ZIMBABWE NOT COMPLIANT WITH AGOA ELIGIBILITY

UNCLAS SECTION 01 OF 02 HARARE 001362

SIPDIS

AF/S BRUCE NEULING
STATE PASS TO USTR FLORIZELLE LISER
STATE PASS TO USAID FOR MARJORIE COPSON
TREASURY FOR JOHN RALYEA AND BENJAMIN CUSHMAN
NSC FOR SENIOR AFRICA DIRECTOR C.COURVILLE
DOL FOR ROBERT YOUNG
USDOC FOR ROBERT TELCHIN

E.O. 12958: N/A
TAGS: ECON EFIN EINT ELAB ETRD PGOV PHUM PREL ZI
SUBJECT: ZIMBABWE NOT COMPLIANT WITH AGOA ELIGIBILITY
CRITERIA

REF: STATE 170577

Zimbabwe continues to fall short of AGOA,s qualifying
criteria. Post,s input for the upcoming interagency review
follows:

a. Market-Based Economy: As a result of government
mismanagement of the economy the role of markets has weakened
steadily and the country,s economic outlook is bleak. The
Global Competitiveness Report 2005-2006 cited Zimbabwe,s
macroeconomic environment as the worst in the world. A
persistent and deepening budget deficit and an extremely
loose monetary policy have led to triple digit inflation.
The official exchange rate is heavily overvalued, depressing
exports and further weakening the market value of the
Zimbabwe dollar. The Reserve Bank of Zimbabwe is also deeply
engaged in loss-making quasi-fiscal activity that has
distorted investment patterns. The IMF has estimated that
GDP will contract by a further 7 percent in 2005.
Unemployment in the formal sector is estimated at 75 percent.


b. Rule of Law/Political Pluralism/Right to Due Process:
This year, with no notice and in the middle of the country's
winter, the GOZ embarked upon Operation Restore Order,
destroying the homes, businesses, or both, of over 700,000
people. Police demolished or forced victims to destroy their
own homes and businesses without providing alternative
accommodation or means of reestablishing their livelihoods.
The GOZ then blocked humanitarian organizations' attempts to
provide emergency relief to the tens of thousands of
displaced families. The GOZ,s lack of commitment to rule of
law is also a major impediment to economic activity. In
2005, Parliament passed a new constitutional amendment
granting title to the Government of all agricultural land
acquired in the past under the GOZ,s controversial and
violent land reform program. Politically, the opposition
party operates in a climate of intimidation and repression.
Security forces harass, beat, and arbitrarily arrest
perceived opposition supporters. The GOZ held parliamentary
elections this year that were neither free nor fair and used
its subsequent 2/3 majority in Parliament to amend the
constitution as noted above without a referendum or broad
consultation. Over the past year, the GOZ removed the city
of Mutare's elected mayor, denied the citizens of Harare an
election for a new mayor as required by law (the previous
mayor had been removed by the GOZ),and ran the Harare city
council through a government-appointed commission. The GOZ
kept the country's only non-government daily newspaper out of
operation and shut down an independent weekly newspaper. In
the same period, the GOZ strengthened laws restricting
freedom of assembly, freedom of speech, procedural due
process, and private property rights. In politically
sensitive cases, the judiciary showed indications of being
politically influenced or intimidated. Political elites
frequently ignore adverse court holdings.

c. Elimination of Barriers to U.S. Trade and Investment: The
steeply deteriorating macroeconomic conditions, lack of rule
of law, foreign exchange surrender requirements on exporters,
sharply widening parallel exchange market premium, declining
availability of foreign exchange in the tender system, and
pervasive shortages of food, fuel, electricity and other
basics render Zimbabwe,s investment climate highly
unattractive. Private investment fell dramatically from 18.8
percent of GDP in 1995 to 5.3 percent of GDP in 2002; the
downward trend has been unabated since then.

d. Poverty Reduction: While the GOZ maintains several
programs that provide food or basic services to the poor,
they have had minimal effect against the backdrop of sharply
declining economic and social indicators. Most Zimbabweans
have grown progressively poorer over the past 6 years. The
2004 Progress Report on Zimbabwe Millennium Development Goals
estimates that the proportion of the population living below
the Food Poverty Line rose from 57 percent in 1995 to 69
percent in 2002. In the same time period, the proportion of
the population falling below the total consumption poverty
line edged up from 74 percent to 80 percent. Current trends
indicate that poverty is on the increase in both rural and
urban areas.

e. Anti-Corruption Policies: Official corruption is
widespread. The Government of Zimbabwe prosecutes
individuals selectively if at all, focusing on those who have
fallen out of favor with the ruling party. In January, the
Government enacted an Anti-Corruption Act, which established
an eight-member Anti-Corruption Commission. However, the
Government-appointed Commission fails to include
representatives from the private sector or civil society.
The Government also established a separate ministry to deal
with corruption - the Ministry of State Enterprises,
Anti-Monopolies, and Anti-Corruption, which has conducted an
awareness campaign on the destructiveness of corruption. At
the same time, the Government's campaign to provide housing
plots and vending sites for those who lost homes or
businesses in the Government's slum clearance operation
appears to be benefiting first and foremost civil servants,
members of the security forces, and ruling party supporters.
In addition, the ongoing redistribution of white-owned
commercial farms has been nontransparent and driven by
patronage.

f. Protection of Worker Rights: Despite official recognition
of worker rights, the Government continues to exert heavy
pressure on labor unions, limiting their freedom of
association and right to organize. Unions have been denied
routine meetings and necessary consultations with
constituents under the draconian Protection of Order and
Security Act (POSA). Senior members of the Zimbabwe Congress
of Trade Unions (ZCTU) have been arrested on spurious
charges, some of them later reporting physical abuse while in
police custody.

DELL