Zimbabwe Industry Appeals for Relief

UNCLAS HARARE 000111 SIPDIS SENSITIVE STATE FOR AF/S AND AF/EX NSC FOR SENIOR AFRICA DIRECTOR JFRAZER USDOC FOR 2037 DIEMOND PASS USTR ROSA WHITAKER TREASURY FOR ED BARBER AND C WILKINSON USAID FOR MARJORIE COPSON ¶E. O. 12958: N/A TAGS: EFIN ECON ZI SUBJECT: Zimbabwe Industry Appeals for Relief Ref: 02 Harare 2821 Sensitive but unclassified. ¶1. (SBU) Summary: In rare unison, Zimbabwean industrialists have urged the GOZ to abandon its impractical economic policies. The situation is critical enough that one firm is actually cautioning investors to avoid its shares. It is unclear whether President Mugabe will heed the industrialists' call. End Summary. ¶2. (SBU) The productive sector has urgently advocated devaluation of the official exchange rate and relaxation of government intervention in the economy. Meeting most recently with Finance Minister Herbert Murerwa on January 14, 50 of Zimbabwe's most prominent businessmen stressed that they are faced with only two options at this point - - bankruptcy or the black market. They believe there is no way for most businesses to survive while adhering to 2003 budget's draconian constraints (ref). The Confederation of Zimbabwe Industries (CZI) and several industry groups had already submitted a plan in writing to the Finance Ministry and Reserve Bank calling for market-friendly solutions but couched in the most non- threatening tone. Will He Listen? -------------- ¶3. (SBU) The question, of course, is whether these pleas will resonate with President Mugabe. Opinions differ. Barbican (a commercial bank) CEO Mthuli Ncube is skeptical, noting that Mugabe and his inner circle still believe they are at war with the United Kingdom and cannot budge on ideological principles. Ncube considers Murerwa a powerless Finance Minister. In contrast, PG Industries (a glass manufacturer and exporter to the U.S.) CEO Gerald Mujaji feels Mugabe may finally appreciate industry's dire predicament. Mujaji believes Mugabe may feel less threatened by a weakened opposition Movement for Democratic Change (MDC) and compromise on devaluation for certain sectors. The CEO also hopes Mugabe will realize that many black-owned businesses are at risk. Comment -------------- ¶4. (SBU) Many industrialists are unwilling to return to pre-Christmas production levels, only to operate at losses. Those that make a profit will do so by flaunting the law, a line many businesses still do not want to cross. How futile is their plight? Consider mining firm Rio Tinto, which has been running ads in local papers cautioning shareholders that "recent monetary policy directives have rendered the company unviable." Until the GOZ alters its policies, Rio Tinto's directorate officially discourages "dealing in the company's shares." Sullivan