Is indigenisation ‘generous’?

via Is indigenisation ‘generous’? – NewZimbabwe 04 May 2015 by Mutumwa Mawere

THE albatross on the neck of indigenisation and inclusive prosperity will always be the availability of real time liquidity to make it happen. In the case of Telecel Zimbabwe (TZ), it was the case from the date the license was granted that a sense of entitlement was created in the minds of the indigenous shareholders that their contribution to the enterprise was to be limited to the license granted to them in an opaque manner.

This kind of thinking is deeply steeped in a worldview that seeks to politicise the art of value addition in commercial transactions. The dominant political DNA in post-colonial states is not different from the one that has informed President Mugabe’s construction and understanding of indigenisation and empowerment that has regrettably been seamlessly exported into boardrooms and shareholder agreements.

According to President Mugabe, the existence of mineral resources, God’s gift, should always be the raison d’etre for any mining activity to take place and succeed. It is this idea that informs his contention that the value of this gift should always outweigh the importance of foreign capital that he blames for leaving “gaping holes in the landscape.” His contention is bolstered by the fact that Zimbabwe has the world’s second largest platinum reserves, as well as deposits of gold, coal, chrome, nickel and diamonds.

With respect to indigenisation, it is Mugabe’s view that a minority shareholding of 49% reserved for foreigners is more than generous – a view that has now been accepted as gospel by many including proponents of the economic freedom agenda. In order to make this conclusion, one has necessarily to hold the view that the government and its actors are the better placed to allocate prospecting and mining rights. In addition, one has to hold a certain view on the key question of ownership and control of economic activities.

The idea that is widely held is that shareholders own companies and, therefore, political sovereignty is hollow if shares held in enterprises are majority held in the hands of foreigners. Before unpacking the mystification and ignorance surrounding the link between shareholding control and prosperity, one has to appreciate the foundation of the idea that is premised on a causal link between shareholding and extraction of benefits from economic activities.

It is a generally accepted view that shareholders control companies yet at the same time, it is also accepted that a company is a juristic person whose existence and operations are located outside the minds of shareholders but directors and management. Like parents, shareholders can be domiciled in Spain, for instance, but the company in question, like TZ, could be located in Zimbabwe.

In the case of TZ, the ultimate controlling shareholder, Vimpelcom Limited, is based in Amsterdam, but TZ is a Zimbabwean corporate citizen and, as such, it is the entity that is governed in terms of the laws of Zimbabwe. The fact that 60% of the shares are held by a foreign party should ordinarily be irrelevant as it is TZ that is obliged to confirm to the laws of Zimbabwe.

The foreign shareholder is only entitled to dividends, if any, and such dividend income is only relevant after all the interested parties including Zimra are paid what is due to them and, more importantly, after a determination by the company’s directors that the company they serve does not need the same funds to support its business activities.

In the case of TZ, it is common cause that the company needed all the funds to support the infrastructural investment and no suggestion has been made that since inception, dividends have been paid. The question that needs to be answered even by any pedestrian economist is whether the declaration and payment of dividends is prejudicial to anyone.

For one to resolve this issue, one has to understand elementary accounting principles and the location of dividends in the long list of cash outflows from a business enterprise. One cardinal principle that is lost to many megaphone political actors is that it is TZ in whose name airtime and data are sold to voluntary market participants.

It cannot be denied that the first line item in the income statement of any enterprise is sales revenue suggesting that the source of dividends is income generated in exchange of real services to customers. Such customers would not part with their cash for no value exchanged.

It is often the case that governments’ actors who are beneficiaries of the same stream of income distributed in the name of the company, even before shareholders are entitled to any dividends, insult the people who fund their loud mouths by suggesting that the creation of wealth is tantamount to theft.

State actors derive income sometimes unjustly from companies to the extent that they end up believing that they are entitled not only to income but also in respect of interfering in corporate governance and ownership matters. With respect to TZ, it was the company that was granted the license and not its shareholders yet an impression is created that the reverse is true.

It cannot be disputed that TZ without the deployment of real capital would just be one of millions of pipe dreams. To President Mugabe and followers, the license represents the real value but like the relationship between a tractor unit and a trailer, it is common cause that decoupling the two would result in no motion and the cargo in the trailer would remain stationary.

The best way to lock a nation into a stationary mode is to advance ideas that are inimical to the rule of law and commerce. It is not self-evident why any rational state actor would grant a prospecting order to anyone if the grantor already knows the value of what is to be prospected. Equally, granting a frequency spectrum to a man of straw would produce predictable outcomes.

In response to a question seeking clarification on Zimbabwe’s indigenisation policy during his recent state visit to South Africa, this is what President Mugabe had to say: “Where it’s our natural resources, we must at least have 51% ownership of the company and the resources, which is quite generous by the way because you take 49% every year of $500m or $1bn. It’s a huge amount.”

What exactly did President Mugabe mean when he said: “Our natural resources?”  Ordinarily “our” denotes ownership yet the resources in question have existed before President Mugabe was born to allow anyone to create an impression that a relationship could conceivably exist between an asset that exists independently with human actors whose life is perishable and finite.

When President Mugabe makes reference to: “we must at least 51% ownership” it would occur that the “we” must be inclusive yet in his mind the “we” could very well be exclusive to members of Zanu PF. The creator of minerals never assigned the role to any living human being let alone a government to claim that which they played no part in creating. The minerals in situ have no value to anyone in as much as a mobile phone license on its own.

Resources and effort are required to convert a neutral mobile phone license into cash flows yet in the world of dreamers, it is possible to pull wool over investors’ eyes so that they can part with free funds in respect of projects where they are expected to invest 100% for a return limited to 49%. Banks play a useful role in channelling resources to budding entrepreneurs but it would take a fool to expect authorised financial services providers to provide funds without any collateral.

Equally, any investment of funds must be treated as risk capital implying that the risk of loss is real to allow anyone to provide 100% of the resources on the basis of a minority stake. In the world of real human beings, he who pays the piper normally calls the tune, but in the world of the ignorant, a new construction is invented that investors can be so naïve as to put their funds at risk without any protection.

The non-compliance of TZ could very well have been authored by the same people who are now claiming default. What makes Econet different? Econet’s controlling shareholder was TSM Masiyiwa Holdings Private Limited, a company established by Strive Masiyiwa. No requirement was made on Econet that the controlling shareholding must be broad-based and indigenously controlled. The license was granted by the Court and no ownership impediments were imposed on Econet.

However, in the case of TZ’s shareholders who sought to project themselves as different from Econet in respect of compliance with the indigenisation aspirations, they are now being punished for authoring the non-compliance. Makamba must have known then that TZ was unlikely to be granted a license on the basis that he was the sole indigenous shareholder. Under the circumstances that prevailed, he was compelled to assemble a team of actors with no funds solely to secure a licence fixed with the knowledge that the license alone would not deliver the promise of a functioning mobile network.

The indigenous shareholders knew that they need a funding partner yet the history of TZ suggests amnesia of an unprecedented proportion by the beneficiaries of the license regarding the benevolence of Telecel. Instead of thanking Makamba for delivering the promise of TZ, what has happened in the TZ story exposes the challenges of indigenisation.

In the case of Econet, a single elephant in the room existed from day one unlike in the case of TZ. No demand has been made that Masiyiwa must cede his shares to nameless and faceless indigenous Zimbabweans. One must credit Masiyiwa for converting a promise into a real enterprise that delivers the promise of a connection to Econet’s subscribers. If Masiyiwa becomes a billionaire in the process, the people who must be thanked are the customers of Econet who daily exchange their hard earned cash for value generated under the name of the company.

An entrepreneur can be best described as an undertaker of a promise and a company as merely a vehicle or platform to deliver the promise.  Shareholders are only responsible like parents in giving birth to life. What a person or a company does after birth, is something else.

When President Mugabe’s understanding of commerce is factored into the confusion that has visited TZ, it becomes clear where the problem lies. The decision to cancel the TZ license is consistent with the myopic logic that informs not only President Mugabe’s understanding of indigenisation but many Africans’.
Clearly, the ex-post construction of indigenisation is that it only becomes valid after the minerals are extracted from the ground and not before is toxic. Telecel’s problems never manifested itself before the investment was made and services offered. If TZ was a failure, it is the case that there would be nothing to cancel and, more significantly, that no disputes would exist between the carried shareholders. Imagine, you give a ride to a pedestrian who then claims ownership of the car without making any contribution at all.

President Mugabe as the current Chair of both the AU and SADC, believes that his idea about economic empowerment has been validated yet cannot explain why his fellow citizens would seek to pursue the promise of independence in foreign jurisdictions. A wrong idea remains fundamentally wrong irrespective of the passage of time. The idea that has informed the choices and decisions of Africa’s leaders is fatally flawed to undermine any confidence that staying in Zimbabwe, for example, for an extra day would change the status quo.

President Jacob Zuma has been forced to change his language in response to the xenophobic attacks after carefully reflecting on the culpability of his colleagues in Africa in creating the conditions that lead to unnecessary migration. Yesterday, it was SMM, today it is TZ but the common thread of madness is the same. The tragedy is that when the Emperor is naked, and even though SK Moyo may have the intelligence to know what time it is, he will choose to zip his mouth in the interest of self-preservation. Good people have been reduced to puppets even when they know better. At least President Zuma who only a few weeks ago was an excellent host of President Mugabe, has chosen to speak his mind in the interests of securing South Africa’s future.

The fact that last week’s SADC summit was called to focus on value addition is significant as the policies being pursued by Zimbabwe will never permit any meaningful value addition. Any policy of forced investments just like policies that seek to discourage Zimbabweans from crossing the border is doomed to failure.

President Mugabe’s view on value addition requires serious structural, philosophical and ideological surgery. By holding the view in the abstract that: “When there is value added” to a resource, it fetches a higher price on the market,” President Mugabe must be acutely aware that free societies inspire citizens to be creative and innovative. No sensible business person would seek to respond to slogans as a substitute for rational decision making.

Against a backdrop of institutionalised corporate heritage ignorance, there can be no better time to invest in literacy about what matters. TZ is one of many examples confirming that the driver (Mugabe) is a victim of the ghosts of yesterday and, instead, of leaning forward he has chosen to use the rear view mirror to guide the future.

The idea behind indigenisation has arrested a whole generation into believing that the instruments used to restore civil rights to all are appropriate to deliver the promise of a better future. The mere fact that free Zimbabweans daily take the risk to cross the border to pursue the promise in distant shores must say something about the direction that Zimbabwe is heading.