Air Zimbabwe versus Ryanair

The chief executive officer of Imara Asset Management, John Legat, illustrated the appalling mismanagement of Zimbabwe’s parastatals eight years ago by comparing the national airline Air Zimbabwe with privately run, Ireland-based Ryanair.

Air Zimbabwe, which consumed 41 percent of all government parastatal support in 2005, had six planes flying to 15 destinations and employed 2 000.

Ryanair flew 91 airplanes on 248 routes and employed 2 700. It operated at a profit while Air Zimbabwe was deeply in the red.

Legat said Air Zimbabwe probably employed a high number of ghost workers and was extremely vulnerable to abuses by well-connected insiders.

Full cable:

Viewing cable 06HARARE180, BELEAGUERED BUSINESS LEADERS SAY POLICY CHANGES

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This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L SECTION 01 OF 03 HARARE 000180

SIPDIS

SIPDIS

AF/S FOR B. NEULING

NSC FOR SENIOR AFRICA DIRECTOR C. COURVILLE

STATE PASS TO USAID FOR M. COPSON AND E.LOKEN

TREASURY FOR J. RALYEA AND B. CUSHMAN

COMMERCE FOR BECKY ERKUL

E.O. 12958: DECL: 01/12/2016

TAGS: ECON EFIN PGOV EINV ETRD ZI

SUBJECT: BELEAGUERED BUSINESS LEADERS SAY POLICY CHANGES

INEVITABLE – BUT WHEN?

REF: HARARE 127

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

——-

Summary

——-

¶1. (C) At an economic roundtable hosted by the Ambassador on

February 8, five leading businessmen had little doubt about

the inevitability of a GOZ shift to market-driven policies

but differed on its likely timing. They agreed that the

speed of economic deterioration was accelerating, the

economic cycles were shortening, and recoveries were

weakening. They expressed concern about the hollowing out of

the middle class, the loss of human capital, and decline in

business ethics, but felt that the country remained

fundamentally capitalistic and would respond quickly to a

shift to market economics. They bemoaned the GOZ’s gross

mismanagement of parastatals and commended South Africa for

exercising its economic weight in dealing with Zimbabwe. The

businessmen were strongly supportive of USG sanctions policy,

particularly as it affected the offspring of specially

designated individuals, but warned that “doctoring” of

documents took place. End Summary.

—————————————–

Policy Shift Inevitable, Unclear How Soon

—————————————–

¶2. (C) Five businessmen invited by the Ambassador to an

economic roundtable were divided on how soon a shift to

market driven policies would occur. One thought the shift

could take place as early as this year. Another thought it

may be as late as 2008 – not necessarily because of the

scheduled presidential election that year but because GOZ

policy-makers would dither that long. The five, from the

financial services sector, the fertilizer industry and the

manufacturing sector, expressed little doubt, however, about

its inevitability.

¶3. (C) The group agreed with the Ambassador’s observation

that the speed of economic deterioration was accelerating,

the economic cycles shortening, and recoveries weakening.

Nonetheless, they expressed confidence that the country,

which they described as strongly capitalistic, would respond

quickly and favorably to the right policy shift. They voiced

concern, in the interim, about the erosion of civil servant

wages, the hollowing out of the middle class, and the decline

in the quality of education, which has long been Zimbabwe’s

great strength.

—————————————

“Horrific Decline;” Pervasive Obstacles

—————————————

¶4. (C) DeLoitte & Touche Senior Partner Tawanda Gumbo said,

for example, that only one third of Zimbabwe’s Chartered

Accountants (CA) remained in the country and only about 20

percent of each year’s freshly minted CAs stayed on. Gumbo

said that some CAs who left three years ago had returned

recently, expecting that Zimbabwe was about to “hit rock

bottom” and opportunities would soon open up. (N.B. At a

presentation to the IMF mission in January, David Scott,

PricewaterhouseCoopers Senior Partner, claimed a shortage of

2000 CAs in Zimbabwe.) The roundtable participants felt that

South Africa was able to absorb and was even actively seeking

highly qualified Zimbabweans, especially engineers. The

brain drain would continue, they agreed, and the longer the

emigrants stayed away, the weaker their ties to Zimbabwe

would become.

¶5. (C) The group lamented the “horrific decline” in business

ethics over the past five years, particularly in regard to

young entrepreneurs. Zimbabweans, including themselves,

simply were unable to make money without breaking some laws.

Mirroring IMF concerns (reftel), participants were deeply

disquieted by the systemic erosion of rule of law throughout

Zimbabwe. While conceding that some of the elite were

getting “stinking rich,” they also shared anecdotal evidence

of the breakdown of the patronage system, and concurred with

the Ambassador that there was increasingly “less to go

around.”

¶6. (C) The businessmen maintained that there was more

liquidity in the private than in the public sector today,

essentially “turning the tables” since the forex crunch of

last year. Even with the recent forex policy reversals,

liberalized enforcement had improved private sector access to

hard currency/fuel. As a consequence, the public sector now

had to compete harder for access to an ever-shrinking pot.

¶7. (C) Extensive private sector obstacles remained

pervasive, however. Mario dos Remedios, Chief Financial

Officer of NMB Bank, for example, was unsettled by pressure

from the Reserve Bank of Zimbabwe (RBZ) on the banks to buy

government paper at negative rates of return, as the RBZ

struggled to finance its quasi-fiscal activities. He also

bemoaned the zigzagging in foreign exchange policy and the

uncertainty it generated. He cited the introduction of the

interbank foreign exchange market in October followed by

re-assertion of RBZ control of the rate three months later.

Dos Remedios noted that although the banking sector was

currently healthy, these kinds of policies could reverse the

situation very quickly, a point made by the recent IMF

mission as well.

———————————-

Appalling Parastatal Mismanagement

———————————-

¶8. (C) Illustrative of the appalling mismanagement of

parastatals, John Legat, CEO of Imara Asset Management,

compared Air Zimbabwe, which consumed 41 percent of all GOZ

parastatal support in 2005, with privately owned

Ireland-based Ryanair. The former flew 6 airplanes to 15

destinations and employed 2000 staff; the latter flew 91

airplanes on 248 routes and employed 2,700 staff. While

Ryanair ran a profit, Air Zimbabwe was deeply in the red to

both foreign and local creditors and to the GOZ. The

businessmen concurred broadly with the Ambassador’s

assessment that parastatal payrolls were probably carrying a

high number of ghost workers and otherwise extremely

vulnerable to abuses by well-connected insiders.

——————

South Africa,s Role

——————-

¶9. (C) The business leaders predicted that South Africa would

eventually have to discontinue or reduce provision of

electric power to Zimbabwe in light of its own increasing

domestic demand and the risk of nonpayment. They commended

South Africa’s tough stance on loan negotiations and

willingness to use its economic might in the region to

influence politics. They also expressed alarm about the

growing economic strength and influence of China not only in

Zimbabwe, but in South Africa as well.

——————————————— —-

Sanctions Biting, But Also Signs of Circumvention

——————————————— —-

¶10. (C) The businessmen agreed that sanctions against

Specially Designated Nationals (SDN) were hurting the ruling

elite. They were particularly supportive of U.S. travel

sanctions on offspring of the high-level party and GOZ

officials who had forsaken the local education system. They

conceded nonetheless that some targeted individuals had found

ways to manipulate their children,s documents to conceal

relationships. (N.B. Corroborating this observation, an

administrator at another of Harare,s leading prep schools

relayed to econoff in November that Emmerson Mnangagwa,s

family had succeeded in obtaining a U.K. student visa for one

daughter by “doctoring” her birth certificate after the

British Embassy had turned her down. We relayed the

information to the British Embassy.)

——-

Comment

——-

¶11. (C) For years now, the private sector here has been

saying “this can’t last much longer,” and each year

Zimbabwe’s economic disaster deepens further. Importantly,

2006 already appears to be the year that, as IMF mission

chief Sharmini Coorey recently suggested (reftel), the

Zimbabwean economy loses sufficient foundation to support any

rebound on its own. As a growing number here sense the

increasing bite of the country’s economic decline, the ruling

party’s opaque succession game raises fundamental questions

about who can engineer a post-Mugabe future, desperately

needed economic reforms, and when.

DELL

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