Industry leaders accused Gono of trying to buy favours to silence them

Industry leaders accused central bank governor Gideon Gono of trying to buy favours and avoid criticism from the industrial sector after he gave the Confederation of Zimbabwe Industries an unsolicited gift of eight vehicles at the height of the country’s economic crisis in 2008.

They also accused the central bank of being excessively intrusive by taking on the position of a supra-ministry and dishing money out to all comers.

Some of the members of the CZI said they should devise a plan to pay for the vehicles since accepting the “gift” would compromise their stance on a number of negative policies implemented by the central bank.

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Viewing cable 08HARARE1000, INDUSTRY URGES GOVERNMENT TO ADOPT PRO-MARKET

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FM AMEMBASSY HARARE

TO RUEHC/SECSTATE WASHDC IMMEDIATE 3659

INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE

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UNCLAS SECTION 01 OF 03 HARARE 001000

SENSITIVE

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AF/S FOR B. WALCH

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ADDIS ABABA FOR USAU

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STATE PASS TO USAID FOR E. LOKEN AND L. DOBBINS

STATE PASS TO NSC FOR SENIOR AFRICA DIRECTOR B. PITTMAN

E.O. 12958: N/A

TAGS: PGOV PREL ASEC PHUM ZI

SUBJECT: INDUSTRY URGES GOVERNMENT TO ADOPT PRO-MARKET

POLICIES

REF: HARARE 646

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SUMMARY

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¶1. (U) At its recent annual congress held in Harare from

October 28 to 29, 2008 and attended by econ specialist, the

Confederation of Zimbabwe Industries (CZI), with a membership

of around 400 companies covering all sectors of the economy,

condemned the GOZ and the Reserve Bank of Zimbabwe (RBZ) for

implementing poor macroeconomic policies that are inimical to

business growth. Industrialists complained about the policy

inconsistencies and reversals, price controls, collapsing

infrastructure, and absence of property rights and rule of

law. While statistics are notoriously out of date, they

estimated that the manufacturing sector declined by over five

percent in 2007. Members recommended the implementation of

market-friendly policies consistent with those enunciated by

the World Bank and the IMF. In an encouraging development,

the industrial body (heretofore timid) resolved to get more

involved in political and economic discourse to promote

industrial production. END SUMMARY.

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Policies Blamed for Collapse of Industry

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¶2. (U) In a paper presented by the CZI Economic Affairs

Committee, Nigel Chanakira, the Chief Executive Officer of

Kingdom Meikles Limited, identified lack of credit lines due

to arrears, cash and foreign exchange shortages, low capacity

utilization, and poor equipment maintenance as the major

challenges facing industry. He also blamed the shortage of

agricultural inputs for the collapse of most agro-processing

firms. The poor state of the agricultural sector was also

directly linked to the policies of both the GOZ and the RBZ.

¶3. (U) According to Joseph Kanyekanye, the Group Chief

Executive Officer of Allied Timbers Holdings–who spoke on

the state of the agricultural sector and how it failed to

supply the manufacturing sector with sustainable

inputs–agriculture has declined because of a combination of

adverse weather conditions and poor policies. He stated that

the RBZ had mis-targeted its interventions and had given

people what they did not require. For instance, the RBZ gave

tractors to resettled farmers. Kanyekanye suggested it would

have been wiser to provide them with seed and fertilizer,

rather than with machinery that would require servicing.

¶4. (U) All of the speakers criticized the RBZ for being

excessively intrusive by taking on the position of a

supra-ministry and dishing money out to all comers. Concerns

were also raised about the unsolicited gift of eight vehicles

that had been donated to CZI by RBZ governor Gideon Gono.

Most delegates felt that Gono was trying to buy favors and

avoid criticism from the industrial sector. Some members

wanted the CZI to devise a plan of paying for the vehicles

since accepting the “gift” would compromise their stance on a

number of negative policies implemented by the central bank.

——————————————— —

Restore Infrastructure to Restore Manufacturing

——————————————— —

¶5. (U) The decay of infrastructure was blamed for reduced

capacity utilization. According to Nyasha Zhou, the Chief

Executive Officer of PG Industries (Zimbabwe) Limited,

pricing controls on electricity, water, phone, and fuel had

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led to under-investment in these areas. In fact, the rate of

investment is less than the asset’s usable life, which is

driving down infrastructural quality.

—————————–

Implement Pro-Market Policies

—————————–

¶6. (U) Despite the problems afflicting industry, the CZI

believes recovery is possible because Zimbabwe possesses a

well trained and highly-skilled labor force, fertile land,

and mineral deposits, which would form the foundation for

sustainable growth. They contended that these strengths

could only be exploited if the country quickly achieved a

political settlement and implemented sensible macroeconomic

policies that address hyperinflation. In particular, the CZI

proposed that the RBZ concentrate on its core business of

achieving price and exchange rate stability and ensuring a

sustainable balance of payments position, rather than

monetary expansion to support government profligacy. The CZI

recommended that the RBZ desist from involvement in

quasi-fiscal activities that have been at the heart of money

supply growth and inflation.

¶7. (U) Additionally the CZI proposed that the country

implement policies consistent with those enunciated by the

World Bank and the IMF, namely fiscal rectitude, tight

monetary policies, price liberalization encompassing interest

and exchange rates, and the restoration of property rights.

The foreign exchange constraint was identified as the main

reason for operating below capacity, and could only be

addressed by liberalizing the trade and payments systems.

Although industrialists stated that multilateral and

bilateral financial inflows for balance of payments support

could help, these were not seen as short-term solutions

because the country had to first clear the over US$1.4

billion arrears owed to the multilateral institutions.

Exchange rate liberalization appeared the most appropriate

policy to the CZI as it would generate incentives that would

make it more profitable to export within the short term.

¶8. (U) The CZI also supported government deregulation of the

agricultural sector by depoliticizing the distribution of

agricultural inputs and the pricing of agricultural produce.

The CZI proposed that there should be a timely disbursement

of inputs while denominating prices in US dollars to preserve

value.   They also proposed that resettled farmers be given

security of tenure in order to enable them to use land as

collateral when borrowing from banks, and that government

limit its focus on communal farmers with regard to food

production.

¶9. (U) While discussing industrial policies, the CZI

emphasized the need to undertake an audit of which firms need

support and which ones have to be allowed to fail based on a

study of dynamic comparative advantages. This would call for

the calculation of potential rather than current effective

rates of protection in order to identify firms that have

future potential comparative advantages. However, in order

to avoid pervasive deindustrialization, delegates proposed

that enterprises be given time to carry out structural

adjustments required to improve their competitive strengths

given that they have not been able to upgrade their plant and

equipment over the past ten years due to the adverse economic

conditions.

¶10. (U) The CZI called on government to reposition a number

of parastatals that provide utilities but suffer from poor

efficiency. This repositioning would encompass

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private-public partnerships with local and foreign investors

working to resuscitate Zimbabwe’s crumbling infrastructure.

Success would be dependent on pricing services with regard to

actual costs incurred, without burdening the consumer with

high administrative costs.

———————————–

Political Settlement a Prerequisite

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¶11. (U) In an encouraging sign that industry is now concerned

with the slow pace of political reforms, the CZI resolved to

send a high-powered delegation to President Mugabe, MDC-T

leader Morgan Tsvangirai, and MDC-M leader Arthur Mutambara

to advise them of the dire food situation in the country.

This, they believe, would propel the leaders to quickly

resolve their differences and form an all-inclusive

government required to implement the recommended policies.

The CZI also resolved to get more involved in designing

policies that affected its members.

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Comment

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¶12. (SBU) This year’s CZI congress marked a significant

departure from previous ones in that delegates openly

criticized bad government policies that have negatively

affected the manufacturing sector. This is an encouraging

sign of possible activism by an industrial body that would be

core to a Zimbabwean recovery. When combined with the

Zimbabwe National Chamber of Commerce’s similar recent stance

(reftel), CZI’s criticism of the government and proposals

reflect an understanding of Zimbabwe’s dire economic

conditions as well as desperation by Zimbabwean business

interests. We are not optimistic, however, that the GOZ will

take note. END COMMENT.

MCGEE

(13 VIEWS)