Old Mutual threatened to close shop than lose control


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The chief executive officer of Old Mutual Luke Ngwerume threatened five years ago to close the company’s Zimbabwe arm before it allowed anyone to control its operations and brand.

Ngwerume said this at a lunch organised by United States ambassador to Zimbabwe James McGee to discuss concerns raised by foreign–owned companies after the signing of the Indigenisation and Economic Empowerment Act by President Robert Mugabe.

The CEOs of Murray and Roberts, a South African construction company; Metallon Gold Zimbabwe, a black-South African owned mining company; and the Cairns Group agreed.

Metallon CEO Collen Gura said his company only banked with the three foreign-owned banks in Zimbabwe: Standard Chartered, Stanbic and Barclays.

If the foreign-owned banks closed their Zimbabwe operations rather than sell 51 percent of their shareholding, it would significantly weaken the banking sector and reduce liquidity in Zimbabwe’s already strapped economy.

John Laurie, a director of Standard Chartered Bank, said that indigenisation could wipe out the remaining assets of white Zimbabweans because they held many of their private assets, including farms, as companies.

 

Full cable:

 

Viewing cable 08HARARE215, ZIM’S INDIGENIZATION BILL – A DAMAGING BUT MOST LIKELY

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

Reference ID

Created

Classification

Origin

08HARARE215

2008-03-19 08:21

UNCLASSIFIED//FOR OFFICIAL USE ONLY

Embassy Harare

VZCZCXRO8891

RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN

DE RUEHSB #0215/01 0790821

ZNR UUUUU ZZH

R 190821Z MAR 08

FM AMEMBASSY HARARE

TO RUEHC/SECSTATE WASHDC 2603

RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE

RUEHUJA/AMEMBASSY ABUJA 1879

RUEHAR/AMEMBASSY ACCRA 1822

RUEHDS/AMEMBASSY ADDIS ABABA 1946

RUEHRL/AMEMBASSY BERLIN 0525

RUEHBY/AMEMBASSY CANBERRA 1223

RUEHDK/AMEMBASSY DAKAR 1580

RUEHKM/AMEMBASSY KAMPALA 2002

RUEHNR/AMEMBASSY NAIROBI 4433

RHEHAAA/NSC WASHDC

RHMFISS/EUCOM POLAD VAIHINGEN GE

RUEHGV/USMISSION GENEVA 1073

RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK

RUEAIIA/CIA WASHDC

RHEFDIA/DIA WASHDC

UNCLAS SECTION 01 OF 02 HARARE 000215

 

SIPDIS

 

AF/S FOR S.HILL

ADDIS ABABA FOR USAU

ADDIS ABABA FOR ACSS

NSC FOR SENIOR AFRICA DIRECTOR B.PITTMAN

TREASURY FOR J.RALYEA AND T.RAND

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

COMMERCE FOR BECKY ERKUL

 

SENSITIVE

SIPDIS

 

E.O. 12958: N/A

TAGS: PGOV ECON ASEC ZI

SUBJECT: ZIM’S INDIGENIZATION BILL – A DAMAGING BUT MOST LIKELY

IDLE THREAT

 

REF: Harare 0598

 

——-

SUMMARY

——-

 

1. (SBU) The announcement that President Mugabe had signed the

Indigenization and Economic Empowerment Act and its official

publication on March 7 rocked the business community in Zimbabwe.

Many businessmen had breathed a sigh of relief believing the Bill

had been allowed to expire, unsigned, when parliament was dissolved

in February; however, it now appears that Mugabe had signed the Bill

before Parliament was dissolved and was holding back the

announcement to use it as a vote getter during the elections. Some

international companies have said privately that they will shut down

their Zimbabwe operations rather than turn their brand over to

foreign ownership, reducing already meagre foreign investment.

Mugabe, however, will most likely allow the Bill to sit on the books

unimplemented as a threat to business and potential carrot for

ruling-party cronies. END SUMMARY.

 

——————————-

Indigenization Bill Still Alive

——————————-

 

2. (SBU) The announcement on March 7 that President Mugabe had

signed the Indigenization and Economic Empowerment Act (the

Indigenization Bill) (reftel) came as a surprise to many who thought

it had died a procedural death when parliament was dissolved in

February 2008. (NOTE: Parliament had passed the Bill on October 2,

2007. END NOTE.) At a business lunch hosted by the Ambassador on

March 11, Callisto Jokonya, President of the Confederation of

Zimbabwe Industries (CZI), said that according to his sources,

Mugabe had signed the Bill in late 2007 and held back announcement

until now.

 

3. (SBU) Indigenisation and Empowerment Minister Paul Mangwana gave

details on the Bill at a press conference on March 11, explaining

government will set a time frame for the sale of the 51 percent

non-indigenous shareholding, and indigenous (defined as anyone who

suffered racial discrimination before Zimbabwe’s independence in

1980) investors will buy the shares after negotiations with the

foreign-owned firms. The government would not be involved in

determining who could buy shares or the price of the shares.

Mangwana said “This is going to be a partnership…between the

private company and potential investors. Companies will be given an

opportunity to identify the indigenous investor to partner with in

the business. Government will not dictate which companies should

acquire the shares as this would be purely business transactions.”

 

——————-

But Not Yet Walking

——————-

 

4. (SBU) Israel Chilimanzi, legislative program advisor at the

Center for International Development, which is funded by State

University of New York Zimbabwe (SUNY), also said that the

Indigenization Bill might never take effect as it requires a

statutory instrument from Minister Mangwana to be implemented.

Chilimanzi cited an audit Bill that was drafted and signed in 1997

and also required a statutory instrument to implement it. The

instrument was only passed ten years later. He suggested that

Mugabe and Mangwana could sit on the Indigenization Bill

indefinitely without enacting it.

 

5. (SBU) If the Indigenization Bill is enacted its implementation

could bog down in negotiations over the share price. The companies

 

HARARE 00000215 002 OF 002

 

 

would first have to be valued before the price of 51 percent of the

shares could be negotiated, which could delay any sale

significantly, according to Phillip Chigumira, the CEO of the Cairns

Holding Group. The composition of the 51 percent shareholding also

would have to be negotiated, which could further delay any

takeover.

 

———————————-

Nonetheless, Investors Are NervoQ

———————————-

 

6. (SBU) Subsidiaries of foreign-owned companies in Zimbabwe are

clearly worried about the Bill, and many U.S. companies have

contacted the Embassy with questions about its status and

implications. At the Ambassador’s March 11 lunch, Old Mutual Life

Assurance Company Zimbabwe Ltd CEO Luke Ngwerume said that Old

Mutual would close its Zimbabwe arm before it allowed someone else

to control the company’s operations and brand. The CEOs of Murray

and Roberts, a South African construction company; Metallon Gold

Zimbabwe, a black-South African owned mining company; and the Cairns

Group agreed. Metallon CEO Collen Gura also noted his company only

banks with the three foreign-owned banks in Zimbabwe: Standard

Chartered, Stanbic and Barclays. If the foreign-owned banks closed

their Zimbabwe operations rather than sell 51 percent of their

shareholding, it would significantly weaken the banking sector and

likely reduce liquidity in Zimbabwe’s already strapped economy.

John Laurie, a Director of Standard Chartered Bank, told us in

addition that the Indigenization Bill could wipe out the remaining

assets of white Zimbabweans because they held many of their private

assets, including farms, as companies.

 

——-

COMMENT

——-

 

7. (SBU) The timing of the announcement that Mugabe had signed the

Indigenization Bill certainly suggests it is being used as an

election gimmick; however, it is unclear how effective it will be.

Past experience with fast-track land reform has shown most

Zimbabweans that these so-called redistribution measures have failed

to enrich them. Thus, it seems likely that Mugabe is using the Bill

to scare businesses into supporting him or risk being targeted for

indigenization, and probably also as a carrot to buy the loyalty of

ruling party insiders who might be leaning toward supporting rival

presidential candidate Simba Makoni. These insiders have already

benefited from government patronage, so their experience tells them

it works; they could see in the Indigenization Bill an opportunity

to enrich themselves further. Given the limited success indigenous

Zimbabweans will probably have in actually acquiring 51 percent of

any foreign-owned company, however, we think the Bill is more of an

idle threat and promise than reality. In the meantime, the

uncertainty over its implementation will deter much needed corporate

investment and tilt the scales toward more international companies

exiting Zimbabwe. END COMMENT.

 

MCGEE

 

(14 VIEWS)

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Charles Rukuni
The Insider is a political and business bulletin about Zimbabwe, edited by Charles Rukuni. Founded in 1990, it was a printed 12-page subscription only newsletter until 2003 when Zimbabwe's hyper-inflation made it impossible to continue printing.

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