Cablegate: Heinz's Burdensome Subsidiary

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

220717Z Oct 04

UNCLAS HARARE 001758

SIPDIS

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

SENSITIVE

E. O. 12958: N/A
TAGS: ECON ETRD EINV PGOV ZI
SUBJECT: Heinz's Burdensome Subsidiary

Sensitive but unclassified.

Summary
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1. (SBU) Olivine, Heinz's Zimbabwe subsidiary, is barely
staying afloat, according to its top official. Unable to
freely convert its zimdollar earnings into foreign
exchange for needed imports, the firm is operating at 40
percent capacity. Meanwhile, South African manufacturers
of cooking oil, Olivine's major product in Zimbabwe, are
taking domestic market-share.

Coping with the Forex Auctions
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2. (SBU) Olivine remains an important company in
Zimbabwe, partly due to its position as the largest local
manufacturer of cooking oil. Despite its strong domestic
presence, however, Managing Director Ian McKensie tells
us he now spends hours each day trying to cope with
foreign currency shortages, what he calls "an increasing
workload for less and less product." While he
continually lobbies the Reserve Bank of Zimbabwe (RBZ)
for access to foreign exchange through the auction
system, McKensie complains that RBZ officials regularly
cancel meetings after keeping him waiting for hours.
Recently, Olivine required US$ 1 million worth of crude
oil for its processing machinery. Since the RBZ has told
importers it has too little forex to entertain auction
bids of US$ 1 million, McKensie said Olivine had to
submit bids of US$ 200,000 at a series of successive
auctions spanning six weeks. Although ultimately
unsuccessful in obtaining the needed forex, it took
approximately 12 auctions and countless hours of staff-
time. Each bid meant a new set of documents and research
into the probable exchange rate band on a given day.
Recent bid spreads have been as narrow as half a cent of
a zimdollar (about 1/11,000 of a U.S. cent), making it
extremely difficult for a bidder to win with any
frequency.

3. (SBU) Lately, the Olivine MD has a new headache:
cooking oil from South Africa is selling more cheaply
than his own. Even though RBZ officials assure McKensie
they have not allocated foreign exchange for these
imports, South African cooking oil is nonetheless widely
available in supermarkets.

Comment
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4. (SBU) Despite the firm's woes, Olivine is fortunate to
even qualify for limited amounts of foreign exchange at
RBZ auctions. The RBZ currently sells forex at a 42
percent discount to the parallel market rate (Z$5600
versus 8000:US$). But even with this exchange rate
advantage over foreign producers (whose products almost
always enter the country at the parallel rate), Olivine
cannot overcome Zimbabwe's burgeoning costs and
inefficiencies, including: a) intrusive RBZ oversight,
b) wages for skilled tradesmen approaching those in South
Africa, c) more expensive and irregular fuel and
electricity supplies than elsewhere in the region, and d)
diminishing domestic production inputs (e.g., Zimbabwe's
sunflower crop, the most common source of local cooking
oil, has dropped from 160,000 to 60,000 tons since the
Government began expropriating commercial farms for
redistribution). It is a daunting business climate for
local producers, but an opportunity for foreign producers
to gain market-share in Zimbabwe.

Dell

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