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
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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
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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.

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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
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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.

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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

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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
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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.

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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.

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IRVING

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