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Cablegate: Goodbye, Exporters: Colgate-Palmolive's Case

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

UNCLAS HARARE 000703

SIPDIS

SENSITIVE

STATE FOR AF/S
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER
USDOC FOR AMANDA HILLIGAS
TREASURY FOR OREN WYCHE-SHAW
PASS USTR FLORIZELLE LISER
STATE PASS USAID FOR MARJORIE COPSON

E. O. 12958: N/A
TAGS: ETRD ECON EINV PGOV ZI
SUBJECT: Goodbye, Exporters: Colgate-Palmolive's Case

Ref: a) Harare 141 b) Harare 256 c) Harare 456

1. (SBU) Summary: Colgate-Palmolive's relocation of
productive facilities from Zimbabwe to South Africa bears
witness to this Government's export-unfriendly policies.
End Summary.

Zimbabwe's Loss - South Africa's Gain
-------------------------------------
2. (SBU) We have reported frequently (refs) on the GOZ's
demolition of exporters through overtaxing, overvaluing
the zimdollar and overcharging for services such as
electricity. Colgate-Palmolive's case is illustrative.
Over the past three years, the consumer products firm has
gradually shifted its Zimbabwean manufacturing capacity
to South Africa.

3. (SBU) The company's local managing director recently
recounted how frustrating the process of becoming
strictly an importer has been. For instance, Colgate-
Palmolive used to export toothpaste produced in Zimbabwe
to Malawi, taking advantage of a duty-free arrangement.
Eventually, however, the multinational calculated that
this privilege did not compensate for Zimbabwe's many
obstacles:

- exchange 25 percent of forex revenue with the GOZ at a
negligible rate
- contend with a perpetually overvalued zimdollar
- pay - on a regional standard - double for electricity
- get around logistics nightmares (erratic railway
service, fuel/banknote shortages, etc)
- absorb a high political risk factor.

It became cheaper to export toothpaste from South Africa
to Malawi, even with a strong rand, higher salaries and a
25 percent duty requirement.

Comment
-------
4. (SBU) On a regional or global scale, GOZ policy has
rendered domestic producers uncompetitive. Miners, for
example, tell us they are digging deep for platinum in
South Africa that they could extract near the surface in
Zimbabwe - if only export conditions here made it
worthwhile. By squandering resources to prop up the
zimdollar, the GOZ is indirectly subsidizing foreign
producers that sell in Zimbabwe while punishing its own
manufacturers - i.e., what's left of them. Given that
the zimdollar has already collapsed from Z$17:US$ since
1998, it's hard to explain GOZ vigilance to hold the
exchange at about an overvalued Z$5,000:US$ rather than,
say, Z$8,000-12,000:US$. But that's Zimbabwe.

Sullivan

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