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Cablegate: Zim's Indigenization Bill - a Damaging but Most Likely

VZCZCXRO8891
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSB #0215/01 0790821
ZNR UUUUU ZZH
R 190821Z MAR 08
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC 2603
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHUJA/AMEMBASSY ABUJA 1879
RUEHAR/AMEMBASSY ACCRA 1822
RUEHDS/AMEMBASSY ADDIS ABABA 1946
RUEHRL/AMEMBASSY BERLIN 0525
RUEHBY/AMEMBASSY CANBERRA 1223
RUEHDK/AMEMBASSY DAKAR 1580
RUEHKM/AMEMBASSY KAMPALA 2002
RUEHNR/AMEMBASSY NAIROBI 4433
RHEHAAA/NSC WASHDC
RHMFISS/EUCOM POLAD VAIHINGEN GE
RUEHGV/USMISSION GENEVA 1073
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHDC

UNCLAS SECTION 01 OF 02 HARARE 000215

SIPDIS

AF/S FOR S.HILL
ADDIS ABABA FOR USAU
ADDIS ABABA FOR ACSS
NSC FOR SENIOR AFRICA DIRECTOR B.PITTMAN
TREASURY FOR J.RALYEA AND T.RAND
STATE PASS TO USAID FOR L.DOBBINS AND E.LOKEN
COMMERCE FOR BECKY ERKUL

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: PGOV ECON ASEC ZI
SUBJECT: ZIM'S INDIGENIZATION BILL - A DAMAGING BUT MOST LIKELY
IDLE THREAT

REF: Harare 0598

-------
SUMMARY
-------

1. (SBU) The announcement that President Mugabe had signed the
Indigenization and Economic Empowerment Act and its official
publication on March 7 rocked the business community in Zimbabwe.
Many businessmen had breathed a sigh of relief believing the Bill
had been allowed to expire, unsigned, when parliament was dissolved
in February; however, it now appears that Mugabe had signed the Bill
before Parliament was dissolved and was holding back the
announcement to use it as a vote getter during the elections. Some
international companies have said privately that they will shut down
their Zimbabwe operations rather than turn their brand over to
foreign ownership, reducing already meagre foreign investment.
Mugabe, however, will most likely allow the Bill to sit on the books
unimplemented as a threat to business and potential carrot for
ruling-party cronies. END SUMMARY.

-------------------------------
Indigenization Bill Still Alive
-------------------------------

2. (SBU) The announcement on March 7 that President Mugabe had
signed the Indigenization and Economic Empowerment Act (the
Indigenization Bill) (reftel) came as a surprise to many who thought
it had died a procedural death when parliament was dissolved in
February 2008. (NOTE: Parliament had passed the Bill on October 2,
2007. END NOTE.) At a business lunch hosted by the Ambassador on
March 11, Callisto Jokonya, President of the Confederation of
Zimbabwe Industries (CZI), said that according to his sources,
Mugabe had signed the Bill in late 2007 and held back announcement
until now.

3. (SBU) Indigenisation and Empowerment Minister Paul Mangwana gave
details on the Bill at a press conference on March 11, explaining
government will set a time frame for the sale of the 51 percent
non-indigenous shareholding, and indigenous (defined as anyone who
suffered racial discrimination before Zimbabwe's independence in
1980) investors will buy the shares after negotiations with the
foreign-owned firms. The government would not be involved in
determining who could buy shares or the price of the shares.
Mangwana said "This is going to be a partnership...between the
private company and potential investors. Companies will be given an
opportunity to identify the indigenous investor to partner with in
the business. Government will not dictate which companies should
acquire the shares as this would be purely business transactions."

-------------------
But Not Yet Walking
-------------------

4. (SBU) Israel Chilimanzi, legislative program advisor at the
Center for International Development, which is funded by State
University of New York Zimbabwe (SUNY), also said that the
Indigenization Bill might never take effect as it requires a
statutory instrument from Minister Mangwana to be implemented.
Chilimanzi cited an audit Bill that was drafted and signed in 1997
and also required a statutory instrument to implement it. The
instrument was only passed ten years later. He suggested that
Mugabe and Mangwana could sit on the Indigenization Bill
indefinitely without enacting it.

5. (SBU) If the Indigenization Bill is enacted its implementation
could bog down in negotiations over the share price. The companies

HARARE 00000215 002 OF 002


would first have to be valued before the price of 51 percent of the
shares could be negotiated, which could delay any sale
significantly, according to Phillip Chigumira, the CEO of the Cairns
Holding Group. The composition of the 51 percent shareholding also
would have to be negotiated, which could further delay any
takeover.

----------------------------------
Nonetheless, Investors Are NervoQ
----------------------------------

6. (SBU) Subsidiaries of foreign-owned companies in Zimbabwe are
clearly worried about the Bill, and many U.S. companies have
contacted the Embassy with questions about its status and
implications. At the Ambassador's March 11 lunch, Old Mutual Life
Assurance Company Zimbabwe Ltd CEO Luke Ngwerume said that Old
Mutual would close its Zimbabwe arm before it allowed someone else
to control the company's operations and brand. The CEOs of Murray
and Roberts, a South African construction company; Metallon Gold
Zimbabwe, a black-South African owned mining company; and the Cairns
Group agreed. Metallon CEO Collen Gura also noted his company only
banks with the three foreign-owned banks in Zimbabwe: Standard
Chartered, Stanbic and Barclays. If the foreign-owned banks closed
their Zimbabwe operations rather than sell 51 percent of their
shareholding, it would significantly weaken the banking sector and
likely reduce liquidity in Zimbabwe's already strapped economy.
John Laurie, a Director of Standard Chartered Bank, told us in
addition that the Indigenization Bill could wipe out the remaining
assets of white Zimbabweans because they held many of their private
assets, including farms, as companies.

-------
COMMENT
-------

7. (SBU) The timing of the announcement that Mugabe had signed the
Indigenization Bill certainly suggests it is being used as an
election gimmick; however, it is unclear how effective it will be.
Past experience with fast-track land reform has shown most
Zimbabweans that these so-called redistribution measures have failed
to enrich them. Thus, it seems likely that Mugabe is using the Bill
to scare businesses into supporting him or risk being targeted for
indigenization, and probably also as a carrot to buy the loyalty of
ruling party insiders who might be leaning toward supporting rival
presidential candidate Simba Makoni. These insiders have already
benefited from government patronage, so their experience tells them
it works; they could see in the Indigenization Bill an opportunity
to enrich themselves further. Given the limited success indigenous
Zimbabweans will probably have in actually acquiring 51 percent of
any foreign-owned company, however, we think the Bill is more of an
idle threat and promise than reality. In the meantime, the
uncertainty over its implementation will deter much needed corporate
investment and tilt the scales toward more international companies
exiting Zimbabwe. END COMMENT.

MCGEE

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