Zimbabwe’s Planned National Indigenization and Empowerment Bill: Disaster for the Country’s Economic Infrastructure
by Lelety Mabasa
- Zimbabwe -
Under the bill, which will be bulldozed into law in the next two months, all foreign owned companies will be forced to cede at least 51 percent of their shareholding to indigenous “black” Zimbabweans.
Reeling under severe economic hardships which have earned it the world's highest monthly inflation rate, Zimbabwe is to be dealt yet another blow as far as foreign investment is concerned. The impending disaster will take the form of the enactment of the controversial “National Indigenization and Empowerment Bill.”
All foreign investors seeking to invest in Zimbabwe will be made to seek joint ventures and partnerships with black Zimbabwean business people. According to President Robert Mugabe's government, “they cannot continue holding controlling stake” in the country's enterprises. The government is also planning to use the National Indigenization and Empowerment Fund to mobilize resources and provide loans to new aspiring black business tycoons.
The government argues that the black majority in Zimbabwe should be enabled to venture into big business enterprises through the forced handover of majority stakes in businesses. Thus blacks are supposed “to enjoy the country's wealth, as they are the original owners of Zimbabwe's resources”.
Economic analysts have predicted that the Indigenization Bill, which has fueled apprehension among the country's few remaining foreign companies, will be the final nail in the country's economic coffin.
John Robertson, an independent economic analyst based in Harare, Zimbabwe's capital, warns that the bill, if passed into law, will lead to further deterioration of the country's productive sector. “The plan will bring an end to new investment and will also bring an end to the updating of the existing technology. Existing investors will not continue investing in businesses they risk losing…Once machinery and methods are left un-updated, this will translate into less and less desirable and [more] incompetent products. The manufacturing sector will become less and less efficient and we will start manufacturing outdated goods.”
The indigenization and empowerment proposals happen to come in the midst of Zimbabwe's preparation for next year's presidential elections. Political analysts predict the government stands to lose, due to widespread discontent among the country's electorate, who have endured the effects of the country's seven-year, government-initiated, economic meltdown long enough.
President Robert Mugabe has ruled Zimbabwe since its independence from Britain in 1980. He is the candidate of the ruling Zanu-Pf party once again in next year's elections.
In the words of one economist (who asked not to be identified), “The policy is just another of government's cheap ways of vote buying. They are aware that everyone is discontent and they have to shore up support. It is, however, unfortunate that this will [produce] very retrogressive economic effects, and citizens will continue to suffer while ‘someone’ fantasizes about a potential five-year extension of his 27-year-old rule.”
The Present Situation
Zimbabwe's industrial companies are hardly performing at capacity. While official estimates put operations at 30 percent, some economists claim that this figure is as much as 5 percent lower. Meanwhile, the country has been flooded by inferior Chinese products.
Another economist with a local bank (who asked not to be identified) advises that the policy would work better if it were implemented from grassroot levels up, to compliment existing businesses.
John Robertson adds, “The government should encourage local people to start their own businesses from [local] factory levels instead of forcing somebody else to hand down their business[es] to them. New business owners should come into the industry with their own businesses to complement existing businesses, and that way, the economy will tick.”
However, the government is adamant that the plan will help turn around the country's presently dismal economic fortune.
The government’s report on the policy reads, “The type of empowerment for the past 25 years has been through clubs and small projects, with very little growth into big business ventures by the black majority…Although some gains have been recorded since 1980, there is need for a legal framework to guarantee such achievements, [so] the black people [can] realize total economic empowerment…We submit that a carefully planned and well-funded indigenization policy can create a critical mass of small operators sufficient to drive the economy and supplant the conglomerates.”
The government will also create economic empowerment councils who will “monitor, articulate and implement approved indigenization policies” which will cut across all sectors of the economy.
The bill is part of a package of legislation that critics have likened to reverse-apartheid laws. Another bill included in the package is the "Interception of Communications Bill", which will authorize the government to monitor all communications to “tighten state security”.With some reports placing May’s monthly inflation at 4,530 percent, with foreign currency reserves running dry, and more than three-quarters of the people living in abject poverty, Zimbabwe's economic woes must be addressed.
Critics say the disastrous land reform program should show government that indigenous people have no capacity to run big businesses; they lack both skill and resources. Faced with stiff political opposition as the country moved toward the 2000 parliamentary and 2002 presidential elections, in 2000 the Zimbabwe government hounded more than 3,000 white commercial farmers out of the country. That paved the way for the collapse of the country's agricultural sector, which has always been the backbone of the country's economy. The farms given out to black indigenous people still continue to struggle. Most are unable to utilize the land effectively.
Minister of State for Indigenization and Empowerment, Munyaradzi Paul Mangwana says, “Zimbabweans own large businesses in most parts of Africa and in the developed world. They also manage 90 percent of the companies listed on the local bourse, and these companies are performing extremely well. As government, we are confident they have adequate capacity to own these companies and continue to run them efficiently [once] they are theirs.”
The effects of the government's plan seem to be setting in already: there are reports that several mining operations have suspended planned expansion programs. This suggests that international financiers, previously keen on underwriting projects, have become tight-fisted in the face of increasing fiscal risk and security concerns.
In 2004, the government managed to attract the interest of several mining conglomerates by proposing that it would guarantee the growth of the mining sector. In order to repatriate dividends to foreign shareholders, mining companies would be allowed easy access to foreign currency. The government even pledged to pay back the foreign capital if they decided to pull out of the country. The Ministry of Mines was then expected to devise whatever policies might be necessary to ensure that mining companies would be protected from forcible seizures.
South Africa’s black-owned Metallon Corporation had pledged to invest about $100 million (USD) in gold mining while Impala Platinum intended to pour about $700 million (USD) into the development of its platinum mines in Zimbabwe over a five-year period. Zimbabwe Platinum (Zimplats), in which Impala has a controlling stake of 87 percent, proposed to invest about $2 billion (USD) over 20 years in its Zimbabwean operations.
Just recently, Zimplats had explained that its ambitious project, the biggest ever in Zimbabwe, would involve the construction of a thermal power station that would also help alleviate Zimbabwe’s power crisis. Not only was the government to be offered surplus power, it also stood to get a stake in the power plant itself! The project also involved a massive expansion drive, aimed at boosting annual platinum output from current levels of 85,000 ounces per year to more than one million ounces. Over the course of the project, eight new underground mines were also to be established.Now, sources (who wish not to be identified for fear of retribution from the Zimbabwean government) say investors are mum about implementing these plans.
Supposedly, in the case of Zimplats, government had not yet approved the proposals. But besides that, investors were concerned over government’s targets for ‘empowerment,’ as well as the failure by Zimbabwe to sign a bilateral accord with South Africa to guarantee protection of South African investments.
In the face of all this, the government says it remains convinced that black Zimbabweans have the capabilities necessary to run the companies in question.
What seems clear is that Zimbabwe will surely lose, even if President Mugabe manages to win yet again.
About the Author
Lelety Mabasa is the pen name of a Zimbabwean journalist based in Bulawayo. She has worked for both public and private owned newspapers in the country and holds a BSC Hons in Media and Society Studies from Zimbabwe's Midlands State University.