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Cablegate: Bfif-Funded Forum Stimulates Public Debate On

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PP RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSB #0838/01 2611033
ZNR UUUUU ZZH
P 171033Z SEP 08
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC PRIORITY 3442
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHUJA/AMEMBASSY ABUJA 2075
RUEHAR/AMEMBASSY ACCRA 2295
RUEHDS/AMEMBASSY ADDIS ABABA 2414
RUEHBY/AMEMBASSY CANBERRA 1691
RUEHDK/AMEMBASSY DAKAR 2047
RUEHKM/AMEMBASSY KAMPALA 2468
RUEHNR/AMEMBASSY NAIROBI 4900
RUEAIIA/CIA WASHDC
RUEHGV/USMISSION GENEVA 1563
RHEHAAA/NSC WASHDC
RHMFISS/JOINT STAFF WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEFDIA/DIA WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RUZEHAA/CDR USEUCOM INTEL VAIHINGEN GE

UNCLAS SECTION 01 OF 04 HARARE 000838

SENSITIVE
SIPDIS

AF/S FOR G. GARLAND
AF/EPS FOR ANN BREITER
EEB/CBA FOR DENNIS WINSTEAD
NSC FOR SENIOR AFRICA DIRECTOR B. PITTMAN
STATE PASS TO USAID FOR L.DOBBINS AND E.LOKEN
TREASURY FOR J. RALYEA AND T.RAND
COMMERCE FOR BECKY ERKUL
ADDIS ABABA FOR USAU
ADDIS ABABA FOR ACSS

E.O. 12958: N/A
TAGS: ECON EFIN ETRD PGOV ZI
SUBJECT: BFIF-FUNDED FORUM STIMULATES PUBLIC DEBATE ON

REFORM IN ZIMBABWE

REF: A. HARARE 0777
B. HARARE 0034

1. (U) This is an action request. See para 12.

-------
Summary
-------

2. (U) On August 21, the American Business Association of
Zimbabwe (ABAZ), supported by the State Department's Business
Facilitation and Incentive Fund (BFIF) and by local
companies, held an economic forum on tackling hyperinflation,
stabilizing economies, and trade and investment challenges
and opportunities in Zimbabwe. Distinguished economists
offered their advice to 285 delegates on sustainable
recovery. They also dwelled on the challenge of dealing with
special interest groups. Representatives of the USAID-funded
Trade Hub in Gaborone, Botswana described the benefits that
neighboring countries had reaped from AGOA eligibility. The
CEO of Lonzim described Zimbabwe's investment opportunities
and challenges, and two speakers addressed both the crisis
and the potential of Zimbabwe's minerals sector. In later
well-attended breakaway sessions, lively discussion ensued on
the path forward for Zimbabwe. Press coverage of the forum
was broad and of high quality, including in the
government-owned daily newspaper. The funding provided by
BFIF and 21 companies in Zimbabwe's challenging
hyperinflationary came slightly short of cost; ABAZ has
requested additional BFIF funding to cover the loss. End
Summary.

--------------------------------------
Lessons in Macroeconomic Stabilization
--------------------------------------

3. (U) On August 21, the American Business Association of
Zimbabwe, supported generously by the State Department,s
Business Facilitation and Incentive Fund (BFIF) and
sponsorship by a record 21 Zimbabwean companies, held a
one-day economic forum, "Zimbabwe*Beyond Tomorrow." Under
the theme "Just Business," newly appointed non-executive
mayor of Harare Muchadeyi Masunda moderated the event,
attended by 285 delegates including numerous CEOs, managing
directors, and finance directors of major Zimbabwean
businesses and financial institutions. Speakers described
international experience in taming hyperinflation and in
stabilizing economies, and offered advice for Zimbabwe. The
forum also addressed trade in the region and the challenges
and benefits of investing in Zimbabwe, with a focus on the
minerals industry. In breakaway sessions the next day,
speakers led four well-attended and lively discussions on the
same areas.

4. (U) Keynote speaker World Bank Senior Economist John
Panzer (Ref A) emphasized that the success of economic
stabilization and the speed of recovery would depend on
Zimbabwe's commitment to policy reform and the consistency of
reform implementation. Brazilian economist Caio Megale,
returning to Harare after having addressed the first "Just
Business" forum in 2006, provided lessons from South America
in "Taming the Monster" (inflation). He emphasized the

HARARE 00000838 002 OF 004


importance of consolidating democratic institutions and
accepting the rule of law, and the imperative of central bank
independence. The central bank should operate with autonomy,
accountability, and transparency, and with a single mandate:
to achieve price stability. He related the Latin American
experience with currency boards and fixed exchange rates, and
the negative consequences of high unemployment and high real
interest rates when the exchange rate was not allowed to
float freely after stabilization. Citing examples from Latin
America, he cautioned against the rise of populism, and
underlined the ongoing challenges of addressing social
distress and income inequality once an economy had stabilized.

5. (U) University of Zimbabwe Economics Professor Robert
Davies zeroed in on hyperinflation in Zimbabwe. As the two
previous economists had also done, he drew on concepts in
political economy and the power of special interest groups in
answering the question why, with well known tools to solve
hyperinflation, the GOZ had not yet reduced monetary growth.
He concluded that the state elite was benefiting from the
explosive rate of money supply growth. In his view,
"schemes" to offset the effects of hyperinflation provided
further incentives to corruption. Furthermore, price and
foreign exchange controls had intensified shortages and had
caused overvaluation of the currency. The sine qua non of
economic stabilization was to stop printing money, but the
political reasons for which the explosive rate of money
creation had occurred in the first place had to be addressed.
In conclusion, he warned of interest rate shocks during the
stabilization phase, local firms' vulnerability to takeover
as capital flowed into the country, and the likely lag in
output response behind demand.

6. (U) Amanda Hilligas and Maxine Kennett representing the
USAID-funded Southern Africa Global Competitiveness Hub
(Trade Hub) in Gaborone, Botswana described the work of the
Trade Hub in creating a trade and investment enabling
environment and in promoting competitiveness in the private
sector. They noted the eligibility requirements for AGOA and
the positive trends in exports from Africa to the U.S.
(Note: Zimbabwe is not AGOA-eligible. End Note) The
co-presenters illustrated case studies on successful
furniture, textile and apparel exports, and described their
work in the region in the area of modern energy services and
in transportation. They concluded their presentation with a
short film on the Hub's support of a key transport initiative
that promotes regional corridors in southern Africa.

------------------------------------------
Time to Jump in? ) A Major Investor's View
------------------------------------------

7. (U) Geoff Goss, CEO of LonZim, which raised US$65 million
on the London AIM in December 2007 for investment in
Zimbabwe, explained what opportunities LonZim saw in
Zimbabwe. LonZim aimed to build a low-cost diversified
portfolio of strategic investments in sectors with potential
for rapid recovery. He pointed out the undervaluation of
companies listed on the Zimbabwe Stock Exchange (the ZSE is
trading at only 10 percent of its 1997 market
capitalization), and Zimbabwe's other notable assets: tourism
destinations; mineral resources; a large diaspora "itching"

HARARE 00000838 003 OF 004


to return with skills, money, and ideas; a population under
serviced in telecoms, utilities, and transport; a hardworking
labor force; a functioning banking system; a tired but still
serviceable infrastructure. He admitted Zimbabwe was a
minefield in which to operate, but predicted that economic
and political change was "only a matter of time," and now was
the time to invest. He advised Zimbabwean companies to
prepare for competition by making capital investments now and
expanding their market share. He suggested they seek
partners for working capital and capital investment. In
closing he said LonZim did not fear indigenization of
business in Zimbabwe, as long as it emphasized empowerment
over endowment.

------------------------------------
Minerals Sector Challenges/Potential
------------------------------------

8. (U) Collen Gura, CEO of Zimbabwe's largest (South
African-owned) gold company, enumerated the constraints and
opportunities in the golds sector. Historically underpinned
by small-scale mining operations, gold production dropped
from 27 MT in 1999 to 7 MT in 2007. Gura forecast production
of 4.5 MT this year. Vexing the industry were: the
overvalued exchange rate, nonpayment of gold deliveries,
power outages, shortages of spares, inputs, foreign currency
and food for the labor force, the skills exodus, and low
investor confidence. Exploration had become a luxury, yet it
determined the industry's future. For the sector to recover,
Gura called for payment of the market price for gold upon
delivery, tax incentives for new gold mining projects, and
replication of the platinum model (off-shore based) for gold.
He concluded that, under the right policies, gold could
drive economic growth, increase export earnings, provide
abundant jobs, increase tax revenue, and create many new
businesses downstream in Zimbabwe.

9. (U) Dolf Prinsloo, Chief Operating Officer of Deloitte
Mining Consultancy and Advisory Services in Johannesburg,
South Africa, closed the day with an overview of mining in
Zimbabwe and a SWOT (strengths, weaknesses, opportunities,
and threats) analysis of the industry. He emphasized the
need for foreign direct investment in the sector to take
advantage of high minerals prices and high demand, especially
from China. He concluded it was "now or never" for the
mining industry to play a major role in Zimbabwe's recovery
and sustainable growth.

------------------------------------
Workshops Generate Lively Discussion
------------------------------------

10. (U) On the morning of August 22, ABAZ held four
participatory workshops in focus areas of the forum. Panzer,
Megale and Davies were joined by 70 delegates in a
particularly lively discussion about the way forward for
Zimbabwe's economy. Panzer commented to econoff that he was
especially impressed with the quality of discussion and the
delegates, boldness in asserting their views during the
two-hour session. Hilligas and Kennett led a workshop
attended by 25 delegates on the Trade Hub's work in the
textile and apparel industry, and a second session attended

HARARE 00000838 004 OF 004


by 40 delegates on its work promoting exports from southern
Africa to the U.S. specialty food sector. Prinsloo,
accompanied by Zimbabwe Chamber of Mines President David
Murangari focused on Zimbabwe's mining industry.

--------------------------------------------
Favorable Press Coverage, Even by Government
--------------------------------------------

11. (U) The breadth and quality of press coverage of the
forum was exceptionally good this year, which was especially
welcome as ruling party politicians failed to attend, despite
the offer of complimentary tickets from ABAZ. Notably, the
government mouthpiece The Herald covered the event in a fair
and evenhanded manner, quoting the speakers extensively in
three separate articles over the course of several days after
the forum. The weekly The Standard ran a supplement on the
forum and the weeklies The Financial Gazette and The Zimbabwe
Independent, as well as various electronic news services,
reported accurately and in-depth on the event. ABAZ will
distribute the proceedings of the event to delegates in the
next days.

--------------------------------------
Challenging to Finance; Action Request
--------------------------------------

12. (SBU) In Zimbabwe's daunting hyperinflationary business
environment, six of the 21 sponsoring companies provided
sponsorship in kind (accommodation for speakers, website
hosting, fuel coupons which were then bartered for services,
etc.), six companies provided US dollar funding, and nine
companies sponsored in rapidly depreciating local currency.
(Note: Private sector estimates of the annual rate of
inflation have reached billions of percent. End note)
Supported also by US$7,000 in BFIF funding, the event closed
US$3,200 in the red. The shortfall arose primarily because
numerous expenses were no longer payable in local currency in
Zimbabwe's increasingly dollarized economy. The ABAZ
executive committee has asked the Embassy to submit a request
to meet the shortfall with additional funding from this
year's or next fiscal year's BFIF. Post supports the request
and asks EEB/CBA to provide the funding, if possible.

-------
Comment
-------

13. (SBU) The annual ABAZ Just Business forum once again
catalyzed public discussion on economic reform. This year,
delegates were more emboldened than ever to speak out
publicly for far-reaching reforms and an end to the
privileges of special interest groups. In this regard, the
forum plays a useful role in broadening dialog among civil
society members in Zimbabwe and merits USG financial support.

MCGEE

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