Cablegate: Fear of Expropriation Scuttles Shoprite Deal

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UNCLAS SECTION 01 OF 02 HARARE 000828

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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.

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OK Keeps Mum
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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.

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Asset Seizures Cause Uncertainty
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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.

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Who's Afraid of BIPPA?
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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.

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Comment
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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

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company understands political risk in Zimbabwe and may be unwilling
to increase its exposure.

PETTERSON

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