March 25, 2002

Dr. Jambo Ngambo
Minister, Ministry of the Interior
Suite 405
Government Administration Building
Mambo
Mazingira

Subject: Negotiations on the tourism project with Holdev

Dear Mr. Ngamo:

At our lunch together last month, you asked me to keep you informed of how the negotiations with Holdev on tourism project have been going. I hope that you find that the following report meets your needs.

I am happy to report that negotiations are progressing quite nicely, and we think that Mazingira will benefit from the agreement that we ultimately reached. Our negotiations focused on the employment of Mazingirans in the construction, operations, and administrative phase and we reached a satisfactory agreement on the construction and operations phase. However, we will have to continue negotiations on the administrative phase.

Some background information will help you understand more clearly how smoothly the negotiations have developed. Although Holdev is known as a hard negotiator, according to the US tourism Department-sponsored survey, they were willing to meet us halfway on the employment rate in managerial positions. The employment rate in other developing countries, where Holdev had tourism projects, shows that Holdev is not at all interested in hiring local people in all positions requiring high skilled workers. In the developing countries like Mazingira, Holdev filled 100% of key managerial positions and the average of 60% of both middle and lower positions with their own ready-made skilled workers. On the contrary to the survey result, in our preliminary and general meetings with Holdev, their attitudes toward the negotiations on the employment rate of Mazingirans were rather favorable from the very beginning.

Our negotiations on the employment in the construction and operations phase are progressing satisfactorily, yet we have not yet been able to reach a successful agreement on the administrative phase. As for the construction and the operations phase, Holdev has finally accepted our proposal to hire 60% of its construction workers and 40% of its operations workers from Mazingira. But we will have to continue negotiations on the specific amount of wages and hiring qualifications. In return for such a high rate of employment in the construction and operations phase, we agreed to let Holdev use our land free of charge during a 3-year construction period. In future negotiation sessions, we will discuss and finalize the details about landownership and land control, the amount of land they use, and the charge for using our land after the construction is finished. In addition to the reasonable compromise on both construction and operations phase, we have temporarily succeeded in persuading Holdev to appoint Mazingiran workers in 30% of key managerial positions and to provide those workers with a 5-year training program. Holdev was prepared to accept our proposal, on condition that we give them a tax cut of 80%, yet we found their offer unacceptable since when seeing the present state of developing countries that were introduced tourism by Holdev and lowered tax rate by up to 70%, those countries have been suffering from serious economic woes due to lack of national revenue and troubled domestic industry. Unless Mazingira imposes reasonable amount of tariffs on Holdev's imported building materials, such as steel and other imported goods, chances are that Mazingira will suffer from the same problems as other developing countries. Since we didn't have enough time to reach an agreement on tax reduction, we have agreed to have another meeting next Thursday. The specific rate and duration of the tax reduction will be discussed further in the meeting next week.

Our assessment of the present state of negotiations is rather positive, although we cannot be necessarily optimistic about their results. Since Holdev wants to avoid a deadlock as much as we do, we feel that we can make a reasonable compromise with Holdev on the matter of tax reduction in the next meeting. Holdev will, after all, agree on a tax reduction of 60% as we proposed in the previous meetings since Holdev has once experienced a great loss in Cuba tourism project with their negotiations on tax reduction getting bogged down, and ultimately stopping Holdev's project in Cuba halfway. Therefore, Holdev will not probably be too stubborn about the issue of tax reduction. On top of the issue of tax reduction, in our next meeting, we will have to renegotiate the 5-year training program by discussing how to run a training program more effectively and smoothly.

Our team recommends that our government ensure that Holdev gives Mazingira's perspective managers funds to go to the United States and make investigation into the nature of the training program as part of preparation, so that later, management training program progresses effectively and smoothly. And I also strongly recommend that a visit by Holdev's managing director and the director of recruiting team would be certainly helpful for the next meeting with Holdev where we will work mainly on tax reduction and running a training program.

In conclusion, we feel that the negotiations have come in the way that both Holdev and our team have been generally satisfied. Holdev will be allowed to use our land free of charge during a 3-year construction period for hiring Mazingirans in 60% of its construction workers and 40% of its operations workers. And negotiations on a substantial rate of tax reduction below 80%, in return for hiring Mazingirans in 30% of its administrative workers and offering us a 5-year management program, are in the works. We can say that negotiations have developed to the point that we feel Holdev can go ahead with this project, yet we would like to remind you of the fact that we have several more important items to go over.

Everyone on the team hopes that you are doing well, and that business is not keeping you as busy as you were last month we met. And we want to express our appreciation for your very helpful guidance throughout these negotiations. If you have any questions, please e-mail me; we will be at Hilton hotel until the next meeting is held. My e-mail address is yj1222@hotmail.com

Sincerely,

Kim You-Jeong
Member
Mazingira National Tourism Development Board
101 N. Merion Ave
Mambo
Mazingira

Enclosure: Employment in Mazingira, 2001