Uncertainty over property rights was reported to have scuttled a US$167 million partnership deal between South African retail giant Shoprite and OK Zimbabwe Limited, according to a cable released by Wikileaks.
Although Shoprite already had one store in Bulawayo and therefore understood political risk in Zimbabwe, the cable says, it was probably unwilling to increase its exposure.
“Continuous harassment of businesses for political ends (or self-enrichment) will continue to scare away foreign investors,” the cable says.
It says the chief executive officer of the Zimbabwe Stock Exchange, Emmanuel Munyukwi, suspected that Shoprite was unhappy with the government’s seizure of Kingdom Meikles Africa Limited under the sweeping authority of an anti-corruption statute.
“The GOZ’s intervention in what had been an internal dispute at KMAL revived fears over property rights and the safety of foreign investments in Zimbabwe. Apart from the many GOZ-sponsored farm invasions over the past decade, several other episodes have also highlighted the fragility of property rights in Zimbabwe.
“In 2004 the GOZ took over Shabanie and Mashaba Mines but never quite explained why. And last week the central bank briefly froze the accounts of Nestle Zimbabwe following after the company stopped buying milk from a farm owned by Grace Mugabe,” the cable says.
Full cable:
Viewing cable 09HARARE828, FEAR OF EXPROPRIATION SCUTTLES SHOPRITE DEAL
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Reference ID |
Created |
Released |
Classification |
Origin |
VZCZCXRO1686
OO RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSB #0828/01 2890858
ZNR UUUUU ZZH
O 160858Z OCT 09 ZDK
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5026
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUEHAR/AMEMBASSY ACCRA 3091
RUEHDS/AMEMBASSY ADDIS ABABA 3203
RUEHRL/AMEMBASSY BERLIN 1632
RUEHBY/AMEMBASSY CANBERRA 2466
RUEHDK/AMEMBASSY DAKAR 2835
RUEHKM/AMEMBASSY KAMPALA 3251
RUEHNR/AMEMBASSY NAIROBI 5698
RUEAIIA/CIA WASHDC
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RHMFISS/EUCOM POLAD VAIHINGEN GE
RHEFDIA/DIA WASHDC
RUEHGV/USMISSION GENEVA 2385
RHEHAAA/NSC WASHDC
UNCLAS SECTION 01 OF 02 HARARE 000828
SENSITIVE
SIPDIS
AF/S FOR B.WALCH
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 M.GAVIN
E.O. 12958: N/A
SUBJECT: FEAR OF EXPROPRIATION SCUTTLES SHOPRITE DEAL
Ref: Harare 776
¶1. (SBU) Summary: Uncertainty over property rights continues to
scare away foreign investors. A USD 167 million partnership deal
between South African retail giant Shoprite and OK Zimbabwe Limited
has stalled. The main reason could be concerns raised by the GOZ’s
seizure of another firm and its failure to conclude a bilateral
investment agreement with South Africa. While many local companies
are starting to invest again, Zimbabwe’s investment climate remains
unattractive for outsiders. End summary.
————
OK Keeps Mum
————
¶2. (SBU) Discussions between Zimbabwean retailer OK and South
African retail giant Shoprite for an equity partnership arrangement
appear to have stalled. A Shoprite official was quoted in the South
African press saying that the company decided to put its investment
plans in Zimbabwe on hold due to “socio-economic and political
uncertainty.” OK’s management, meanwhile, has declined to comment.
Chief operating officer Albert Katsande told us that the company
could not make public statements until after publication of its
half-year results. Nevertheless, Katsande believes nothing had
changed.
——————————–
Asset Seizures Cause Uncertainty
——————————–
¶3. (SBU) The chief executive officer of the Zimbabwe Stock Exchange
(ZSE), Emmanuel Munyuki, suspects that Shoprite was unhappy with the
GOZ’s seizure of Kingdom Meikles Africa Limited (KMAL) under the
sweeping authority of an anti-corruption statute (reftel). The GOZ’s
intervention in what had been an internal dispute at KMAL revived
fears over property rights and the safety of foreign investments in
Zimbabwe. Apart from the many GOZ-sponsored farm invasions over the
past decade, several other episodes have also highlighted the
fragility of property rights in Zimbabwe. In 2004 the GOZ took over
Shabanie and Mashaba Mines but never quite explained why. And last
week the central bank briefly froze the accounts of Nestle Zimbabwe
following after the company stopped buying milk from a farm owned by
Grace Mugabe.
———————-
Who’s Afraid of BIPPA?
———————-
¶4. (SBU) Munyuki also said that the GOZ’s continuing delay in
signing a bilateral investment promotion and protection agreement
(BIPPA) with South Africa also influenced Shoprite’s decision. The
draft BIPPA text, negotiated long ago, would include a guarantee of
South Africans’ security of tenure on agricultural land. The GOZ has
recently sought to re-negotiate this provision. GOZ foot-dragging
over an agreement meant to protect new and old investments against
expropriation has sent the wrong signals about Zimbabwe’s desire to
attract foreign direct investment.
——-
Comment
——-
¶5. (SBU) Zimbabwe’s bid to get foreign investment will be more
successful once it implements mutually reinforcing economic and
political reforms. While there has been much progress on fiscal
Qpolitical reforms. While there has been much progress on fiscal
policy, the GOZ needs to do much more to protect property rights and
uphold the rule of law. Continuous harassment of businesses for
political ends (or self-enrichment) will continue to scare away
foreign investors. Shoprite already owns one store in Bulawayo. The
HARARE 00000828 002 OF 002
company understands political risk in Zimbabwe and may be unwilling
to increase its exposure.
PETTERSON
(57 VIEWS)
