Deputy Prime Minister Thokozani Khupe told the business sector to get out of the hyperinflationary mindset that had been prevailing in Zimbabwe because of the stability that had been brought about by dollarization.
She was addressing the members of the Zimbabwe National Chamber of Commerce at their annual conference. Chamber president Obert Sibanda told delegates that companies could not increase capacity utilisation until utilities were priced more competitively.
He also blamed poor service delivery by most parastatal utilities for being a hindrance to corporate performance.
Khupe pointed out that most private companies were not basing prices on costs. She stressed the need for companies to get out of the hyperinflationary mindset of the past four years, given the price stability brought about by dollarisation.
Full cable:
Viewing cable 09HARARE601, BUSINESS SECTOR WANTS MORE MARKET-FRIENDLY REFORMS
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Reference ID |
Created |
Released |
Classification |
Origin |
VZCZCXRO3528
OO RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSB #0601/01 2031402
ZNR UUUUU ZZH
O 221402Z JUL 09
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4734
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHAR/AMEMBASSY ACCRA 2954
RUEHDS/AMEMBASSY ADDIS ABABA 3071
RUEHRL/AMEMBASSY BERLIN 1500
RUEHBY/AMEMBASSY CANBERRA 2334
RUEHDK/AMEMBASSY DAKAR 2701
RUEHKM/AMEMBASSY KAMPALA 3119
RUEHNR/AMEMBASSY NAIROBI 5562
RUEAIIA/CIA WASHDC
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RHMFISS/EUCOM POLAD VAIHINGEN GE
RHEFDIA/DIA WASHDC
RUEHGV/USMISSION GENEVA 2249
RHEHAAA/NSC WASHDC
UNCLAS SECTION 01 OF 03 HARARE 000601
SENSITIVE
SIPDIS
AF/S FOR B. WALCH
DRL FOR N. WILETT
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 MICHELLE GAVIN
E.O. 12958: N/A
SUBJECT: BUSINESS SECTOR WANTS MORE MARKET-FRIENDLY REFORMS
——-
SUMMARY
——-
¶1. (SBU) The Zimbabwe National Chamber of Commerce (ZNCC)
held its annual congress in Bulawayo from June 24 to 26 and
stressed the need for government to redefine its role: move
out of the production of goods and services and concentrate
on creating a more conducive macroeconomic environment for
business growth. The government was further urged to go into
partnerships with the private sector as a means of mitigating
and sharing risk in infrastructure projects. Participants
agreed that successful partnerships are dependent upon an
improved investment climate which must be facilitated by
political and economic reform. END SUMMARY.
——————————————— ——–
Government must support more market-friendly policies
——————————————— ——–
¶2. (SBU) Deputy Prime Minister Thokozani Khupe told
delegates that government will concentrate on creating a
favorable macroeconomic environment for businesses to thrive.
She said that the State will only participate in
infrastructure projects alongside private partners to share
risks. This was echoed by the chairman of the Institute of
Directors, David Mutambara, who stated that government has no
business in the production of goods and services in the
economy. He went on to say that government itself needed to
implement good governance principles and make itself more
accountable to the electorate.
¶3. (SBU) Daniel Ndlela, a director of the economic
consulting firm Zimconsult, told delegates that the current
poor state of infrastructure was inimical to growth in
investment and trade in Zimbabwe. Indeed, Charles Chikaura,
the Chief Executive of the Infrastructure Development Bank of
Zimbabwe (IDBZ), said that 25 percent of the barriers to
trade are attributable to poor infrastructure. He explained
that there is a serious lack of funds even within his own
organization to upgrade the state of Zimbabwe’s
infrastructure. He therefore supported the adoption of smart
partnerships between government and the private sector
through mechanisms such as build-operate-and-transfer or
build-transfer-and-operate.
——————————————— ———-
Utilities and private sector need to “get prices right”
——————————————— ——–
¶4. (SBU) Most presenters stated that high utility prices
were a major constraint to implementing sustainable
turnaround strategies. ZNCC President Obert Sibanda told
delegates that companies cannot increase capacity utilization
until utilities have been priced more competitively. He also
blamed poor service delivery by most parastatal utilities for
being a hindrance to corporate performance. Khupe pointed
out that most private companies were not basing prices on
costs. She stressed the need for companies to get out of the
hyperinflationary mindset of the past four years, given the
Qhyperinflationary mindset of the past four years, given the
price stability brought about by dollarization. Ndlela
recommended that local companies look beyond the domestic
market and attempt to expand exports. Quoting a survey done
by his company, Ndlela said 82 percent of the 40 firms
interviewed concentrated on producing for the local market.
——————————————— ———
GOZ’s responsibility to improve the investment climate
——————————————— ———
HARARE 00000601 002 OF 003
¶5. (SBU) Ndlela told the conference that very little foreign
investment has come into Zimbabwe since 1997 because of a
number of problems. He identified macroeconomic instability,
poor infrastructure, and a poor investment climate
characterized by lack of property rights and disregard for
the rule of law as the major impediments. Ndlela also said
that in recent months, lack of credit has become a major
problem as local manufacturers cannot get access to credit
due to illiquidity in the banking sector. The Principal
Director in the Ministry of Finance, Mutasa Dzinotizei, said
that liquidity problems were a result of the loss of
confidence in the banking system arising from hyperinflation.
———————–
Investors need a “kiss”
———————–
¶6. (SBU) Nyasha Zhou, the Chief Executive Officer of PG
Industries Limited, which manufactures wood and furniture
products, said that high levels of corruption in government
drove away potential investors. Zhou added that the
political environment had not improved sufficiently to
encourage foreign financial inflows. Sibanda urged
politicians to quickly resolve the outstanding issues of the
global political agreement (GPA) to improve the country’s
credit risk profile. He proposed that rather than ask for
“no strings attached” aid, government should “kiss” foreign
investors and entice them into coming to Zimbabwe.
¶7. (SBU) The suggestion that it was necessary to court
investors infuriated the Minister of Mines and Mineral
Development, Obert Mpofu, who angrily declared that the
political environment had improved greatly. He told the
congress that his ministry had withdrawn the controversial
proposed amendment to the Mines and Minerals Act that sought
to require that indigenous black Zimbabweans hold a 51
percent ownership stake in any Zimbabwe-based foreign mining
operation. He said the Act should be more investor-friendly
and in line with the changing political environment. Mpofu
attacked businesses for not acknowledging the changes taking
place. Then, instead of waiting for discussions that
followed the presentations, he stormed out of the conference
hall.
—————————-
Benefits of Dollarization…
—————————-
¶8. (SBU) Delegates applauded government for the
dollarization of the Zimbabwean economy because it stopped
hyperinflation overnight. Dzinotizei stated that
dollarization represented a voluntary substitution of foreign
currencies for the local dollar caused by the rapid loss of
value in the Zimbabwe dollar due to hyperinflation, the loss
of confidence in the banking sector as cash withdrawals were
limited by the Reserve Bank of Zimbabwe, and a shortage of
foreign exchange and uncertainty leading to postponement of
investment. He noted that the dollarization of the economy
resulted in some degree of policy credibility, price
stability, elimination of exchange rate volatility and a fall
Qstability, elimination of exchange rate volatility and a fall
in the cost of doing business in Zimbabwe.
———————-
… and its challenges
———————-
¶9. (SBU) Dzinotizei told the conference that there were
challenges arising from the dollarization of the Zimbabwean
economy, such as the loss of exchange rate and interest rate
HARARE 00000601 003 OF 003
manipulation as policy tools. He also acknowledged that
there were shortages of foreign exchange — particularly in
rural areas — which adversely affected aggregate demand, and
pointed to the need for dollarization to be accompanied by
other reforms if it is to result in increased benefits to the
economy. Dzinotizei suggested that dollarization was not a
substitute for deeper institutional reforms that are required
in government, and in particular, in the central bank.
——————————–
No return to Zimbabwe dollar yet
——————————–
¶10. (SBU) In spite of these challenges, Dzinotizei told
delegates that calls for the return of the Zimbabwe dollar as
a medium of exchange were misplaced. He said Zimbabwe can
only revert to the use of the Zimbabwe dollar in the event of
a consistent record of credible and predictable policies
coupled with a sound payments system. Additionally,
Dzinotizei stated that there was need to raise bank
capitalization levels to underpin greater liquidity. He
advised the group that the authorities were considering using
the Rand as a reference currency in light of its utility in
promoting deeper regional integration. However, Dzinotizei
said that there were problems attached to this given that
most cost structures are now denominated in US dollars.
——-
COMMENT
——-
¶11. (SBU) Recovery of the private sector in Zimbabwe is
predicated on enhanced policycredibility and implementation
of additional economic reforms. These will also lead to
increased foreign financial inflows required to boost
investment. For credibility, the government needs to quickly
address the outstanding issues of the Global Political
Agreement, including the restoration of the rule of law and
sanctity of property rights. Finally, reconstruction of the
country’s dilapidated infrastructure will depend on the
adoption of genuine public-private partnerships and the
advantages they present in bringing in resources and reducing
risk and cost to the government. END COMMENT.
DHANANI
(13 VIEWS)
