MUCH BALLYHOOED 99-YEAR LEASES DISAPPOINT ALL ROUND

UNCLAS SECTION 01 OF 03 HARARE 001396 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 PGOV ASEC ZI SUBJECT: MUCH BALLYHOOED 99-YEAR LEASES DISAPPOINT ALL ROUND -------------- Summary -------------- ¶1. (SBU) The terms of the few dozen much ballyhooed 99-year leases issued on November 9 by President Mugabe left many questions unaddressed. Bankers say they do not appear to meet collateral requirements for lending into the sector. Security of tenure under the leases is tenuous, as the GOZ retains the right to cancel them under certain general conditions and to retake the leasehold. Moreover, the leases do not clearly address the legitimate compensation claims of former farm owners. Meanwhile, disruptions to the remaining white commercial farm operations have increased since the launch of the leases. End Summary -------------- GOZ Issues 99-Year Leases to 125 Farmers -------------- ¶2. (SBU) Amid great fanfare, on November 9 President Mugabe issued the first long-promised 99-year leases to 125 farmers under the "A2" commercial farming model. Among the beneficiaries were 16 white farmers and one prominent member of the opposition ) Welshman Ncube, Secretary General of the pro-Senate faction of the MDC. In addition, the independent press reported the names of several prominent ruling party officials and businessmen among the lease recipients. The number of applicants for the leases, however, is unknown. CFU President Doug Taylor-Freeme had earlier told econoff that about 1,000 displaced white farmers had filed applications. (Comment: The GOZ has put a close hold on both the terms of the leases and the names of the beneficiaries. None of the bankers or business people we contacted said they had seen a lease firsthand, nor could we obtain a copy of a lease from any institution other than the Commercial Farmers' Union (CFU). End Comment) -------------- - Unlikely Collateral; Many Unanswered Questions -------------- - ¶3. (SBU) Panashe Chitumbe, Head of Risk Management and Economic Research at Stanbic Bank, told econoff on November 13 that from all the information he had gleaned, the leases would most likely not serve as a form of bank security and therefore did not resolve the credit risk problem in lending into the sector. Furthermore, the GOZ had failed to address the banking sector's main area of concern - political risk in the agricultural sector. He pointed out that the leases were effectively 3-month leases, not 99-year leases, as the GOZ could cancel the lease on 90-days notice under certain broad conditions, including insolvency of the lessee. In addition, once cancelled, the GOZ reserved the right to resume possession of the leasehold. (N.B. The 17th amendment to the Constitution, passed in 2005, transferred title to the State of all agricultural land acquired during land reform.) ¶4. (SBU) Sima Msindo, Director of Public Advisory Services at PriceWaterhouseCoopers, added in a comment to econoff on November 21 that it was unclear whether the GOZ would respect certain freehold titles or swap them for leasehold titles. HARARE 00001396 002 OF 003 In question were freehold titles under Bilateral Investment Protection and Promotion Agreements (BIPPA) and the freehold titles of the not insignificant number of black farmers who had acquired farmland since 1980 (including Msindo's father). ¶5. (SBU) CFU President Doug Taylor-Freeme pointed out to econoff on November 16 an example of the "communal way of thinking" of the lease terms. The lessee, a cattle rancher in the document he shared with the embassy, was obliged to sell 20 percent of his cattle per year to the GOZ and to plant 20 percent of his land in cereals. ¶6. (SBU) Msindo and Taylor-Freeme also questioned the validity of 99-year leases in cases where the state had failed to compensate the former owner. The CFU President expressed concern that the GOZ appeared to be passing responsibility for paying compensation onto the lessee. Apparently seeking to deflate the contentious issue of compensation, the state-controlled press on November 12 and again on November 16 published a four-page list of names of farmers being offered compensation. John Laurie, spokesperson of the white farmer's Compensation Committee pointed out to econoff on November 20 that such lists had appeared before and compensation had been previously offered, but never more than 5-10 percent of the true value of improvements and immovable assets. He regarded both the GOZ's fanfare surrounding issuance of the leases and the latest offer of compensation as a smokescreen orchestrated by the GOZ "for international consumption." -------------- The Weak State of Production -------------- ¶7. (SBU) Laurie, who is also a past president of the CFU and member of the Board of Directors of Standard Chartered Bank, in addition pointed out that issuance of a few dozen leases did not begin to address the scale of damage done to the sector. The state of the input market was &a nightmare in itself,8 with, for example, at most 7,000 working tractors available, where there had once been 16,000. ¶8. (SBU) Furthermore, the GOZ was still issuing eviction notices to white commercial farmers. The CFU provided econoff with a long list of farm disruptions and eviction threats (40 cases),and notices of eviction (17 cases) as of October 26, 2006. Moreover, on November 17 it reported an increase in the number of farm disruptions since the lease launch, commenting that certain GOZ officials appeared to have taken news of the launch as a last chance for action. -------------- Comment -------------- ¶9. (SBU) The agricultural sector and wider business community initially had high hopes that the GOZ's decision to issue 99 year leases would spur production and invigorate the moribund sector. As several of our farming contacts note, leases have proven successful in other countries. However, the nontransparent and heavy-handed way in which the GOZ has HARARE 00001396 003 OF 003 issued the leases so far has probably doomed this endeavor. In order for leases to stand any chance of reviewing Zimbabwe's farm output, they must be issued in a transparent manner, be based on sound business principles, and ) most importantly ) provide some security of tenure. On all three accounts, however, Zimbabwe's recently-issued leases fail. DELL