BFIF FUNDING CATALYZES PRIVATE SECTOR DISCUSSIONS

UNCLAS SECTION 01 OF 04 HARARE 001317 SIPDIS SENSITIVE SIPDIS AF/S FOR S.HILL NSC FOR SENIOR AFRICA DIRECTOR B. PITTMAN STATE PASS TO USAID FOR M. COPSON AND E.LOKEN TREASURY FOR J. RALYEA AND T. RAND COMMERCE FOR BECKY ERKUL E.O. 12958: N/A TAGS: ECON EFIN ETRD PGOV ZI SUBJECT: BFIF FUNDING CATALYZES PRIVATE SECTOR DISCUSSIONS ON TURNAROUND REF: HARARE 00057 -------------- Summary -------------- ¶1. (SBU) On October 5, the newly-energized American Business Association of Zimbabwe (ABAZ),generously supported by the Business Facilitation and Incentive Fund (BFIF),held a high-profile day-long economic forum under the theme "Just Business" to identify and deliberate over the key economic policy reforms needed to right Zimbabwe,s course. The event also received major support from over a dozen private companies. It was attended by more than 300 business people. However, despite the efforts of forum organizers, only a few government officials were present. The forum featured a series of keynote presentations by speakers from countries that have undergone political and economic recovery, as well as presentations by local private sector leaders and academics. Looking ahead, ABAZ is planning to take key messages from the forum directly to government officials and parliamentarians in workshops chaired by member company executives. End Summary -------------- BFIF Support Spurs Business Group to Action -------------- ¶2. (U) On October 5, the American Business Association of Zimbabwe, supported generously by the State Department's Business Facilitation and Incentive Fund (BFIF) and fourteen leading companies including PricewaterhouseCoopers and British Airways, held a high-profile day-long economic forum under the theme "Just Business" at Harare's premier convention facility, the Celebration Center. The forum was designed to be the first step in initiating a national-level private-sector led discussion about the key economic policy reforms needed to right Zimbabwe's course. The organizing committee drew together speakers from Brazil, South Africa and Malawi, as well as local private sector leaders and a prominent U.S. academic to engage in constructive discussion of the way forward for the Zimbabwean economy. ¶3. (U) Over 300 delegates, including several dozen CEOs, managing directors and finance directors of major Zimbabwean companies and financial institutions, attended the proceedings and a gala closing cocktail reception hosted by Stanbic Bank at the Ambassador,s residence. However, although ABAZ organizers invited GOZ officials, only a few, including Reserve Bank of Zimbabwe (RBZ) Deputy Governor Nicolas Ncube, were in attendance. Former Finance Minister Simba Makoni, who is a ZANU-PF Politburo member as well as a businessman and farmer, attended in his private capacity. -------------- -------------- An International Perspective from Keynote Speakers -------------- -------------- ¶4. (U) Keynote speaker and best-selling South African author Chantell Ilbury opened the forum by showing delegates how to use scenario planning to assess "The Game" that HARARE 00001317 002 OF 004 Zimbabwe was in. She walked delegates through Zimbabwe,s strengths and advantages, the country,s "playing field," and the "Rules of the Game" that apply to all: rule of law, stability of government, respect for property rights, freedom of speech; and the "aspirational rules" for a winning game: maintaining a high standard of education, a strong work ethic, an economy made up of large and small enterprises, the ability of entrepreneurs to mobilize capital, social harmony, and the ambition to look outward and be a global player. Cautioning against "winner-take-all thinking," she stressed the need for compromise and "win-win" via second-choice strategies for all stakeholders, including government. ¶5. (U) The forum's second keynote speaker, prize-winning Brazilian economist Dr. Caio Megale, reviewed Brazil's long and eventually successful battle with hyperinflation, and drew universal lessons, including the need for strong political will to enact tough reforms. Dr. Megale described how Brazil,s anti-inflation technocrats had weathered the political storm surrounding reforms in what he called a political "bunker" created by Brazil's leaders. Harare's Independent newspaper published an in-depth interview with Megale on October 12. ¶6. (U) World Bank consultant and civil engineer Robert Geddes graphically described Zimbabwe's deteriorating infrastructure and stressed that the longer the economic decline, the longer it will take to rebuild Zimbabwe's infrastructure, once Africa's finest. Geddes was joined on the podium by education expert Jameson Timba, who focused on how to revive Zimbabwe's excellence in education. -------------- -------------- Property Rights and Resuscitating the Agricultural Sector -------------- -------------- ¶7. (U) A further highlight of the forum was visual evidence presented by Salem College Professor of Economics Craig Richardson on the cost of destroying property rights in the agricultural sector. Using satellite photos of abutting commercial and communal properties, he demonstrated that those who owned their own land had greater incentives to maintain and enhance that land. Richardson argued that all citizens should hold secure property rights to prevent land degradation and provide collateral for land improvements. Joining Richardson in the session, business consultant and former Eisenhower Fellow Kenias Mafukidze described the dire effects of a collapsed agricultural sector on Zimbabwe's manufacturing industry. -------------- -------------- Macroeconomic Stabilization, The Equity Market, Good Governance -------------- -------------- ¶8. (SBU) Dr. Matthews Chikaonda, former Finance Minister and Reserve Bank Governor of Malawi and now CEO of Press Corporation, said Malawi had looked to Zimbabwe as a model for economic reform in the mid 1990s. He explained how the government of his day had managed the political fallout of the economic austerity measures that eventually stabilized HARARE 00001317 003 OF 004 the economy by exercising political will, political courage and by defending reserve bank independence. With Makoni and Ncube sitting in the front row, he reminded the delegates that a country could not print its way out of an "economic mess" - it had to address the fundamental causes of the problem. ¶9. (U) Turning to interest rate risk, Finhold's principal economist and former International Visitor Best Doroh emphasized the need for more predictable, credible and sustainable interest rate management, the phasing out of subsidized lending schemes, and the creation of a vibrant secondary market with a variety of money market instruments. Imara Asset Management CEO John Legat described the huge potential of the region,s equity markets, and the Zimbabwe Stock Exchange's (ZSE) role as an inflation hedge thanks to its large institutional investor base. He noted that return on equity on the ZSE had been 127 percent in US dollar terms in the past year to September 2006. The presentations ended with recommendations by Judge Thabani Jali and Anton Van Wyk of PriceWaterhouseCoopers South Africa for ensuring good public and corporate governance. ¶10. (U) Closing the forum, Richardson reviewed the main economic challenges facing Zimbabwe. He concluded that Zimbabwe was not terminally ill; each and every one of the "fixes" discussed during the forum could be implemented, and many could be introduced fairly quickly. -------------- Next steps -------------- ¶11. (SBU) ABAZ has received extremely positive feedback from delegates, who are asking "what next?" As a first step, ABAZ plans to circulate the proceedings widely to delegates and interested parties and seek press coverage of excerpts of the presentations. In fact, they are preparing a packet of information on the conference, including the presentations for President Mugabe at the request of his office. The packages will also include longer papers - thought pieces - that speakers were encouraged to provide along with their presentations. ¶12. (SBU) In the medium-term, ABAZ has begun to synthesize key forum messages for direct presentation to government officials. They plan to hold a series of workshops led by member company executives for parliamentary portfolio committees, various GOZ economic task forces, government officials, and other policy making or policy influencing bodies. Longer-term, the ABAZ executive committee has expressed interest in institutionalizing the "Just Business" private sector economic forum as an annual business event in Zimbabwe that would serve to reinforce the private sector message to the GOZ on the need for reform. -------------- Comment -------------- ¶13. (SBU) The forum was an important step forward for ABAZ, HARARE 00001317 004 OF 004 which found its voice and established itself as a potential catalyst in convincing the Zimbabwean business community to bring pro-reform pressure to bear on the GOZ. In that regard, it was disappointing but not unexpected that so few high-level GOZ officials attended the forum. However, we believe ABAZ is on the right track in its plans to engage the government at the parliamentary and task force levels. The presentations by prominent international speakers stimulated discussion in the business community and also drew press attention. Although the forum did not present novel economic ideas, it began a process * to include follow-on workshops * that will put Zimbabwe-specific solutions on the table for the day when the "political will and the political courage to reform" - to borrow from Dr. Chikaonda,s prescription for turnaround - emerge. As such, it plays a useful role as an additional vehicle for talking - and planting ideas ) about the shape of the post-Mugabe future in Zimbabwe. DELL