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

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Summary
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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

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BFIF Support Spurs Business Group to Action
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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.

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An International Perspective from Keynote Speakers
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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

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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.

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Property Rights and Resuscitating the Agricultural Sector
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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.

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Macroeconomic Stabilization, The Equity Market, Good
Governance
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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

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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.

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Next steps
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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.

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Comment
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13. (SBU) The forum was an important step forward for ABAZ,

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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