ZIMBABWE’S indigenisation law sadly reveals the ineptitude of vacuous economic policies that rarely fail to miss the point. Fewer would be convinced that an almost bankrupt country, recently on the verge of an economic implosion and barely admitted into the international community for failure to hnour its obligations, would need to prioritise an equalisation law under the guise of indigenous empowerment.
The law, which requires foreign companies to cede at least 51 percent of their equity to locals in a lopsided dollarised economy, is not only contradictory but dangerously pretentious.
The benefits of a South African style BEE empowerment law are unquestionable but Zimbabwe does not have the economic stability that our neighbours had when they implemented theirs. Almost 30 years after independence, the Zimbabwean economy is not exactly emblematic of white domination.
The critical question is whether this is the right time to introduce the law in light of the obvious limitations and disintermediation of an economy still recovering from a state of near collapse. The contextual incentives to the introduction of the policy seem a matter of partisan gain than substantive economic benefit. There are many reasons why this is the right law at the wrong time.
The most obvious reason is dollarisation, a clear and present reminder of the failure of indigenous economic policies the result of which was the adoption of foreign currencies which implies a surrender of domestic monetary policy. The adoption of the US dollar as legal tender, although positively correlated to economic stabilization, has also resulted in a highly illiquid market, banks with no capacity to lend and a central bank incapacitated from its lender of resort function.
The unity government’s international outreach for donor support and attempts to attract foreign direct investments highlights the poor state of its coffers. Put simply, a country using other people’s currencies and currently begging for “alms” cannot claim self sustenance or pretend that the locals have enough foreign currency resources to buy equity stakes from foreign companies.
The other concern is the chaos surrounding the land reform programme which was by any standard a catastrophic success. The fear that the empowerment law will turn into a company grab by the few with pot bellies and dark glasses is not without merit. The land reform programme was by any standard the catalyst for a decade-long economic collapse.
The communist style press conferences by the minister and main proponent of the law Savior Kasukuwere haven’t really done much to allay investor concerns either. Most shocking of course in that the cheer leader in chief for Zimbabwe’s land reform programme and the indigenisation law is the militant megalomaniac and controversial Julius Malema.
For a change, industry leaders seem to agree with the reserve bank governor, who has become the main critic of the regulations. He is quoted as saying: “As monetary authorities, we call upon government to ensure that the empowerment drive is not derailed by a few well connected cliques, some who are already making the most noise in ostensible support of this initiative, who would want to amass wealth to themselves in a starkly greedy but irresponsible manner, whilst the intended majority remain with nothing as happened in the past with respect to empowerment schemes such as the land reform programme.”
The problem with the indigenisation law soon after a controversial land grab which resulted in chaotic violations of property rights and multiple farm ownership by the elite is that the outcome is unlikely to be different. History matters, and institutions matter.
Institutions impose constraints on greedy politicians and at the moment, regardless of the commendable progress by the coalition government, not enough progress has been made regarding improving the rule of law and other institutional frameworks for the protection of property rights fundamental in attracting foreign investment. The tragedy, which is unique not only to Zimbabwe but many other African countries, is that even well intended schemes such as these can turn into personal enrichment projects for a few empowered individuals.
The priority for the business sector, scarcely operational due to a crippling liquidity crisis, is survival rather than acquisition. The transition into a dollarised economy has meant that fewer companies have the internal financial capabilities to fund their operations, the banking sector has little lending capacity and the government itself is on a cash budget.
As a result, most companies including banks such as Premier, NMB and ZABG are seeking international partners to inject capital into their operations. The indigenisation law is therefore a contradiction with economic reality and unlikely to benefit those intended.
If the government is serious about the empowerment of the indigenous people, even before the indigenisation law, the state could show its commitment to the cause by privatising non-performing state parastatals to locals or by offering indigenous players priority rights over state contracts. The indigenisation law itself could be phased with tax breaks offered to companies who implement the policies on a voluntary basis.
An independent indigenisation commission constituted by industry experts could be set up to manage implementation and monitor compliance. The threshold for companies that fall within the law could also be raised to avoid bureaucratic bungling and the concentration of power in the central government. Some sensitive or capital intensive sectors such as banking would perhaps be exempt — a blanket application would be unsustainable.
Much like the land reform programme, not many would argue against the importance of the indigenisation law, the devil, however, could be in its implementation. A command control implementation without a broad consultative consensus could be the catalyst for another man-made economic tragedy just when the country is showing signs of progress.
In its current form, and based on the current policy position, there is no evidence to suggest that the law is any different to the land reform programme or that the outcome will be. Most importantly, an indigenisation law unsupported by critical lending from the banking sector might lead to forcible acquisitions without market price compensation, a clear recipe for jambanja of unprecedented proportions.
There is certainly need for more thought and anticipation of the consequences of a half baked implementation of this law.
Lance Mambondiani is an Investment Executive at Coronation Financial. The view expressed in this articles are personal and do not necessarily reflect the position of Coronation Financial. He can be contacted on e-mail coronation.uk@btinternet.com
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