INDEPENDENT NEWS

Cablegate: Zimbabwe Merger Gone Wrong Harms Investment Climate (Such

Published: Mon 28 Sep 2009 03:24 PM
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PP RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSB #0776/01 2711524
ZNR UUUUU ZZH
P 281524Z SEP 09
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC PRIORITY 4960
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHAR/AMEMBASSY ACCRA 3060
RUEHDS/AMEMBASSY ADDIS ABABA 3173
RUEHRL/AMEMBASSY BERLIN 1602
RUEHBY/AMEMBASSY CANBERRA 2436
RUEHDK/AMEMBASSY DAKAR 2805
RUEHKM/AMEMBASSY KAMPALA 3221
RUEHNR/AMEMBASSY NAIROBI 5666
RUEHGV/USMISSION GENEVA 2353
RUEAIIA/CIA WASHDC
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RHMFISS/EUCOM POLAD VAIHINGEN GE
RHEFDIA/DIA WASHDC
RHEHAAA/NSC WASHDC
UNCLAS SECTION 01 OF 02 HARARE 000776
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
NSC FOR SENIOR AFRICA DIRECTOR MICHELLE GAVIN
E.O. 12958: N/A
TAGS: ECON EINV ZI
SUBJECT: ZIMBABWE MERGER GONE WRONG HARMS INVESTMENT CLIMATE (SUCH
AS IT IS)
1. (U) SUMMARY: After the GOZ took control of a Leading business
group this month, foreign press reports stoked fears of
expropriations. But local observers tend to see this story as a
business merger gone wrong rather than a ZANU-PF plot. Whatever the
merits of that view, there will inevitably be damage to external
confidence in Zimbabwe's investment climate. END SUMMARY.
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ZANU-PF Flies with the Vultures
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2. (U) On September 11 the GOZ seized control of Kingdom Meikles
Africa Limited (KMAL), once the biggest local company on Zimbabwe's
stock exchange. Based on an anti-corruption statute, the move
triggered press reports outside of Zimbabwe that President Mugabe's
ZANU-PF party was ready to broaden expropriations beyond commercial
farms.
3. (SBU) But the local perception of the KMAL saga is that it is not
just another ZANU-PF looting spree. In the view of Embassy business
contacts, the 2007 merger between Kingdom Financial Holdings (KFH)
and Meikles Africa was rushed and badly managed. By the time the
GOZ first intervened in January by temporarily taking control of
some Meikles assets, KMAL had run aground. "ZANU-PF is just a
vulture circling the carcass, they did not engineer this," said one
businessman who has served on the boards of several Zimbabwean
companies. At the time of the merger, KMAL had a market value of
USD 500 million. The company is now worth about USD 90 million.
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Culture Clash
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4. (SBU) Internal frictions at KMAL emerged from the incompatible
corporate cultures of Meikles Africa and KFH, the bank built by
self-made man Nigel Chanakira. After the merger, Chanakira's
reportedly fervent Pentecostal style is said to have rubbed Meikles
executives the wrong way. The board failed to keep a lid on
internal disagreements, and a struggle over management control
boiled over into the press. Many local observers believe Chanakira
used money-laundering allegations against Meikles executive John
Moxon as a way of preventing his own ouster from the KMAL board.
The main purpose of a KMAL shareholders meeting scheduled for
September 24 was to dismiss Chanakira and his closest allies from
the board to reverse the merger. Chanakira secured a court order to
postpone the meeting. A September 25 press report states that
Chanakira is currently hospitalized in South Africa.
5. (U) While Harare businesspeople do not geerally attribute KMAL's
troubles to ZANU-PF, there is a direct connection to GOZ policies
that create acute uncertainties for businesses. Moxon has said in
public that the KMAL merger was primarily a maneuver to protect
Meikles Africa from the expected effects of "indigenization"
legislation the GOZ was preparing in 2007. Before the merger,
Meikles Africa already held a 34-percent stake in KFH. The
Indigenization and Economic Empowerment Act that President Mugabe
QIndigenization and Economic Empowerment Act that President Mugabe
signed in March 2008 seeks to put majority ownership of businesses
in the hands of "indigenous Zimbabweans," who are defined in the
statute as "any person who before the 18th of April 1980 was
disadvantaged by unfair discrimination on the grounds of his or her
race, and any descendant of such person."
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COMMENT
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6. (SBU) Local perceptions notwithstanding, the GOZ's seizing of
KMAL will inevitably undermine external confidence in what is
called, for want of a better expression, Zimbabwe's investment
HARARE 00000776 002 OF 002
climate. Despite claims by ZANU-PF and MDC officials alike that the
current indigenization law will be used "flexibly," a more practical
law and repeal of onerous statutes like the one the GOZ used to
seize KMAL are necessary to restore investor confidence. But
indigenization is a highly-charged issue, and it is unlikely the
government, even its MDC members, will soon be willing to tackle
this. END COMMENT.
PETTERSON
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