Cablegate: Bulawayo's Sullen Industrialists

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

UNCLAS SECTION 01 OF 02 HARARE 002822

SIPDIS

STATE FOR AF/S
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER
USDOC FOR 2037 DIEMOND
PASS USTR ROSA WHITAKER
TREASURY FOR ED BARBER AND C WILKINSON
DEPARTMENT PASS USAID FOR MARJORIE COPSON

E. 0. 12958: N/A
TAGS: ECON EFIN ETRD ZI
SUBJECT: Bulawayo's Sullen Industrialists

1. Summary: Exasperated by employee flight to
neighboring countries and an ever more intrusive
bureaucracy, firms in Zimbabwe's second largest city
say they will not survive if the GOZ implements its
2003 budget. End Summary.

Workers, firms exiting Zimbabwe
-------------------------------
2. Econchief recently descended upon industrial
center Bulawayo to visit firms that either import
from or export to the U.S. The impression we return
with is not encouraging. The three apparel
producers we met with are moving, respectively, to
South Africa, the black market and despair. The .
first told us he is unable to maintain his machinery
due to the high cost of foreign exchange and will
restart his plant in South Africa. The second, a
hunting/safari clothes exporter to the U.S., said he
is surviving but only because he lets politically-
connected indigenous rather than international banks
handle his accounts. "I don't know how they do it
and I don't ask," he said.

3. The third, a supplier to Eddie Bauer in the U.S.,
admitted he is also looking for greener pastures
outside Zimbabwe but is reluctant because the family
business has been a Bulawayo fixture since 1957.
However, he is losing 3 trained workers per day,
mostly to competitors in Botswana, an annual
attrition rate over 100 percent. The GOZ has
nullified any benefits he can use to attract and
retain staff, by a) raiding the once well-heeled
Clothing Industry Pension Pund and b) preventing him
from spending foreign exchange earnings on bicycles
and maize meal for his employees. (Explanatory
note: The new 2003 budget compels exporters to
surrender half their export earnings to the Reserve
Bank, ostensibly for official exchange but in
practice as an indirect tax. To spend the remaining
half their earnings, firms must convince the Reserve
Bank that purchases are for "priority" items. In
spite of Zimbabwe's transport and food problems, the
Reserve Bank turned down the firm's request to buy
bicycles or maize meal for employees.) The owner
feels he can no longer overcome these obstacles, not
to mention less favorable tariffs stemming from
Zimbabwe's failure to qualify for the African Growth
and Opportunity Act (AGOA).

Climate of despair
------------------
4. The head of Bulawayo's Zimbabwe Investment Center
said he now gets so few inquiries from foreign
investors that he has trouble justifying his
office's existence. The local Confederation of
Industries president said many companies are
considering shutting their doors beyond the
Christmas break while they wait (read: pray) for
more workable policies. His own cement company
lacks foreign exchange to keep its expensive
Caterpillar machines running. (Further explanatory
note: Since the cement firm does not export, it has
no Foreign Currency Account. Meanwhile, the 2003
budget makes it illegal to buy foreign currency at
parallel rates from bureaux de change.) The
National Railway of Zimbabwe, which Bulawayo
producers depend on for freight transport, is down
to just 9 working locomotives.

Comment
-------
5. Our visit to Bulawayo confirms that the GOZ's
management of foreign exchange in- and outflows will
make-or-break companies, industries or even the
economy. The forex-starved GOZ is not letting an
apparel company import bicycles or maize meal for
workers, or coffee and cotton producers b
uy
herbicides and pesticides, hardly the stuff of
frivolous extravagance. Some White- and Asian-owned
businesses fear the GOZ will only approve forex
expenses of Black-owned firms, turning Foreign
Currency Accounts into a vehicle for indigenization
of the economy. Whether true or not, the GOZ will
surely run exporters out of businesses by refusing
them access to even half their earnings.

Sullivan

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