VZCZCXRO6914
PP RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSB #0366/01 1151227
ZNR UUUUU ZZH
P 241227Z APR 08
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC PRIORITY 2829
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHUJA/AMEMBASSY ABUJA 1945
RUEHAR/AMEMBASSY ACCRA 1950
RUEHDS/AMEMBASSY ADDIS ABABA 2072
RUEHBY/AMEMBASSY CANBERRA 1349
RUEHDK/AMEMBASSY DAKAR 1706
RUEHKM/AMEMBASSY KAMPALA 2128
RUEHNR/AMEMBASSY NAIROBI 4559
RUEAIIA/CIA WASHDC
RUEHGV/USMISSION GENEVA 1207
RHEHAAA/NSC WASHDC
RHMFISS/JOINT STAFF WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEFDIA/DIA WASHDC//DHO-7//
RUCPDOC/DEPT OF COMMERCE WASHDC
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK//DOOC/ECMO/CC/DAO/DOB/DOI//
RUZEHAA/CDR USEUCOM INTEL VAIHINGEN GE//ECJ23-CH/ECJ5M//
UNCLAS SECTION 01 OF 02 HARARE 000366
SIPDIS
SENSITIVE
SIPDIS
AF/S FOR S. HILL
NSC FOR SENIOR AFRICA DIRECTOR B. PITTMAN
STATE PASS TO USAID FOR L.DOBBINS AND E.LOKEN
TREASURY FOR J. RALYEA AND T.RAND
COMMERCE FOR BECKY ERKUL
ADDIS ABABA FOR USAU
ADDIS ABABA FOR ACSS
E.O. 12958: N/A
TAGS: ECON PGOV ASEC ZI
SUBJECT: COCA COLA, HAMMERED BUT IN ZIMBABWE TO STAY
-------
SUMMARY
-------
1. (U) Coca Cola is in Zimbabwe for the long haul, but the
company and its bottlers are plagued by the problems of labor
retention, access to foreign exchange, sugar procurement,
punitive price controls, and power and water outages. A
senior executive believed that the technical state of the
bottling plants was still good and key personnel would return
to Zimbabwe once a recovery set in; the biggest constraint on
returning to normal operation would be the poor state of
Zimbabwe's sugar refineries. END SUMMARY.
--------------------------------
The Challenge of Retaining Labor
--------------------------------
2. (SBU) Coca Cola's Senior Operations Marketing Manager in
Zimbabwe, Togarepi Chinoda, told econoff on April 21 that
Coca Cola was in Zimbabwe for the long haul despite a
plethora of challenges. From a staff of 49 in 1998, four
employees now managed the brand. Of 20 management trainees
taken on, Chinoda said an average of only one was willing to
remain with the company after two years of training,
primarily due to poor remuneration. Coca Cola's solution to
the white-collar staffing problem was to intensify management
training and promise a temporary posting to a Coca Cola
operation elsewhere in the region. Chinoda himself had
recently relocated to Lusaka to manage the South Central
Africa Territory, including Zimbabwe, which he now visited
only once a month. On the plant side, it was particularly
difficult for the company's contracted bottlers to retain
workers and motivate them even to show up for work.
--------------------------------------
Falling Production, No Access to Forex
--------------------------------------
3. (SBU) Production at Coca Cola's local bottlers (Delta
Corporation, Schweppes Zimbabwe and Mutare Bottlers) fell
from 63 million unit cases in 2002 to 16 million unit cases
last year. Although the Reserve Bank of Zimbabwe (RBZ)
allowed, for example, Delta to retain 100 percent of its
foreign currency earnings, Delta had been unable to access
any of its forex since October (50 percent of Delta's inputs
to Coca Cola products are imported). Delta received BACOSSI
funds from the RBZ at 25 percent annual interest last year to
purchase raw materials, but it was only once-off funding and
the plant had exhausted the inputs within a week. Procuring
sugar remained a huge challenge.
--------------------------------------------- -
Punitive Price Controls, Power/Water Shortages
--------------------------------------------- -
4. (SBU) Demand for Coca Cola's products was strong even at
high prices, but the National Incomes and Pricing Commission
(NIPC) failed to approve price increases frequently enough.
On April 16, the bottlers had received a long awaited price
increase but under hyperinflation even the new price (Z$17
million a bottle - or roughly a US$ nickel at the street rate
- up from Z$12 million) no longer covered the cost of
production. For its part, Chinoda said Coca Cola had sought
to minimize costs to the bottlers by taking over nearly all
HARARE 00000366 002 OF 002
their marketing and distribution functions. In the meantime,
production at Delta had fallen to, at best, 2-3 days a week
and suppliers were "screaming" to get paid.
5. (SBU) The Delta bottling plant in Harare had good power
and water supply but its Bulawayo plant suffered regular
outages. Schweppes Zimbabwe's Willowvale plant in Harare, on
the other hand, had come to a standstill all of last week for
lack of power and, for two days, lack of water. Chinoda
commented that Schweppes had been hardest hit of all bottlers
at the start of the price crackdown last year. He assumed
that Coca Cola's 100 percent ownership of Schweppes Zimbabwe
and the fact that it produces Zimbabwe's national drink -
Mazoe orange crush - had most likely attracted the attention
of top military officials (including Police Commissioner
Augustine Chihuri and Air Marshal Perence Shiri), who had
descended on the plant demanding that production continue at
all costs.
-------------
Looking Ahead
-------------
6. (SBU) Looking ahead, Chinoda felt that, from a technical
point of view, production at the bottlers could be ramped up
quickly and key personnel would also flock back from the
region once a recovery set in, but the state of Zimbabwe's
sugar refineries was a serious constraint. He believed it
could take up to a year to refurbish the refineries to the
point that they could provide a steady and large enough
supply of sugar to allow the bottlers to return to normal
operation.
DHANANI