POULTRY AND PATRONAGE, HOW TO MAKE MONEY IN AN

C O N F I D E N T I A L HARARE 000232 SIPDIS SIPDIS AF/S FOR S. HILL NSC FOR SENIOR AFRICA DIRECTOR B. PITTMAN STATE PASS TO USAID FOR L.DOBBINS AND E.LOKEN TREASURY FOR J. RALYEA AND T.RAND COMMERCE FOR BECKY ERKUL ADDIS ABABA FOR USAU ADDIS ABABA FOR ACSS E.O. 12958: DECL: 03/27/2018 TAGS: EAGR ECON ETRD PGOV ASEC ZI SUBJECT: POULTRY AND PATRONAGE, HOW TO MAKE MONEY IN AN ECONOMIC CRISIS REF: 07 HARARE 0772 Classified By: Ambassador James D. McGee for reason 1.4 (d) -------------- SUMMARY -------------- ¶1. (C) Econoffs met with David Irvine, Managing Director of Irvine's Day Old Chicks Ltd on March 19 to discuss the business climate ahead of the elections. Irvine, who has connections to a number of pro-Mugabe Ministers, is exploiting all angles to procure the inputs needed to keep his business going as he focuses on exports. He lamented that business was very, very difficult now. Nonetheless, Irvine's is well-placed to take advantage of any economic recovery. END SUMMARY. -------------- Maize Shortages Bite -------------- ¶2. (C) Despite Irvine's POLITICAL connections, Zimbabwe's declining economy has started to bite. Irvine's plant is operating at 75 to 80 percent of capacity because of a shortage of maize. (NOTE: Eighty percent capacity utilization is unusually high for a Zimbabwean business, many of which are operating at only 10 percent capacity. END NOTE.) At the time of the meeting, Irvine said he didn't have enough maize to process chicken feed. He had had to start importing maize from Zambia, using his foreign exchange and paying for the transportation in forex as well. Irvine related that his situation was not unique. Labor Minister Nicholas Goche had had only about 60 percent of his normal crop yield this year and even Reserve Bank of Zimbabwe (RBZ) Governor Gono was scrambling to find maize for his poultry farm. -------------- Exploiting all the Angles -------------- ¶3. (C) Irvine admitted using his POLITICAL connections and his supply of poultry products to keep his farm in business and profitable. He gives the Zimbabwe Electricity Supply Authority (ZESA) diesel fuel to fix electrical faults and also gives the ZESA workers chickens and eggs so his operation gets priority service during Zimbabwe's frequent power outages. He also buys Minister Goche's entire maize and soya crop, and the two are such close business partners that they don't do a formal accounting. Irvine has access to Grain Marketing Board (GMB) maize at a deeply subsidized price. Irvine also described how he made a deal with Land Resettlement Minister Didymus Mutasa to lease the Irvine family farms south of Harare to avoid losing them in fast-track land reform. As Econoffs arrived, Irvine was arranging to allow a ZANU-PF rally on one of his farms, providing transportation and beef from his own herd for the rally in addition to the location. ¶4. (C) Irvine described his assistance to a number of pro-Mugabe ministers who were in the poultry business. They are apparently attracted by the potential to make quick profits from exporting eggs and day-old chicks. Irvine had recently visited Governor Gono's chicken farm and offered his advice and assistance to make it profitable by reducing overcrowding and improving feed delivery. Enumerating other examples of high-ranking pro-Mugabe individuals and institutions that are discovering the potential profitability of the poultry business, Irvine described Godwills Masimirembwa, head of the National Income and Pricing Commission (NIPC),as a "half-baked chicken farmer" and noted that Air Zimbabwe and the Civil Aviation Authority of Zimbabwe (CAAZ) have also decided to get into the business and fly out day-old chicks to earn forex. -------------- Economy's Distortions Still Hurting -------------- ¶5. (C) Since price controls tightened, Irvine has upped its export of eggs from 50 percent in August 2007 when we last met him (reftel) to 70 percent of production. In early February he was able to negotiate a significant increase in the price of eggs after writing to the Chief Secretary of the Cabinet about the effect of the maize shortage on his ability to supply the local market. According to Irvine, the Cabinet was so worried about having adequate supplies of poultry and eggs on the shop shelves in the run-up to the election that it supported his request. Irvine explained that the government paid no attention to post-election prices or supply. ¶6. (C) Irvine claimed his business earned US$1 million in revenue per month, up from US$750,000 when we last spoke. Despite the increase in revenue and the fact that he still gets to retain 90 percent of his forex earnings (rather than the 65 percent most exporters are permitted by law),he was still not investing in his Zimbabwe operations. He needed to modernize his equipment, some of which had been around since the 1960s, but claimed he simply didn't have the resources to invest. Irvine had begun to keep accounts in U.S. dollars and found that his profitability in hard currency was declining despite increasing Zimbabwe dollar profits and sales growth. The growth couldn't keep up with the sliding exchange rate. ¶7. (C) Irvine did not think the economy could hold up on its present path until the end of the year, but would gradually dollarize. He claimed residential rentals were already denominated in U.S. dollars - and not only for expats - and many companies benchmarked their accounts in U.S. dollars as well. He said that Zimbabwe would require the IMF's help to reduce inflation and Irvine recognized that money would need to be poured into the railroads, roads and power grid to start a recovery. ¶8. (C) Despite the sound management and profitability of Irvine's Day Old Chicks, Irvine recognized that eliminating the economy's distortions would weaken the company's balance sheet. He said that if he had to pay market prices for maize and had to borrow at real interest rates, his prices would have to rise and his sales would decline. He thought if the company could make it through the initial pain of a recovery period, it would return to profitability. -------------- COMMENT -------------- ¶9. (C) It is ironic that Irvine has such a close relationship to many pro-Mugabe, stalwart ZANU-PF ministers and that they give special deals to this white family farming operation with deep roots in the Ian Smith government. The two sides are not natural allies, and Irvine seems to represent exactly the type of farmer fast-track land reform would have targeted. The two sides, however, are bound by a symbiotic relationship. It appears to be of little concern to top ZANU-PF officials that Irvine's use of subsidized GMB maize as feedstock and the export of most of the eggs and chicks does little to reduce the scarcity of food in Zimbabwe. Clearly money is more important than revolutionary rhetoric to many of today's ZANU-PF ministers. END COMMENT. MCGEE