FEAR OF EXPROPRIATION SCUTTLES SHOPRITE DEAL

UNCLAS SECTION 01 OF 02 HARARE 000828 SENSITIVE SIPDIS AF/S FOR B.WALCH ADDIS ABABA FOR USAU ADDIS ABABA FOR ACSS STATE PASS TO USAID FOR J.HARMON AND L.DOBBINS STATE PASS TO NSC FOR SENIOR AFRICA DIRECTOR M.GAVIN E.O. 12958: N/A TAGS: ECON EFIN ZI SUBJECT: FEAR OF EXPROPRIATION SCUTTLES SHOPRITE DEAL Ref: Harare 776 ¶1. (SBU) Summary: Uncertainty over property rights continues to scare away foreign investors. A USD 167 million partnership deal between South African retail giant Shoprite and OK Zimbabwe Limited has stalled. The main reason could be concerns raised by the GOZ's seizure of another firm and its failure to conclude a bilateral investment agreement with South Africa. While many local companies are starting to invest again, Zimbabwe's investment climate remains unattractive for outsiders. End summary. -------------- OK Keeps Mum -------------- ¶2. (SBU) Discussions between Zimbabwean retailer OK and South African retail giant Shoprite for an equity partnership arrangement appear to have stalled. A Shoprite official was quoted in the South African press saying that the company decided to put its investment plans in Zimbabwe on hold due to "socio-economic and political uncertainty." OK's management, meanwhile, has declined to comment. Chief operating officer Albert Katsande told us that the company could not make public statements until after publication of its half-year results. Nevertheless, Katsande believes nothing had changed. -------------- Asset Seizures Cause Uncertainty -------------- ¶3. (SBU) The chief executive officer of the Zimbabwe Stock Exchange (ZSE),Emmanuel Munyuki, suspects that Shoprite was unhappy with the GOZ's seizure of Kingdom Meikles Africa Limited (KMAL) under the sweeping authority of an anti-corruption statute (reftel). The GOZ's intervention in what had been an internal dispute at KMAL revived fears over property rights and the safety of foreign investments in Zimbabwe. Apart from the many GOZ-sponsored farm invasions over the past decade, several other episodes have also highlighted the fragility of property rights in Zimbabwe. In 2004 the GOZ took over Shabanie and Mashaba Mines but never quite explained why. And last week the central bank briefly froze the accounts of Nestle Zimbabwe following after the company stopped buying milk from a farm owned by Grace Mugabe. -------------- Who's Afraid of BIPPA? -------------- ¶4. (SBU) Munyuki also said that the GOZ's continuing delay in signing a bilateral investment promotion and protection agreement (BIPPA) with South Africa also influenced Shoprite's decision. The draft BIPPA text, negotiated long ago, would include a guarantee of South Africans' security of tenure on agricultural land. The GOZ has recently sought to re-negotiate this provision. GOZ foot-dragging over an agreement meant to protect new and old investments against expropriation has sent the wrong signals about Zimbabwe's desire to attract foreign direct investment. -------------- Comment -------------- ¶5. (SBU) Zimbabwe's bid to get foreign investment will be more successful once it implements mutually reinforcing economic and political reforms. While there has been much progress on fiscal Qpolitical reforms. While there has been much progress on fiscal policy, the GOZ needs to do much more to protect property rights and uphold the rule of law. Continuous harassment of businesses for political ends (or self-enrichment) will continue to scare away foreign investors. Shoprite already owns one store in Bulawayo. The HARARE 00000828 002 OF 002 company understands political risk in Zimbabwe and may be unwilling to increase its exposure. PETTERSON