Weary retailer asks, what next?

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STATE FOR AF/S
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER
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STATE PASS USAID FOR MARJORIE COPSON


E. O. 12958: N/A
TAGS: ECON EFIN EINV ETRD PGOV ZI
SUBJECT: Weary retailer asks, what next?



1. (U) Summary: A major Zimbabwe retailer has just lived
through violent occupations, price controls, imperious
ministers, high inflation and shortages of fuel,
electricity and cash. Its Chief Operating Officer now
wonders what more the GOZ can throw at him. End Summary.


2. (SBU) The Embassy's Economic/Commercial staff recently
called on COO Albert Katsande of OK, a leading Zimbabwe
supermarket/department store chain. Katsande cataloged
for us a litany of challenges he has faced, a daunting
statement about doing business in Robert Mugabe's
Zimbabwe.

War Vets come to call
--------------

3. (SBU) A gang of haggard War Vets invaded OK's
corporate offices three years ago. As they lounged
around Katsande's executive office, downing his liquor,
they forced the COO to sit on the floor and chant pro-
ZANU-PF (the ruling party) slogans. They demanded he
reinstate several dismissed employees, trying to extort
funds from him for "revolutionary causes." When he
finally convinced them to depart, they demanded taxi fare
to return home. Over the next year, War Vets visited
Katsande several more times, threatening to take him to
ZANU-PF headquarters for interrogation. Police refused
to chase the War Vets away.

The price patrols
--------------

4. (SBU) By late-2002, the GOZ had imposed extensive
price controls. Unable to accept the diminished value of
its currency, the GOZ set many prices below cost. OK's
Katsande had to decide whether to sell creatively-
repackaged goods, risking the GOZ's wrath. The worst, he
recalls, were the so-called compliance cops. War vet,
police and Zimbabwe Federation of Trade (the GOZ's labor
body) inspectors constantly harassed store managers,
insisting on bribes and sometimes hauling OK employees to
jail. War Vets even took over the Masvingo store for
several days (while looting the shelves).

Exchanges with the Minister
--------------

5. (SBU) In early 2003, Industry and Trade Minister
Samuel Mumbengegwi went shopping at an OK outlet and
complained to the manager that no sugar was on the
shelves. To avoid a riot inside the store, the manager
explained that OK would sell its limited supply of sugar
from the backdoor at 10:00am. At that point, local
police would arrive and control the mob of shoppers. An
enraged Mumbengegwi complained that it was illegal for OK
to keep a product off its shelves and threatened to
revoke the store's operating license. Katsande finally
stepped in, but he could not make Mumbengegwi, a GOZ
hardliner, appreciate that OK was reluctant to market its
wares at a loss. It only sold the small amount of
controlled-price sugar it received each day.

Shoppers with no cash
--------------

6. (SBU) By mid-year, Zimbabwe's cash crisis was in full
swing, OK's next great obstacle. The GOZ frequently
accused OK of hoarding banknotes. After a time, the
Reserve Bank required each OK store to submit a daily
listing of all cash taken in, a bookkeeping nightmare.
More and more shoppers paid with checks, which OK had
little choice but to accept. Katsande reports many
shoppers took advantage of banks' fast (and sloppy) check
processing, submitting to OK checks that were unsupported
by funds. Overstretched banks were taking a full three
months to process checks. By the time OK could chase
down the bad-check writers, it didn't matter if the
customer made good on the debt - inflation had eroded the
money's value. While so-called "bearer checks" solved
the cash crisis, Katsande says the larger, less-protected
notes are generating a new rash of forgeries.

Mounting inflation
--------------

7. (SBU) With inflation spiraling, OK now readjusts
prices each day. Every afternoon store managers are
required to data-enter new prices that become effective
at 8:00am the following morning. OK's head office is
forced to take a new guess each day at the product's
replacement cost, based on Zimbabwe's devaluing currency
and increasingly inefficient infrastructure. (The fuel
crisis often prevents freight companies from moving goods
even short distances for days.)

Comment
--------------

8. (SBU) It's no small wonder that Zimbabwe's investment
risk factor has hit stratospheric proportions. The
government encourages lawlessness; expects companies to
lose money; tolerates shortages of fuel, electricity,
water or cash; enacts policies that keep inflation
soaring and the zimdollar plunging. As OK's saga
indicates, Zimbabwe's business environment is not for the
fainthearted.

Sullivan