Khupe tells business to get out of the hyperinflationary mindset

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

If you are new to these pages, please read an introduction on the structure of a cable as well as how to discuss them with others. See also the FAQs

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

TAGS: ECON EINV PGOV ZI

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)