAL LENDING COMMUNITY.
TARIFFS AND DUTIES

IN RESPONSE TO THE SIGNIFICANT DETERIORATION OF
ZIMBABWE'S ECONOMY AND AS A PRECURSOR TO THE
IMPOSITION OF A VALUE-ADDED-TAX (VAT) REGIME, WHICH
HAS BEEN DELAYED FOR THE PAST 18 MONTHS AND THE TIMING
OF WHICH IS STILL UNCERTAIN, THE GOVERNMENT OF
ZIMBABWE HAS BEEN WORKING ON FINALIZING A NEW TARIFF
AND IMPORT DUTY SCHEDULE. IN ADDITION, IN MID-2001, A
NEW REVENUE AUTHORITY OF ZIMBABWE WAS CREATED THAT
FO
LDED TOGETHER THE REVENUE-COLLECTING SECTIONS OF THE
CUSTOMS BUREAU AND THE TAX BUREAU. THE NEW AUTHORITY
DID NOT BRING ON BOARD ALL THE OLD PERSONNEL, AND THE
PRESENCE OF NEW AND INEXPERIENCED STAFF HAS RESULTED
IN NEW PROBLEMS FOR IMPORTERS, THOUGH THESE SHOULD BE
REDUCED WITH TIME.

UNCLASSIFIED

UNCLASSIFIED PTQ8458

PAGE 01 HARARE 00081 02 OF 06 091619Z
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INFO LOG-00 AID-00 EVG-00 CEA-01 CIAE-00 COME-00 CTME-00
INL-00 DODE-00 ITCE-00 DOTE-00 SRPP-00 EB-00 EXME-00
E-00 FAAE-00 UTED-00 VC-00 FRB-00 H-01 TEDE-00
INR-00 ITC-01 LAB-01 L-00 VCE-00 AC-01 NSAE-00
NSCE-00 OES-01 OMB-01 OPIC-01 PC-01 ACE-00 SP-00
SSO-00 SS-00 STR-00 TEST-00 TRSE-00 USIE-00 FMP-00
EPAE-00 DRL-02 G-00 NFAT-00 SAS-00 /011W
------------------5555CE 091637Z /38
R 091341Z JAN 02
FM AMEMBASSY HARARE
TO SECSTATE WASHDC 0676
INFO SOUTHERN AFRICAN DEVELOPMENT COMMUNITY

UNCLAS SECTION 02 OF 06 HARARE 000081

SIPDIS

STATE PASS USTR FOR LESLIE YANG/G. BLUE
STATE FOR AF/S, AF/EPS, EB/MTA/STA/M. ENIS

E.O. 12958: N/A

TAGS: ETRD ECON EFIN ZI

SUBJECT: ZIMBABWE 2002 NATIONAL TRADE ESTIMATE REPORT
SUBMISSION

DUE TO THE SLIDE OF THE ZIMBABWE DOLLAR AGAINST
UNCLASSIFIED

PAGE 02 HARARE 00081 02 OF 06 091619Z
FOREIGN CURRENCIES WHICH BEGAN IN AUGUST 1998, THE
GOVERNMENT INCREASED IMPORT TARIFFS ACROSS THE BOARD
IN SEPTEMBER 1998 FROM 20 TO 100 PERCENT. IN MID-2001
SOME OF THESE WERE ROLLED BACK, PRIMARILY AT THE
URGING OF INDUSTRY, THOUGH THE EXISTENCE OF DIFFERENT
AND SOMETIMES CONFLICTING TARIFF SCHEDULES CAUSES
DISAGREEMENT. GENERALLY THE HIGHER DUTIES ARE APPLIED
TO LUXURY ITEMS AND GOODS FOR WHICH DOMESTICALLY
PRODUCED SUBSTITUTES EXIST. THE LIST OF TARGETED GOODS
STILL INCLUDES FURNITURE, BICYCLES, MOTOR VEHICLES,
ELECTRICAL AND ELECTRONIC GOODS, SHOES, CARPETS AND
BUILDING MATERIALS.

AT PRESENT, TARIFFS AND DUTIES AS PRESENTED IN THE
CUSTOMS AND EXCISE AMENDMENT NOTICE NUMBER 12 OF 1998
ARE STILL IN EFFECT, THOUGH SOME AMENDMENTS HAVE BEEN
MADE AND FURTHER CHANGES HAVE BEEN PROMISED.
REPRESENTATIVE EXAMPLES INCLUDE:

DUTY ON EDIBLE VEGETABLES INCREASED FROM 40
TO 60 PERCENT TO 60 TO 80 PERCENT;
DUTY ON CEREAL FLOURS INCREASED FROM 30 TO
60 PERCENT;
DUTY ON PREPARED CEREALS INCREASED FROM 40
TO 80 PERCENT;
DUTIES ON FRUIT JUICES AND AERATED WATER 85
AND 82.5 PERCENT RESPECTIVELY, WITH A Z$LO/LITER
(ABOUT 18 U.S. CENTS AT CURRENT EXCHANGE RATES)
AND 22.5 PERCENT EXCISE DUTY RESPECTIVELY;
DUTY ON IMPORTED WINES 95 PERCENT DUTY AND
Z$2.50/LITER (ABOUT 4 U.S. CENTS AT CURRENT
UNCLASSIFIED

PAGE 03 HARARE 00081 02 OF 06 091619Z
EXCHANGE RATES) EXCISE TAX;
DUTY ON CIGARETTES 100 PERCENT DUTY AND 80
PERCENT EXCISE TAX;
DUTY ON PERFUME 80 PERCENT, UP FROM 40
PERCENT;
DUTY ON FOOTWEAR INCREASED FROM 30 TO 65
PERCENT;
CERAMIC PRODUCTS ARE CHARGED 80 PERCENT
DUTY, UP FROM 40 PERCENT;
AIR CONDITIONING UNITS PREVIOUSLY AT ZERO
NOW INCUR 40 TO 90 PERCENT DUTY AND A SURCHARGE OF
Z$200/UNIT;
DUTY ON PASSENGER MOTOR VEHICLES (BUSES)
SEATING 20 OR MORE PERSONS INCREASED FROM 25 TO 50
PERCENT, WHILE ON VEHICLES SEATING 19 OR LESS
(MINIBUSES) THE DUTY ROSE FROM 40 TO 80 PERCENT;
DUTY ON TOYS INCREASED FROM 30 TO 70
PERCENT;
DUTY ON PLASTIC OR WOODEN FURNITURE
INCREASED TO 80 PERCENT FROM 40 PERCENT.

DUTIES ON WHAT ARE CONSIDERED LUXURY GOODS THAT CAN BE
MANUFACTURED LOCALLY HAVE INCREASED ON AVERAGE BY 100
PERCENT. A TARIFF COMMISSION HAS BEEN FORMED TO LOOK
AT CASES WHERE LOCAL MANUFACTURERS HAVE BEEN
DISADVANTAGED BY THE NEW TARIFF REGIME, THOUGH IT
MEETS ONLY MONTHLY AND HAS A LARGE AND GROWING
BACKLOG.

EFFECTIVE ON OCTOBER 2, 1998, ALL TARIFFS ON IMPORTED
GOODS HAVE ALSO BEEN CHARGED A 15 PERCENT IMPORT
UNCLASSIFIED

PAGE 04 HARARE 00081 02 OF 06 091619Z
SURCHARGE, REGARDLESS OF CLASSIFICATION. A NARROW
EXEMPTION FROM THE TAX EXISTS FOR CAPITAL GOODS, SUCH
AS MANUFACTURING EQUIPMENT AND INTERMEDIATE GOODS THAT
ARE SUBJECT TO FURTHER PROCESSING AND RE-EXPORT.

PERIODIC INSTANCES OF CORRUPTION AND A LACK OF UNIFORM
APPLICATION OF THE LAW BY CUSTOMS OFFICIALS CONTINUE
TO CONCERN IMPORTERS AND USERS OF IMPORTED GOODS OR
COMPONENTS.

RELEVANT TAX AND DUTY CHANGES INCLUDED IN THE 2001
BUDGET ANNOUNCEMENT INCLUDE:

REDUCTION OF SALES TAX ON COMMERCIAL
VEHICLES FROM 25 TO 15 PERCENT;
THE CORPORATE TAX RATE IS REDUCED FROM 35 TO
30 PERCENT PLUS HIV/AIDS LEVY OF THREE PERCENT,
AND FROM 35 TO 25 PERCENT FOR MINING COMPANIES;
EFFECTIVE JANUARY 1, 2001, CAPITAL GOODS
IMPORTED BY THE MINING SECTOR FOR A FIVE-YEAR
EXPLORATION PHASE ARE EXEMPT FROM IMPORT AND SALES
TAXES;
A 20 PERCENT AIRCRAFT LEASING EXCISE TAX WAS
SCRAPPED, AND IMPORT DUTIES ON AIRCRAFT SPARE
PARTS DROP TO ZERO (TO BENEFIT TOURISM);

UNCLASSIFIED

UNCLASSIFIED PTQ8459

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ACTION AF-00

INFO LOG-00 NP-00 AID-00 CEA-01 CIAE-00 COME-00 CTME-00
DODE-00 ITCE-00 DOTE-00 SRPP-00 EB-00 EXME-00 E-00
FAAE-00 UTED-00 VC-00 FRB-00 H-01 TEDE-00 INR-00
ITC-01 LAB-01 L-00 VCE-00 AC-01 NSAE-00 NSCE-00
OES-01 OMB-01 OPIC-01 PC-01 ACE-00 SP-00 IRM-00
SSO-00 SS-00 STR-00 TEST-00 TRSE-00 USIE-00 FMP-00
EPAE-00 DRL-02 G-00 NFAT-00 SAS-00 /011W
------------------5555D4 091637Z /38
R 091341Z JAN 02
FM AMEMBASSY HARARE
TO SECSTATE WASHDC 0677
INFO SOUTHERN AFRICAN DEVELOPMENT COMMUNITY

UNCLAS SECTION 03 OF 06 HARARE 000081

SIPDIS

STATE PASS USTR FOR LESLIE YANG/G. BLUE
STATE FOR AF/S, AF/EPS, EB/MTA/STA/M. ENIS

E.O. 12958: N/A

TAGS: ETRD ECON EFIN ZI

SUBJECT: ZIMBABWE 2002 NATIONAL TRADE ESTIMATE REPORT
SUBMISSION

DUTY ON IMPORTED BICYCLES DROPPED FROM 40 TO
20 PERCENT;
UNCLASSIFIED

PAGE 02 HARARE 00081 03 OF 06 091619Z
EXCISE DUTY ON SOFT DRINKS REDUCED FROM 25
TO 15 PERCENT, AND EXCISE DUT
Y ON IMPORTED BEER
REDUCED FROM 80 TO 60 PERCENT;
TO PROMOTE EXPORTS, COMPANIES GAIN
TRANSFERABLE DUTY-FREE CERTIFICATES BASED ON 10
PERCENT OF THE U.S. VALUE OF INCREMENTAL EXPORTS
IN 2001 AND 2002, USING 1999 AS THE BASE YEAR.

GOVERNMENT PROCUREMENT

ZIMBABWEAN LAW PROVIDES FOR NON-DISCRIMINATORY
GOVERNMENT PROCUREMENT PRACTICES, INCLUDING FULL
TRANSPARENCY IN THE TENDER PROCESS. THE GOVERNMENT OF
ZIMBABWE'S TENDER BOARD IS REQUIRED TO INVITE BIDS
FROM BOTH LOCAL AND INTERNATIONAL ENTITIES FOR ANY
PURCHASE IN EXCESS OF Z$800,000

(APPROXIMATELY $14,500). NOTWITHSTANDING THIS POSITIVE
LEGAL ENVIRONMENT, U.S. FIRMS AND VARIOUS NATIONAL
GOVERNMENTS, INCLUDING THOSE OF THE UNITED STATES,
JAPAN, GREAT BRITAIN, FRANCE, BELGIUM AND ITALY, HAVE
VOICED STRONG COMPLAINTS ABOUT THE LACK OF
TRANSPARENCY AND FAIRNESS IN GOVERNMENT TENDERS.
MULTILATERAL INSTITUTIONS HAVE ALSO CRITICIZED THE
GOVERNMENT TENDERING PROCESS AND CALLED FOR CHANGES.
ZIMBABWE IS NOT A
SIGNATORY TO THE WTO AGREEMENT ON GOVERNMENT
PROCUREMENT.

IN TWO PROMINENT TENDERS, THE CONTRACT AWARDS WERE
UNCLASSIFIED

PAGE 03 HARARE 00081 03 OF 06 091619Z
BASED ON FACTORS OTHER THAN COST, RESULTING IN LOCAL
SUPPLIERS BEING ACCEPTED OVER FOREIGN SUPPLIERS WITH
SUBSTANTIALLY LOWER BIDS. DESPITE THE BOARD'S
REQUIREMENT TO INVITE TENDERS FOR ANY PROJECT IN
EXCESS OF THE Z$800,000 THRESHOLD, ZIMBABWE CONTINUES
TO USE SOLE-SOURCING FOR A NUMBER OF MAJOR CONTRACTS,
IN PARTICULAR PURCHASES BY THE MINISTRY OF DEFENSE AND
CONTRACTS WITH THE RESERVE BANK OF ZIMBABWE TO PRINT
PAPER MONEY AND MINT COINS.

IN AN EFFORT TO ENCOURAGE INDIGENOUS BUSINESSES,
ZIMBABWE MAINTAINS QUOTAS ON CERTAIN SERVICES AND
WHICH ARE RESERVED FOR ZIMBABWEAN FIRMS.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

SINCE INDEPENDENCE, ZIMBABWE HAS JOINED SEVERAL
INTERNATIONAL PATENT AND TRADEMARK CONVENTIONS. IT IS
A MEMBER OF THE WORLD INTELLECTUAL PROPERTY
ORGANIZATION, AND IS A SIGNATORY TO THE PARIS
CONVENTION FOR THE PROTECTION OF INDUSTRIAL PROPERTY
(STOCKHOLM TEXT), AND THE BERNE CONVENTION FOR THE
PROTECTION OF LITERARY AND ARTISTIC WORKS (ROME TEXT).
HOWEVER, SOME ENFORCEMENT PROBLEMS EXIST. AUDIO AND
VIDEOCASSETTE PIRACY IS THE MOST WIDESPREAD
INTELLECTUAL PROPERTY ISSUE IN ZIMBABWE, THOUGH THE
VOLUMES INVOLVED ARE RELATIVELY SMALL. WHILE SOFTWARE
BOOTLEGGING UNDOUBTEDLY OCCURS BY USERS, PIRATED
SOFTWARE IS RARELY SOLD COMMERCIALLY.

SERVICES BARRIERS
UNCLASSIFIED

PAGE 04 HARARE 00081 03 OF 06 091619Z

ALTHOUGH THE BAN ON LOCAL FOREIGN CURRENCY-DENOMINATED
BANK ACCOUNTS (KNOWN AS FCAS) WAS LIFTED IN OCTOBER
1999 AT THE IMF'S URGING, ZIMBABWE'S SEVERE HARD
CURRENCY SHORTAGE HAS CAUSED A VERY SUBSTANTIAL
BUILDUP IN PUBLIC AND PRIVATE EXTERNAL ARREARS,
ESTIMATED AT OVER US$1 BILLION AT YEAR-END 2001. THE
LACK OF HARD CURRENCY HAS NEGATIVELY IMPACTED ALL
SECTORS OF THE ECONOMY, WITH PARTICULAR EMPHASIS ON
THE MANUFACTURING AND MINING SECTORS, THAT REQUIRE
SUBSTANTIAL AMOUNTS OF IMPORTED COMPONENTS OR
SUPPLIES. THE PROSPECT OF CONTINUED FOREIGN CURRENCY
SHORTAGES AND A PEGGED EXCHANGE RATE RAISES THE
POSSIBILITY THAT ADDITIONAL CONTROLS OR RESTRICTIONS
MAY BE PLACED ON SUCH ACCOUNTS, MAKING OPERATIONS
TOUGHER FOR INDUSTRY AND ALL IMPORTERS AND EXPORTERS.

WORLD-CLASS PROFESSIONAL SERVICES (CONSULTANCY,
ACCOUNTING, LEGAL AND OTHERS) ARE GENERALLY AVAILABLE
WITHIN THE COUNTRY. HOWEVER, THE RECENT ECONOMIC
DETERIORATION AND CONSEQUENT SLIDES IN DISPOSABLE
INCOME AND STANDARDS OF LIVING, AND POLITICAL VIOTENCE
AND INVASIONS OF PRIVATE PROPERTY HAVE CAUSED A MARKED
INCREASE IN THE RATES OF EMIGRATION OF PROFESSIONALS
AND THE TECHNICALLY QUALIFIED. THIS HAS CAUSED

UNCLASSIFIED

UNCLASSIFIED PTQ8461

PAGE 01 HARARE 00081 04 OF 06 091619Z
ACTION AF-00

INFO LOG-00 NP-00 AID-00 CEA-01 CIAE-00 COME-00 CTME-00
INL-00 USNW-00 DODE-00 ITCE-00 DOTE-00 SRPP-00 EB-00
EXME-00 E-00 FAAE-00 UTED-00 VC-00 FRB-00 H-01
TEDE-00 INR-00 IO-00 ITC-01 LAB-01 L-00 VCE-00
AC-01 NSAE-00 NSCE-00 OES-01 OMB-01 OPIC-01 PC-01
ACE-00 SP-00 IRM-00 SSO-00 SS-00 STR-00 TEST-00
TRSE-00 USIE-00 FMP-00 EPAE-00 DRL-02 G-00 NFAT-00
SAS-00 SWCI-00 /011W
------------------5555DD 091638Z /38
R 091341Z JAN 02
FM AMEMBASSY HARARE
TO SECSTATE WASHDC 0678
INFO SOUTHERN AFRICAN DEVELOPMENT COMMUNITY

UNCLAS SECTION 04 OF 06 HARARE 000081

SIPDIS

STATE PASS USTR FOR LESLIE YANG/G. BLUE
STATE FOR AF/S, AF/EPS, EB/MTA/STA/M. ENIS

E.O. 12958: N/A

TAGS: ETRD ECON EFIN ZI

SUBJECT: ZIMBABWE 2002 NATIONAL TRADE ESTIMATE REPORT
SUBMISSION

RECRUITMENT PROBLEMS FOR EMPLOYERS.
UNCLASSIFIED

PAGE 02 HARARE 00081 04 OF 06 091619Z

IN 1999, SOME SOFTWARE COMPANIES ENCOUNTERED
DIFFICULTIES WITH THE IMPORTATION OF PROGRAMS
CONTAINING EXTENSIVE GRAPHICS, AS ZIMBABWE CUSTOMS
DEEMED THEM TO BE ENTERTAINMENT PROGRAMS (SUBJECT TO
AN 80 PERCENT DUTY) AND NOT COMPUTER SOFTWARE (SUBJECT
TO A 15 PERCENT DUTY). THERE ARE CURRENTLY NO TRADE
RESTRICTIONS ON ELECTRONIC COMMERCE
.

INVESTMENT BARRIERS

THE GOVERNMENT HAS LIFTED SOME OF ITS MOST ONEROUS
RESTRICTIONS ON FOREIGN INVESTMENT. IT PERMITS PRE-
INDEPENDENCE INVESTORS TO REMIT 100 PERCENT OF
DECLARED DIVIDENDS AND NO LONGER IMPOSES RESTRICTIONS
ON LOCAL BORROWING. IN SEPTEMBER 1995, THE RESERVE
BANK OF ZIMBABWE (RBZ) BEGAN LIBERALIZING BLOCKED
ACCOUNTS, ALLOWING REPATRIATION OF CERTAIN BLOCKED
FUNDS (PROFITS AND DIVIDENDS ACCRUED ON PRE-1993
INVESTMENTS, CORPORATE FUNDS IN GOVERNMENT OF ZIMBABWE
EXTERNAL BONDS, AND ACCOUNTS WITH AUTHORIZED DEALERS).
DUE TO ZIMBABWE'S ONGOING FINANCIAL CRISIS, THERE IS
SERIOUS CONCERN THAT THE GOVERNMENT MAY RESORT TO A
RE-IMPOSITION OF FOREIGN EXCHANGE RESTRICTIONS OR A
FORMAL, FIXED RATE FOREIGN EXCHANGE REGIME, AND
CURRENTLY 40 PERCENT OF ALL EXPORT PROCEEDS MUST BE
GIVEN OVER TO THE CENTRAL BANK FOR EXCHANGE AT THE
OFFICIAL RATE.

IN ADDITION, IN LATE 2001 THE GOVERNMENT IMPOSED PRICE
UNCLASSIFIED

PAGE 03 HARARE 00081 04 OF 06 091619Z
CONTROLS ON A WIDE RANGE OF STAPLES AND COMMODITIES.
(THE LIST INCLUDES: MAIZE MEAL; SUGAR; COOKING OIL;
FLOUR; BEEF AND POULTRY; SOAP; FERTILIZER; CEMENT;
CROP SEEDS; AND PARAFFIN.) THE CONTROLS, WHICH CAUSE
PRODUCTION LOSSES FOR MOST MANUFACTURERS, HAVE
RESULTED IN SHORTAGES OF THESE STAPLES AND
DISINVESTMENT IN SOME SECTORS, SUCH AS POULTRY AND
BEEF PRODUCTION.

ZIMBABWE IS A SIGNATORY TO THE FOLLOWING
INVESTOR/INVESTMENT PROTECTION TREATIES: THE
MULTILATERAL INVESTMENT GRANTEE AGENCY (MIGA), THE
INTERNATIONAL CONVENTION POR THE SETTLEMENT OF
INVESTMENT DISPUTES; NEW YORK CONVENTION ON THE
ENPORCEMENT OP FOREIGN ARBITRAL AWARDS; AND THE UNITED
NATIONS CONVENTION ON INTERNATIONAL TRADE LAW.

ROADBLOCKS TO FOREIGN INVESTMENT ARE PERVASIVE
FOREIGN-OWNED BUSINESSES HAVE CITED INSTANCES OF
CORRUPTION AS A SERIOUS AND TROUBLESOME PROBLEM,
PARTICULARLY DURING STARTUP, EXPANSION OR TRANSFER OF
ASSETS. BOTH NEW AND EXISTING INVESTORS HAVE
ENCOUNTERED DELAYS AND A LACK OF TRANSPARENCY IN
OBTAINING INVESTMENT TRANSFER APPROVAL FROM THE
RESERVE BANK OF ZIMBABWE. THERE HAVE ALSO BEEN
PROTRACTED DELAYS AND A LACK OF TRANSPARENCY ON THE
PART OF GOVERNMENT IN APPROVING WORK PERMITS FOR
EXPATRIATE REPRESENTATIVES OF OVERSEAS FIRMS.
APPLICANTS HAVE DESCRIBED THE PROCESS AS DIFFICULT,
TIME-CONSUMING, AND AT TIMES, ARBITRARY. IN ONE
EXAMPLE, A SENIOR EXECUTIVE OF A MAJOR U.S.
UNCLASSIFIED

PAGE 04 HARARE 00081 04 OF 06 091619Z
CORPORATION WAS DENIED RENEWAL OF HIS WORK PERMIT ON
THE BASIS OF HIS AGE (63). THE U.S. HAS HAD SOME
SUCCESS IN OBTAINING FAVORABLE REVIEWS IN SUCH CASES.

INVESTMENT PROMOTION

NEW FOREIGN INVESTMENT INTO ZIMBABWE, EXCLUDING EXPORT
PROCESSING ZONE PROJECTS, HAVE TO BE APPROVED BY THE
ZIMBABWE INVESTMENT CENTER (ZIC). IN ADDITION, BRANCH
OPERATIONS REQUIRE APPROVAL FROM THE MINISTRY OF
JUSTICE'S REGISTRAR OF COMPANIES, AND FOREIGN
INVESTMENT IN EXISTING COMPANIES MAY REQUIRE RESERVE
BANK APPROVAL.

HARSH ECONOMIC CONDITIONS AND UNCERTAINTY HAVE CAUSED
A 63 PERCENT SLIDE IN APPROVED INVESTMENT APPLICATIONS
IN 1999 OVER THE PRIOR YEAR, FROM Z$60.3 BILLION TO
Z$22.5 BILLION (ABOUT US$590 MILLION AT CURRENT
RATES). ACTUAL INVESTMENT IN ANY GIVEN YEAR MAY BE
CONSIDERABLY LESS THAN WHAT MAY BE INDICATED BY
APPROVED INVESTMENT APPLICATIONS.

EXPORT PROCESSING ZONES (EPZ) AND CERTAIN RELATED TAX
CONCESSIONS COULD BOOST FOREIGN INVESTMENT, BUT A
NUMBER OF FACTORS HAVE LIMITED THEIR SUCCESS. BENEFITS
INCLUDE A FIVE-YEAR TAX HOLIDAY, DUTY-FREE IMPORTATION

UNCLASSIFIED

UNCLASSIFIED PTQ8464

PAGE 01 HARARE 00081 05 OF 06 091620Z
ACTION AF-00

INFO LOG-00 AID-00 CEA-01 CIAE-00 COME-00 CTME-00 DODE-00
ITCE-00 DOTE-00 SRPP-00 EB-00 EXME-00 E-00 FAAE-00
UTED-00 VC-00 FRB-00 H-01 TEDE-00 INR-00 ITC-01
LAB-01 L-00 VCE-00 AC-01 NSAE-00 NSCE-00 OES-01
OMB-01 OPIC-01 PC-01 ACE-00 SP-00 IRM-00 SSO-00
SS-00 STR-00 TEST-00 TRSE-00 USIE-00 FMP-00 EPAE-00
DRL-02 G-00 NFAT-00 SAS-00 /011W
------------------5555F0 091638Z /38
R 091341Z JAN 02
FM AMEMBASSY HARARE
TO SECSTATE WASHDC 0679
INFO SOUTHERN AFRICAN DEVELOPMENT COMMUNITY

UNCLAS SECTION 05 OF 06 HARARE 000081

SIPDIS

STATE PASS USTR FOR LESLIE YANG/G. BLUE
STATE FOR AF/S, AF/EPS, EB/MTA/STA/M. ENIS

E.O. 12958: N/A

TAGS: ETRD ECON EFIN ZI

SUBJECT: ZIMBABWE 2002 NATIONAL TRADE ESTIMATE REPORT
SUBMISSION

OF RAW MATERIALS, NO TAX LIABILITY FROM CAPITAL GAINS
ARISING FROM THE SALE OF PROPERTY FORMING PART OF THE
UNCLASSIFIED

PAGE 02 HARARE 00081 05 OF 06 091620Z
INVESTMENT IN DESIGNATED PROCESSING ZONES, AND DUTY-
FREE IMPORTATION OF CAPITAL EQUIPMENT FOR USE IN THE
EPZ. A TRADE PERFORMANCE MANDATE REQUIRES ELIGIBLE
COMPANIES TO EXPORT AT LEAST 80 PERCENT OF OUTPUT. THE
EPZ AUTHORITY, OPERATIONAL SINCE EARLY 1996, HAS
APPROVED APPLICATIONS FOR 105 COMPANIES TO OPERATE IN
MORE THAN A DOZEN ZONES. JUST OVER HALF OF THESE
PROJECTS ARE OPERATIONAL, WITH THE OTHERS SLOWED OR
HALTED BY THE ECONOMIC DOWNTURN
. THE NEW ENTITIES ARE
ALSO ENCOUNTERING DIFFICULTIES IN CONNECTING TO
TELECOMMUNICATIONS SERVICES, WATER AND ELECTRIC
UTILITIES. PROBLEMS CONTINUE TO ARISE WITH THE
DEPARTMENT OF CUSTOMS, WHICH FREQUENTLY CHARGES
DESIGNATED COMPANIES DUTIES ON EXEMPTED INPUTS AND
EQUIPMENT.

FOR COMPANIES LISTED ON THE ZIMBABWE STOCK EXCHANGE
(ZSE), UP TO 40 PERCENT OF OUTSTANDING SHARES MAY BE
FOREIGN-HELD, WITH A 10 PERCENT CAP FOR ANY SINGLE
FOREIGN HOLDER. SEVERAL COMMERCIAL AND MERCHANT BANKS
AND BROKERAGE FIRMS OFFER COMPREHENSIVE ADVISORY
SERVICES ON THE DOMESTIC AND REGIONAL MARKETS. WORK
AND PERMANENT RESIDENCE PERMITS ARE AVAILABLE TO
INVESTORS WHO BRING IN SPECIFIED AMOUNTS OF FOREIGN
CAPITAL. WITHHOLDING TAXES APPLY TO ALL WAGES,
SALARIES, INTEREST, DIVIDENDS AND CAPITAL GAINS
ACCRUING IN ZIMBABWE.

OTHER BARRIERS

UNCLASSIFIED

PAGE 03 HARARE 00081 05 OF 06 091620Z
LAND REFORM

ZIMBABWE IS CURRENTLY ENGAGED IN AN AGGRESSIVE,
CHAOTIC LAND OCCUPATION AND RESETTLEMENT PROGRAM THAT
HAS ECONOMIC CONSEQUENCES THAT HAVE NOT BEEN FULLY
REALIZED. FOR EXAMPLE, FOR THE FIRST TIME SINCE THE
1991/1992 DROUGHT THE COUNTRY IS PRESENTLY
EXPERIENCING SHORTAGES OF THE STAPLE MAIZE, AT LEAST
PARTLY DUE TO THE LAND INVASIONS, AND THE PROSPECTS
FOR THE NEXT GROWING SEASON ARE DIRE FOR BOTH FOOD
CROPS AND EXPORT CROPS. WHILE THE REDISTRIBUTION OF
LARGE COMMERCIAL FARMS TO THE LANDLESS AND SMALL-SCALE
INDIGENOUS FARMERS HAS LONG BEEN A STATED GOAL OF THE
ZIMBABWEAN GOVERNMENT, NO SUSTAINED IMPLEMENTATION HAD
OCCURRED UNTIL THE GOVERNMENT'S LOSS OF A
CONSTITUTIONAL REFERENDUM VOTE AND THE SUBSEQUENT
CAMPAIGN FOR THE PARLIAMENTARY ELECTIONS IN THE FIRST
HALF OF 2000. BECAUSE THE GOVERNMENT HAS PROCEEDED
WITH ITS "FAST TRACK" LAND RESETTLEMENT PROGRAM
WITHOUT BENEFIT OF A TRANSPARENT, COHERENT PLAN, AND
IN DEFIANCE OF ORDERS BY THE SUPREME COURT INSTRUCTING
COMPLIANCE WITH THE LAW, INTERNATIONAL AND DONOR
ASSISTANCE FOR LAND REFORM IS NOW SUSPENDED FOR THE
MOST PART. (PAYMENT ARREARS BY ZIMBABWE HAVE ALSO
CAUSED SUSPENSION OF SOME DONOR PROGRAMS.) RECENT
COURT DECISIONS BY AN EXPANDED AND RECONSTITUTED
SUPREME COURT "LEGALIZING" THE LAND RESETTLEMENT
PROCESS HAS NOT CONVINCED THE DONOR COMMUNITY THAT
THEY SHOULD RE-ENGAGE ON THIS ACTIVITY. A COOPERATIVE
PATH FORWARD AT THE TIME OF THIS REPORT IS DIFFICULT
TO DISCERN, AS IS THE OUTCOME AND LONG-TERM IMPACTS OF
UNCLASSIFIED

PAGE 04 HARARE 00081 05 OF 06 091620Z
THE CURRENT, POLITICALLY-DRIVEN PROGRAM.

PRIVATIZATION

THE DONOR COMMUNITY AND THE MULTILATERAL FINANCIAL
INSTITUTIONS AGREE THAT ZIMBABWE'S RECORD ON
PRIVATIZATION HAS BEEN POOR. SUSTAINED PRESSURE BY
THESE OUTSIDE GROUPS HAS BROUGHT FEW RESULTS BECAUSE
THE GOVERNMENT DID NOT HAVE A WELL-DEFINED
PRIVATIZATION PROGRAM TO GOVERN THE PROCESS. THE IMF
HAS MADE PROGRESS ON PRIVATIZATION A CONDITION FOR THE
RENEWAL OF ITS RELATIONSHIP, BUT CONTINUED DELAYS ARE
EXPECTED.

AS PART OF THE ONGOING COMMERCIALIZATION/PRIVATIZATION
PROGRAM, ALL PARASTATALS MUST NOW PAY TAXES AND
DECLARE DIVIDENDS. RECENT GOVERNMENT BUDGETS HAVE ALL
CONTAINED A PROVISION FOR THE RAISING OF SUBSTANTIAL
FUNDS FROM GOVERNMENT ASSET SALES THROUGH
PRIVATIZATION, BUT RESULTS HAVE CONSISTENTLY FALLEN
FAR SHORT AND GIVEN CURRENT ECONOMIC CONDITIONS AND
THE FINANCIAL STATE OF MOST OF THE PARASTATALS IT IS
DIFFICULT TO SEE HOW THIS RECORD WILL BE TURNED
AROUND.

UNCLASSIFIED

UNCLASSIFIED PTQ8465

PAGE 01 HARARE 00081 06 OF 06 091620Z
ACTION AF-00

INFO LOG-00 AID-00 CEA-01 CIAE-00 COME-00 CTME-00 INL-00
DODE-00 ITCE-00 DOTE-00 SRPP-00 EB-00 EXME-00 E-00
FAAE-00 UTED-00 VC-00 FRB-00 H-01 TEDE-00 INR-00
ITC-01 LAB-01 L-00 VCE-00 AC-01 NSAE-00 NSCE-00
OES-01 OMB-01 OPIC-01 CAEX-01 PC-01 ACE-00 SP-00
SSO-00 SS-00 STR-00 TEST-00 TRSE-00 USIE-00 FMP-00
EPAE-00 DRL-02 G-00 NFAT-00 SAS-00 /012W
------------------5555FA 091638Z /38
R 091341Z JAN 02
FM AMEMBASSY HARARE
TO SECSTATE WASHDC 0680
INFO SOUTHERN AFRICAN DEVELOPMENT COMMUNITY

UNCLAS SECTION 06 OF 06 HARARE 000081

SIPDIS

STATE PASS USTR FOR LESLIE YANG/G. BLUE
STATE FOR AF/S, AF/EPS, EB/MTA/STA/M. ENIS

E.O. 12958: N/A

TAGS: ETRD ECON EFIN ZI

SUBJECT: ZIMBABWE 2002 NATIONAL TRADE ESTIMATE REPORT
SUBMISSION

A CENTRAL PROBLEM IN THE PRIVATIZATION EFFORT HAS BEEN
THE ABSENCE OF A SINGLE ORGANIZATIONAL ENTITY WITH
UNCLASSIFIED

PAGE 02 HARARE 00081 06 OF 06 091620Z
OVERALL RESPONSIBILITY FOR THE DESIGN AND
IMPLEMENTATION OF THE PROGRAM, AND THE NEED TO BALANCE
THIS WITH PARTICIPATION OF LOCAL INVESTORS LACKING
CAPITAL. IN 2001 THE GOVERNMENT APPROVED AND SET UP AN
INDEPENDENT UNIT, BASED IN THE PRESIDENT'S OFFICE,
THAT IS CHARGED WITH IDENTIFYING PUBLIC ENTERPRISES TO
BE PRIVATIZED AND EXPEDITING THE SALES PROCESS.
PROGRESS SINCE SETUP HAS, HOWEVER, BEEN DISAPPOINTING.
ZIMBABWE HAS PRIVATIZED SEVERAL OF ITS AGRICULTURAL
MARKETING BOARDS. THE COTTON COMPANY OF ZIMBABWE
(COTTCO), FORMERLY THE COTTON MARKET
ING BOARD) AND
DAIRIBOARD OF ZIMBABWE (FORMERLY THE DAIRY MARKETING
BOARD) WERE PRIVATIZED IN 1997 THROUGH SHARE FLOATS ON
THE HARARE STOCK EXCHANGE. THE ZIMBABWE GOVERNMENT
RETAINED A 25 PERCENT INTEREST IN COTTCO AND A 40
PERCENT INTEREST IN DAIRIBOARD. IN THE LAST QUARTER OF
1999, THE RAINBOW TOURISM GROUP, A PARASTATAL INVOLVED
IN TOURISM WAS PRIVATIZED WITH THE GOVERNMENT
RETAINING A 30 PERCENT EQUITY SHARE. THE GROUP OWNS
SEVERAL HOTELS, THE HARARE INTERNATIONAL CONFERENCE
CENTER, AND A TRANSPORTATION COMPANY.

A STATED GOAL OF PRIVATIZATION IN ZIMBABWE HAS BEEN TO
INCREASE BLACK OWNERSHIP OF THE NATION'S COMMERCIAL
ASSETS. THE NATIONAL INVESTMENT TRUST (NIT) WAS SET UP
TO FACILITATE THE PARTICIPATION OF THE ECONOMICALLY
DISADVANTAGED INDIGENOUS POPULATION IN THE
PRIVATIZATION PROCESS, THOUGH FUNDS BUDGETED FOR THIS
PURPOSE HAVE NEVER BEEN ADEQUATE. AS AN AD HOC
SOLUTION, THE GOVERNMENT FORCED POSTAL WORKERS AND THE
UNCLASSIFIED

PAGE 03 HARARE 00081 06 OF 06 091620Z
NATIONAL SOCIAL SECURITY FUND TO BUY AND HOLD SHARES
ON ITS BEHALF. ON SEVERAL OCCASIONS, CRITICS HAVE
ASSERTED THAT THE IMPLEMENTATION OF THE GOVERNMENT'S
PRIVATIZATION/INDIGENIZATION POLICY HAS BEEN SLOW,
UNEVEN, AND TENDS TO FAVOR GOVERNMENT FRIENDS AND
RULING PARTY ALLIES AT THE EXPENSE OF INDEPENDENT
BLACK ENTREPRENEURS. U.S. FIRMS ALSO HAVE COMPLAINED
ABOUT OFFICIAL ATTEMPTS TO DICTATE THEIR CHOICE OF
LOCAL PARTNERS (AS REQUIRED IN MANY RESERVED SECTORS)
UNDER THE GUISE OF THE GOVERNMENT'S INDIGENIZATION
POLICY.

END TEXT OF NTE 2002 CHAPTER.

3. DRAFTER'S CONTACT DETAILS: MARK PROKOP,
ECON/COMMERCIAL CHIEF
TEL: (263-4) 250-594 OR 5, EXT. 206, EMAIL:
PROKOPMS@STATE.GOV

SULLIVAN

UNCLASSIFIED

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