Identifier
Created
Classification
Origin
06HARARE469
2006-04-21 12:39:00
CONFIDENTIAL
Embassy Harare
Cable title:  

AG EXECUTIVES GLOOMY ON ECONOMIC SITUATION,

Tags:  EAGR PGOV BEXP ECON PHUM SOCI ZI 
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C O N F I D E N T I A L SECTION 01 OF 04 HARARE 000469 

SIPDIS

SIPDIS

AF/S FOR B. NEULING
NSC FOR SENIOR AFRICA DIRECTOR C. COURVILLE
AFR/SA FOR E. LOKEN
COMMERCE FOR BECKY ERKUL

E.O. 12958: DECL: 12/31/2011
TAGS: EAGR PGOV BEXP ECON PHUM SOCI ZI
SUBJECT: AG EXECUTIVES GLOOMY ON ECONOMIC SITUATION,
PROSPECTS FOR REFORM


Classified By: Ambassador Christopher Dell under Section 1.4 b/d

-------
Summary
-------

C O N F I D E N T I A L SECTION 01 OF 04 HARARE 000469

SIPDIS

SIPDIS

AF/S FOR B. NEULING
NSC FOR SENIOR AFRICA DIRECTOR C. COURVILLE
AFR/SA FOR E. LOKEN
COMMERCE FOR BECKY ERKUL

E.O. 12958: DECL: 12/31/2011
TAGS: EAGR PGOV BEXP ECON PHUM SOCI ZI
SUBJECT: AG EXECUTIVES GLOOMY ON ECONOMIC SITUATION,
PROSPECTS FOR REFORM


Classified By: Ambassador Christopher Dell under Section 1.4 b/d

--------------
Summary
--------------


1. (C) At an agriculture roundtable hosted by the Ambassador
on April 12, five sector leaders lamented the GOZ's paralysis
on economic policy and its continuing negative impact on
agriculture. Expressing concerns over prospective chaos and
even violence if the economy deteriorated further, some urged
the West to take the initaitve to re-engage the GOZ in an
effort to get economic policy on a more constructive course.
In response, the Ambassador reiterated that any rescue would
first require meaningful GOZ reform. The executives held
little hope that recently constituted National Economic
Security Council task forces, in which two of the executives
were participating, would yield constructive policy
adjustments. Land tenure continued to be problematic and
production was continuing a downward trend in tobacco, maize
and wheat production, with spillover effects on ag-dependent
manufacturing. The executives expressed stong interest in
partnering in a public policy forum being planned in
connection with the Business Factilitation and Incentive Fund
(BFIF). End Summary.

--------------
Executives: GOZ Policy Paralysis
Necessitates Western Outreach
--------------


2. (C) The executives agreed that a coterie of 10-12 ruling
party elite who held sway in the GOZ were unwilling to
countenance any political or economic reform. Unless Mugabe
or hardliners such as State Lands/Security Minister Mutasa
signalled willingness to change, any talk of reform was
peripheral to the central leadership issue. Outside the
inner coterie, most in the ruling party would support
economic reform, they asserted, aside from a review of land

reform or exchange rate liberalization. Most still believed
they could eventually reap benefits of economic reform
without political reform, according to the group.


3. (C) Several of the executives appealed to the West to not
let a small number of elites drag the country down. They
concluded that the country could not pull itself out of its
crisis alone and expressed alarm at the potential for
violence during the inevitable power transition. One cast
the President's "bridge-building offer" as a "profound"
opportunity, and said Mugabe had ordered all Ministers to
advance it. One executive confided that Vice President
Mujuru had emphasized to a group recently the seriousness of
GOZ efforts to build bridges -- on its own terms, although
the executive stressed that the political context probably
understated potential GOZ flexibility. Even if little would
likely change while Mugabe was in power, erecting a "platform
for dialogue" to guide future change was important.
Asserting that the West had the least to lose by initiating
rapprochement, several urged the Ambassador to de-escalate a
standoff between "a strong USG and strong Zimbabwean
President", extend a hand to the regime, and open the door to
a face-saving mutually beneficial rapprochement.


4. (C) In reply to the group (some of whom have close
connections with ruling party figures),the Ambassador noted
that any "bridge-building" would have to involve a
"commitment to supply of bricks and mortar" by the GOZ. We
had seen none to date. Drawing on his experience in Angola,

HARARE 00000469 002 OF 004


the Ambassador observed that a country must at least be
headed in the right direction before it could become eligible
for the benefits of reengagement such as eligibility for the
African Growth and Opportunity Act, the Millennium Challenge
Account, or balance of payments support. Zimbabwe was still
marching unswervingly in the wrong direction.

--------------
Public/Private NERC Task Forces
--------------


5. (C) Pattison Sithole, President of the Confederation of
Zimbabwe Industries, and James Delafargue, President of the
Tobacco Growers Association, sketched a picture of
public/private task forces operating as part of the new
National Economic Recovery Council (NERC) set up last month
to address the economic crisis. They said the task forces
had brought in some &new energy8 and, convening at the
Permanent Secretary level, considerable expertise. Driven by
an imperative to be seen as "doing something", however, they
were unlikely to yield constructive policy recommendations
that could be implemented in the current political
environment. The role of security forces in the NERC was
considerable but not controlling, as had been suggested by
some sources in the independent press. In response to the
Ambassador's question on the NERC's mandate, the executives
glumly admitted that the focus was on short-term "fixes" and
that real reforms were not on the table.

--------------
GOZ's Disingenuous "Fence-Mending" Exercise
--------------


6. (C) Commercial Farmers Union (CFU) President and Vice
President of the Southern African Confederation of
Agricultural Unions (SACAU) Doug Taylor-Freeme relayed the
essence of several fence-mending meetings he had had in the
past weeks with Mutasa. Mutasa had conceded that land reform
was "all politics8 and white farmers had largely been &in
the wrong camp8. His message to commercial farmers now
applying for 99-year leases, according to Taylor-Freeme, had
been &I am also Minister for State Security, and I have big
ears,8 i.e. politically oriented farmers would not receive
leases.


7. (C) Taylor-Freeme reported that Mutasa had pledged to be
helpful in stabilizing remaining white farm ownership in an
effort to bolster production. When the CFU president next
approached him about a recent farm seizure, however, Mutasa
was of no help. Mutasa told him that the CFU was lucky to
have President Mugabe &on its side8, as most of ZANU-PF
wanted to get rid of all white farmers. Even as he advocated
to the Ambassador the need to secure a platform for
communication with the GOZ, Taylor-Freeme conceded deep
doubts about GOZ overtures and the utter lack of progress on
the ground in resolving land issues, which he finally
attributed to Mutasa's fundamental hostility and belief that
this was "about politics, not productivity."

--------------
Tobacco Production at 1953 Levels
--------------


8. (C) James Delafargue, President of the Tobacco Growers
Association, estimated the 2006 tobacco crop at 45-50 million
kg (equal to the 1953 yield),down from a peak of 250 million
kg. Hit hard by corporate contract farming, Harare,s famous
tobacco auction floors would handle only 17-18 million kg

HARARE 00000469 003 OF 004


this year; some could close in the coming years. The
executives lamented the demise of this institution, which had
been the backbone of the sector and a model of transparency
and market dynamism. Delafargue pointed out that plummeting
production from small-scale farmers had driven the decline
this year. This development illustrated that farm viability
- not &land8 - was the central issue in agriculture.


9. (C) In September 2005, at Vice President Mujuru,s
request, the tobacco industry drew up a six-point recovery
plan based on: viability (liberalized exchange rate);
financing clarity (10 percent interest loans from the
Agriculture Sector Productivity Enhancement Facility had
pulled many farmers from the brink but such loans were
unsustainable and bad policy); security of tenure (to enable
commercial lending); an input market financed by the forex
flow from tobacco sales; better curing cycle management; and
expanded training. After nine more months of talks,
Delafargue perceived no political will by the GOZ
interlocutors to act on any of the recommendations.

--------------
Dim Winter Wheat Forecast, Maize Prospects
--------------


10. (C) Taylor-Freeme and Chemplex CEO Eben Makonese
contradicted recent Ministry of Agriculture assertions that
110,000 ha of land would go into winter wheat production this
year. In light of delays in accessing forex, they said that
inputs were only available to plant 30,000 ha, including by
corporate agriculture. (N.B. Last year Zimbabwe produced
95,000 t of wheat on 30,000-35,000 ha, according to the CFU;
the historic peak area under wheat was 65,000 ha.) Sihole
reported that one GOZ task force in which he participated was
working off a list of identified land and names of
corporations to put 79,000 ha under wheat production.
&It,s all fiction,8 he sighed.


11. (C) The business leaders agreed that the newly increased
maize price was more realistic and would stimulate production
and dampen &leakage8 to Mozambique, but the land area
planted would depend on the inflation rate at the start of
the next planting season. They noted that GMB silos held
considerable amounts of grain, much of which was being
trucked to address particularly needy areas. The
participants stressed the importance of encouraging farmers
to grow maize and ensuring the viability of input suppliers
from now on. In other words, as the Ambassador clarified,
let the market work. Regarding the impact of U.S. food aid
on production and the GOZ,s incentive to reform,
Taylor-Freeme asserted that people had to get on their own
feet, and the sooner the better.

--------------
Deference to &GOZ-Friendly8 Companies/Sectors
--------------


12. (C) The executives reported that the GOZ afforded
latitude to companies and sectors perceived as "cooperative".
Dairibord executive Busi Chindove noted, for example, that
as long as Dairibord &proceeded quietly8 with its own
initiatives, she anticipated no government interference. She
added that the dairy industry's chief problems were
associated with lack of research and development and an
overall dearth of competence, not land issues. Sithole, also
Chairman of Cottco and Managing Director of Zimbabwe Sugar
Sales, concurred that the GOZ would leave strong,
&GOZ-friendly8 companies in peace and take credit for their

HARARE 00000469 004 OF 004


successes, especially if their operations benefited the
communal areas. The tobacco executive agreed, noting that
his sector was burdened by U.S. and UK corporate dominance.

--------------
Spillover into Manufacturing
--------------


13. (C) According to Sithole, the manufacturing sector,
heavily dependent on agriculture, was operating at an average
40 percent of capacity. Sithole called for viable pricing of
fuel and electric power to breathe air into the sector. When
pressed by the Ambassador, however, he conceded doubt about
the GOZ's ability to push through such increases. Citing the
Kariba dam, he also emphasized the need for a capital
injection from strategic partners. (N.B. The GOZ signed an
MOU with an Iranian company last year for expansion of the
Kariba hydroelectric plant. We understand the project is
stalled over financing.)

--------------
Enthusiasm for BFIF Policy Forum
--------------


14. (C) On the Ambassador's prompting, the group expressed
strong interest in participating in a public policy forum the
Embassy is planning to organize under the Business
Facilitation and Incentive Fund. The forum is intended to
generate public discussion of political and economic reform
as a basis for national recovery, provoking a practical
critique of GOZ policy (or lack thereof). The group agreed
that the event would best be fronted by private sector
entities in order to assure meaningful GOZ participation.

--------------
Comment
--------------


15. (C) This eminent group's eagerness for the West to take
the first step toward rapprochement with the GOZ bespeaks
their frustration over the GOZ's incapacity to articulate,
much less implement measures necessary for economic recovery
of its own accord. Indeed, their entire presentation
confirms the disingenuousness of any GOZ rhetoric to support
Mugabe's professed interest in "bridge-building" or in
meaningful action to stem Zimbabwe's disastrous economic
slide. Unless the specter of violence cited by some becomes
more real, reiterating our mantra that "rescue requires
reform" and letting the economy's deepening collapse take its
course still appears the best means to induce reform here.
DELL