GOZ GOING AFTER COUNTRY'S LARGEST CELLULAR PHONE

C O N F I D E N T I A L SECTION 01 OF 02 HARARE 000008

SIPDIS

AF/S FOR S. DELISI, L. AROIAN, M. RAYNOR
NSC FOR SENIOR AFRICA DIRECTOR J. FRAZER, D. TEITELBAUM
LONDON FOR C. GURNEY
PARIS FOR C. NEARY
NAIROBI FOR T. PFLAUMER

E.O. 12958: DECL: 12/31/2008
TAGS: PGOV PHUM ECON EINV ECPS KPAO ZI
SUBJECT: GOZ GOING AFTER COUNTRY'S LARGEST CELLULAR PHONE
OPERATOR?

REF: HARARE 2454 AND PREVIOUS

Classified By: Political Officer Win Dayton under Section 1.5(b)(d)


1. (SBU) SUMMARY: Government maneuvers may be underway to
withdraw the operating license of Econet Wireless Zimbabwe
(EWZ),the nation's largest cellular phone operator, over
alleged foreign exchange abuses. The exercise could
represent a broadening of GOZ efforts to destroy Strive
Misiyiwa, the South Africa-based Zimbabwean who is the
principal owner of EWZ and the Associated Newpapers of
Zimbabwe (ANZ),publisher of the recently closed The Daily
News (TDN). EWZ already has a string of legal victories
against the GOZ but recent GOZ willingness to shutter
businesses in defiance of court orders (as evidenced in the
ANZ case) may bode ill for the company's long-term survival
in Zimbabwe. A shutdown of Econet would leave the country
with two cell GOZ-affiliated phone service providers and
disrupt a telecommunications sector and economy already under
immense strain. END SUMMARY.


2. (U) According to an article in the December 24 edition of
the goverment-controlled Herald newpaper, foreign currency
paid by Econet for calls originating outside the country was
not being remitted in Zimbabwe, contrary to a year-old
government directive. The article reported that most
incoming calls to Zimbabwe came through Econet, generating
foreign exchange, while most outgoing calls went through
competitor NetOne, which generated inadequate foreign
exchange for the company to meet its international
forex-denominated obligations. All calls were supposed to go
through one gateway. The article asserted that authorities
were investigating Econet's practices, as well as failure by
officials of the Postal and Telecommunications Regulatory
Authority (Potraz) to implement the directive effectively.


3. (U) EWZ's principal owner is South Africa-based
Zimbabwean, Strive Masiyiwa, who also owns Associated
Newspapers of Zimbabwe (ANZ),the publisher of closed
independent daily newspaper The Daily News (TDN). Government
media coverage of the Econet investigation stressed
Masiyiwa's ownership of the newspaper and his alleged
financing of "subversive activities", i.e., the opposition
MDC. It also highlighted adverse business turns against
Masiyiwa telecommunications interests in Nigeria and Kenya.
Masiyiwa is CEO of Econet Wireless International, which
maintains operations in several countries, including the UK.


4. (SBU) EWZ's locally based chief executive Douglas Mbweni
told the Embassy on January 5 that the company has not been
approached by GOZ authorities in connection the allegations
set out in the Herald. EWZ on January 2 issued a nine-page
public notice (faxed to AF/S) recounting the company's
contributions to national develepment and responding
specifically to the Herald allegations. The notice denied
company involvement in subversive activities and elaborated
on its compliance with the terms of relevant laws and
licenses. It claimed that the company was unaware of any
government directive reducing the number of gateways to one
but asserted that such a directive, if it existed, would be
"illegal and unjust."


5. (U) Masiyiwa and Econet have had a long contentious
history with the GOZ. Econet was founded in 1998, earning
its operating license that year only after a five-year court
battle against the GOZ. Masiyiwa's legal campaign began in
1993, when he successfully challenged the government's
telecom monopoly as an unconstitutional infringement of free
speech. The GOZ then denied his application for a license,
issuing one instead to Telecel Zimbabwe, a company dominated
by Mugabe supporters, including Chenjerai Hunzvi, the late
war veteran leader and violent enforcer of Mugabe's land
seizure campaign. After a lengthy legal fight, a court
ordered the issuance of a license to EZW. The company soon
became the country's leading cell phone service provider.
The GOZ has accused Masiyiwa of funding anti-Mugabe
activities and blamed him in part for the nation's rejection
of a GOZ-supported draft constitution in a 2000 national
referendum. After death threats and arrests, Masiyiwa moved
to South Africa in 2000 and reportedly has not returned to
Zimbabwe since.


6. (C) COMMENT: The complete emasculation of moneyed
players like Masiyiwa, a black Zimbabwean, and others,
including white ex-commercial farmers, who channel financial
support to the opposition has long been a priority for the
ruling party. It was a key element behind the government's
chaotic land grab and now fuels continuing talk of
"indigenizing" other sectors of the economy. It is too early
to know whether the Herald coverage signals GOZ intent to
bring down Econet in spite of court judgments or is meant
simply to intimidate Masiyiwa in his varied engagement with
Zimbabwe. Certainly, the continued closure of TDN is
intended in part to strain Masiyiwa's resources. We do not
know the accuracy of the Herald's reporting of Masiyawa's
alleged setbacks elsewhere.


7. (C) COMMENT (CONT'D): In some ways parallelling the ANZ
case (retels),the unfolding Econet "investigation"
represents a microcosm of Zimbabwean rule of law: the law not
as a shield but as a sword with which to constrain or to
dispatch selected enemies of the state. The government's
oppressive and nonsensical regulatory overlay assures that no
firm could stay in business long without operating outside
the law and, indeed, all do -- especially those affiliated
with the ruling party that are building empires above the
law. Thus, the state has effective legal grounds to go after
any business in country. Sharpening this Sword of Damocles
is the ruling party's growing paranoia and financial need.
Businesspeople in Zimbabwe are in an increasingly precarious
plight, scrutinized by the ruling party through a "with us or
agin' us" lens in an effectively extortionate atmosphere.
The growing prominence of business figures in the party
reflects pressure on the business community to evidence
loyalties demonstratively, in word and deed. This
politicization can be expected to further complicate an
already painful operating environment for the beleaguered
business community and to act as yet additional drag on the
imploding economy.


8. (C) COMMENT (CONT'D): As with so many other recent GOZ
economic measures, the GOZ's obsession with its deep forex
problems in part explains why this action may be underway
now. Forex difficulties in the telecom sector, however, are
unlikely to be resolved until a badly underpriced tariff
regime is considerably restructured, pricing many Zimbabwean
consumers out of the market. In any event, by reducing
competition, the elimination of Econet would have predictably
deleterious results for the overall quality of telecom
services in Zimbabwe, which has been falling markedly during
the past year. The situation nonetheless may perversely
appeal to the GOZ by leaving two parastatals -- Telecel and
NetOne -- with effective monopoly control of Zimbabwe's cell
phone services sector and attendant opportunities for revenue
enhancement at the public's expense.
SULLIVAN