AG EXECUTIVES GLOOMY ON ECONOMIC SITUATION,

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