Uncertainty over property rights scared investors

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

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

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

TAGS: ECON EFIN ZI

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)