ZIMBABWE'S PRIVATE SECTOR INITIATIVE; A

C O N F I D E N T I A L SECTION 01 OF 02 HARARE 000743 SIPDIS DEPT FOR AF/EPS, AF/S, EB/IFD/ODF USDOC FOR 2037/ERIC HENDERSON TREASURY FOR ED BARBER, BARAK HOFFMAN NSC FOR SENIOR AFRICA DIRECTOR JFRAZER LONDON FOR CGURNEY PARIS FOR BISA WILLIAMS DEPT PASS USTR FOR ROSA WHITAKER ¶E. O. 12958: DECL: 02/13/06 TAGS: ECON EAGR EAID PGOV PREL ZI SUBJECT: ZIMBABWE'S PRIVATE SECTOR INITIATIVE; A COMPLIMENTARY LAND RESETTLEMENT PLAN CONFIDENTIAL PAGE 02 HARARE 00743 01 OF 02 131436Z CLASSIFIED BY CHARGE D' AFFAIRES EARL IRVING FOR REASONS 1.5 (B/D) ¶1. (C) SUMMARY: THE PRIVATE SECTOR INITIATIVE (PSI) IS AN ALTERNATE LAND ACQUISITION, RESETTLEMENT AND DEVELOPMENT PLAN THAT IS BEING QUIETLY PROMOTED AS A COMPLEMENTARY APPROACH TO THE GOZ'S "FAST TRACK" PROGRAM. IT CALLS FOR THE CREATION OF AN AGRICULTURAL CREDIT GUARANTEE BANK FUNDED BY COMMERCIAL BANKS, THE GOZ AND DONOR COUNTRIES. ITS AIM IS TO PURCHASE COMMERCIAL FARMS FROM WILLING SELLERS AT MARKET RATES (THE PROGRAM TARGET IS 200 FARMS), TO PAY FOR BOTH THE LAND AND IMPROVEMENTS, AND TO RESETTLE THE LAND WITH ABLE AND QUALIFIED INDIGENOUS FARMERS WHO WILL PURSUE COMMERCIAL AGRICULTURE ON A SMALL OR MEDIUM SCALE. IT IS IMPORTANT TO NOTE THAT THE NEW OWNERS WOULD GET A TRANSFERABLE OWNERSHIP OR LEASEHOLD INTEREST IN THE PROPERTY ALONG WITH SUBSIDIZED FINANCING (A 20 YEAR, 15 PERCENT FIXED MORTGAGE),AND WOULD HAVE TO PRODUCE AND MARKET A SALEABLE CROP. THE TOTAL SIZE OF THE PROGRAM IN FINANCIAL TERMS IS ABOUT U.S. $40 MILLION DOLLARS (OR Z $2.25 BILLION) SPLIT AS FOLLOWS: U.S. $2 MILLION EQUIVALENT FROM LOCAL FINANCIAL INSTITUTIONS; U.S. $11 MILLION FROM A LONG-TERM GOZ BOND ISSUE; U.S. $7.3 MILLION FROM DONORS TO PAY FOR THE LAND (PERHAPS THE BRITISH?); AND ADDITIONAL DONOR CONTRIBUTIONS TOTALLING U.S. $21 MILLION. WHILE THE PLAN IS WORTHWHILE AND BASED ON FREE-MARKET PRINCIPLES AND GEARED TO SUCCESSFUL LONG-TERM DEVELOPMENT, IT FACES NUMEROUS OBSTACLES, BOTH POLITICAL AND FINANCIAL. FOR EXAMPLE: THE RULING PARTY NEEDS TO REORIENT ITS SUPPORT FROM SOCIALIST TO FREE-MARKET PRINCIPLES; THE DONORS HAVE CONFIDENTIAL PAGE 03 HARARE 00743 01 OF 02 131436Z TO COME ON BOARD IN A VERY BIG WAY; AND A DIVERSE GROUP OF STAKEHOLDERS NEEDS TO ADMINISTER THE PROGRAM WITH A FREE HAND AND WITHOUT GOZ INTERFERENCE AND CORRUPTION. IN THE CURRENT AND FORESEEABLE NEAR TERM ENVIRONMENT, THE ODDS OF SUCH A CONFLUENCE ARE, IN OUR OPINION, QUITE SMALL. END SUMMARY. �0A; -------------- WHO IS BEHIND THE INITIATIVE -------------- ¶2. (C) THE INITIATIVE WAS CONCEIVED AND IS BEING PROMOTED BY A COMMERCIAL BANKER (GREG BRACKENRIDGE, MANAGING DIRECTOR, STANBIC BANK ZIMBABWE) AND A COMMERCIAL FARMER (NICK SWANEPOEL, THE PRIOR COMMERCIAL FARMERS UNION (CFU) PRESIDENT WHO HAS BEEN DEEPLY INVOLVED IN THE LAND ISSUE SINCE BEFORE THE SEPTEMBER 1998 DONOR'S LAND CONFERENCE). IT AIMS TO PURCHASE AND RESETTLE A RELATIVELY SMALL AMOUNT OF LAND (200 FARMS V.S. THE GOVERNMENT'S CURRENT GOAL OF 3,000, OR ABOUT 350,000 HECTARES V.S. THE GOZ GOAL OF 5 MILLION) USING A SUBSIDIZED, COMMERCIALLY-DRIVEN FINANCE STRUCTURE. THE PROGRAM INTENDS TO UTILIZE EXISTING AGRICULTURAL DEVELOPMENT AND SUPPORT TECHNIQUES THAT THE CFU HAS ALREADY SUCCESSFULLY APPLIED IN ITS OWN SMALL PROGRAMS AIMED AT HELPING INDIGENOUS FARMERS WORK THE LAND ON A COMMERCIAL BASIS (SUCH AS THE FARMER'S DEVELOPMENT TRUST). ¶3. (C) THE PROGRAM GOES AGAINST THE GOVERNMENT'S GRAIN IN THAT IT GIVES TITLE TO THE RESETTLED FARMERS (AND IN TURN GREATER POLITICAL AND ECONOMIC INDEPENDENCE),APPLIES THE CONFIDENTIAL PAGE 04 HARARE 00743 01 OF 02 131436Z SAME STANDARDS AND RULES TO ALL (I.E. THAT OF THE MARKETPLACE),REQUIRES PAYMENT FOR THE LAND BY THOSE WHO ACQUIRE IT, AND DEMANDS PERFORMANCE, RESULTS AND ACCOUNTABILITY OF THE NEW OCCUPANTS, WITH BANKRUPTCY AS THE ALTERNATIVE. IN ESSENCE, IT ROLLS OUT ON A SMALL SCALE WHAT THE WHITE, ZIMBABWEAN COMMERCIAL FARMERS DO NOW. GIVEN THE GOVERNMENT'S USE OF THE LAND ISSUE TO ACHIEVE ITS POLITICAL AND POWER RETENTION GOALS, WE BELIEVE IT WILL BE DIFFICULT TO GET THE GOZ BACKING NEEDED FOR THE INITIATIVE TO BE SUCCESSFUL. -------------- THE STRUCTURE AND OBJECTIVES -------------- ¶4. (SBU) THE PSI WOULD ESTABLISH AN INDEPENDENT AGRICULTURAL CREDIT-GUARANTEE AGENCY, SIMILAR TO OUR EX-IM BANK, THAT WOULD PROVIDE SUBSIDIZED FINANCING FOR LAND PURCHASES AND CREDIT BACKING TO THE COMMERCIAL BANKING SECTOR FOR ONGOING FARM FINANCING AND DEVELOPMENT. ITS INITIAL BUDGET OF ZIM $2.25 BILLION (ABOUT U.S. $40 MILLION) WOULD BE ABOUT TWO-THIRDS FINANCED OR PROVIDED BY CONFIDENTIAL CONFIDENTIAL PTQ0618 PAGE 01 HARARE 00743 02 OF 02 131436Z ACTION AF-00 INFO LOG-00 NP-00 AGRE-00 AID-00 ACQ-00 CIAE-00 DODE-00 DOTE-00 SRPP-00 DS-00 EB-00 FAAE-00 VC-00 TEDE-00 INR-00 L-00 VCE-00 DCP-01 NSAE-00 STR-00 DSCC-00 DRL-02 NFAT-00 SAS-00 /003W -------------- C513C1 131450Z /38 R 131427Z FEB 01 FM AMEMBASSY HARARE TO SECSTATE WASHDC 8224 INFO USDOC WASHDC DEPTTREAS WASHDC NSC WASHDC SOUTHERN AFRICAN DEVELOPMENT COMMUNITY C O N F I D E N T I A L SECTION 02 OF 02 HARARE 000743 SIPDIS DEPT FOR AF/EPS, AF/S, EB/IFD/ODF USDOC FOR 2037/ERIC HENDERSON TREASURY FOR ED BARBER, BARAK HOFFMAN NSC FOR SENIOR AFRICA DIRECTOR JFRAZER LONDON FOR CGURNEY PARIS FOR BISA WILLIAMS DEPT PASS USTR FOR ROSA WHITAKER ¶E. O. 12958: DECL: 02/13/06 TAGS: ECON EAGR EAID PGOV PREL ZI SUBJECT: ZIMBABWE'S PRIVATE SECTOR INITIATIVE; A COMPLIMENTARY LAND RESETTLEMENT PLAN CONFIDENTIAL PAGE 02 HARARE 00743 02 OF 02 131436Z THE DONOR COMMUNITY. THE GOZ WOULD FLOAT A BOND (RAISING U.S. $11 MILLION EQUIVALENT) AND PROVIDE AN OVERALL CREDIT GUARANTEE TO THE CREDIT AGENCY. THE DONORS, IN ADDITION TO FUNDING, WOULD PROVIDE EXPERTISE AND SOME DEGREE OF STAFFING SUPPORT. (EMBASSY COMMENT: THE WORTH OF A ZIMBABWEAN GOVERNMENT GUARANTEE THESE DAYS IS, AT BEST, QUESTIONABLE. OTHERS HAVE POINTED OUT THAT THE GUARANTEE INSULATES THE PRIVATE FINANCIAL SECTOR FROM ANY POTENTIAL LOSSES, PROVIDING IT CAN BE DRAWN ON AND, THEREFORE, MAKES THIS AN ALL GAIN-NO PAIN EXERCISE FOR THE BANKERS. END COMMENT.) ¶5. (SBU) THE OBJECTIVES, IN GENERAL TERMS, ARE TO ENSURE THAT AT A LEAST A PORTION OF THE CURRENT LAND RESETTLEMENT EXERCISE IS CONDUCTED ALONG CAPITALIST, FREE-MARKET PRINCIPLES, AND PROPERTY RIGHTS, INDIVIDUAL EMPOWERMENT AND RESPONSIBILITY, AND PROFIT AND LOSS FROM AGRICULTURAL OPERATIONS ALL APPLY. THE INITIATIVES BACKER'S STATED GOALS ARE: = TO PROVIDE AND EFFICIENT CONDUIT FOR FUNDING LAND RESETTLEMENT AND DEVELOPMENT; = TO FUND THE RESETTLEMENT PROGRAMS IN AN EFFECTIVE, FISCALLY SOUND AND MACRO-ECONOMICALLY STABILIZING MANNER; = TO ENCOURAGE AND PROMOTE GOVERNMENT AND PRIVATE SECTOR SCHEMES IN ASSOCIATION WITH THE RESOURCES OF MULTILATERAL, BILATERAL AND NGO ORGANIZATIONS; = TO SUPPORT AGRICULTURAL RESETTLEMENT AND DEVELOPMENT AND PROVIDE A REAL ECONOMIC RETURN TO THE INVESTMENT. CONFIDENTIAL PAGE 03 HARARE 00743 02 OF 02 131436Z -------------- COMMENT -------------- ¶6. (C) IN THE CURRENT POLITICALLY-DRIVEN LAND-ISSUE ENVIRONMENT, WHERE DARK FORCES AND BEHIND-THE-SCENES MANEUVERINGS AND DEALS ARE COMMONPLACE, THE INITIATIVE IS AN ANOMALOUS ORPHAN. ALTHOUGH MANY OF THE CFU'S MEMBERSHIP ARE STRONGLY AGAINST ANY NEGOTIATIONS WITH THE GOVERNMENT ON THE LAND ISSUE, A FORMER CFU PRESIDENT IS PROMOTING IT. THE OFFICIAL LINE ON THE GOVERNMENT SIDE, TOO, IS THAT NEGOTIATING WITH THE WHITE FARMERS IS TABOO. THEREFORE, ANY REAL MOVEMENT ON THE INITIATIVE WILL TAKE PLACE BEHIND CLOSED DOORS. IN ADDITION, THE PROPOSAL ENVISIONS THAT A BULK OF THE PLANNED FUNDING COME FROM THE DONORS (ABOUT 70 PERCENT OF U.S. $41 MILLION). GIVEN THE CURRENT ENVIRONMENT (CONTINUED VIOLENCE, ATTACKS ON THE JUDICIARY, SUSPENSION OF THE RULE OF LAW AND THE LIKE),AND THE STATE OF RELATIONS BETWEEN THE DONOR COMMUNITY AND ZIMBABWE, IT IS DIFFICULT TO SEE HOW SUCH FUNDING CAN OCCUR. WE ALSO POINT OUT THAT THE ACREAGE OF THE PROGRAM IS LESS THAN 10 PERCENT OF THE GOZ'S STATED ACQUISITION GOALS, AND FRANKLY ASK IF SUCH EFFORTS AT THE MARGIN ARE WORTH THE REQUIRED EFFORT? WE HAVE BEEN TOLD, HOWEVER, THAT MOVEMENT CHANGING THE THRUST AND METHODOLOGY OF THE CURRENT FAST-TRACK LAND RESETTLEMENT PROGRAM MAY BE AFOOT AT THE HIGHEST LEVELS HERE, AND WE CAN ONLY HOPE THAT SOME MEASURES OF JUSTICE AND SANITY ARE REINTRODUCED. IF THAT BECOMES THE CASE, PERHAPS THEN THE PRIVATE SECTOR INITIATIVE WILL BECOME MORE ATTRACTIVE AND DOABLE. END COMMENT. CONFIDENTIAL PAGE 04 HARARE 00743 02 OF 02 131436Z IRVING CONFIDENTIAL >