Indigenisation and SMEs

via Indigenisation and SMEs | The Financial Gazette by Farai Mutambanengwe 12 Sep 2013

HAVING been writing this column for the last two and a half years, one of the things I find interesting when penning certain thematic issues (such as liquidity and indigenisation) is the way those issues — as well as my thinking — have evolved over time. One of the key assumptions that shaped my thinking around indigenisation was the belief that most people preferred formal employment to self-employment. The Finscope survey results (and perhaps the elections?) debunked that hypothesis, and literally turned previous arguments about the issue belly-up.

In retrospect, I should admit that the evidence supporting the indigenisation agenda was always around, but perhaps historical perspectives on the issue, as well as the media noise always kept most of us from realising the true position. The takeover of the down-town area by foreign players has been highlighted over and over again, and so have issues such as transfer pricing (extractive industries), not supporting local businesses (banking) and putting the interests of foreign parent companies ahead of local considerations.

It has been said that the most powerful weapon of the oppressor is the mind of the oppressed, and this has been particularly true of the post-independence situation in most African countries. Because of colonial conditioning, formerly colonised people have an inherent disbelief in their abilities, an inferiority complex that leads them to believe that certain things are best done either by former colonisers or by foreigners. The biggest struggle that post-colonial governments face is getting rid of this mental colonial overhang while maintaining stability in the economy.
For Zimbabwe, the realisation that the economic status quo had to change came at the turn of the century, ushered in by the fast-track land reform programme. The most commonly expressed sentiment around this program was that it was a good policy, but the implementation left a lot to be desired. The words “chaotic” and “violent” feature prominently in discussions on the programme; so does the opinion that it should have been done earlier rather than later. In fact, the timing and manner of its execution led most to see it as being a program of expediency, rather than empowerment.
The indigenisation policy has attracted the same tag as the land reform program: a good policy, but people are skeptical over whether or not it will be implemented well. Doomsday scenarios have been painted over the likely outcome of indigenizing Standard Chartered Bank or Zimplats. Mental and actual obstacles have also been raised, and the responsible implementing Ministry has surreptitiously been tarred and feathered, such that many do not want to be associated with it. It does not help that several people at the forefront of implementing the programme have tainted pasts.

If it is agreed that the role of government is to create an enabling environment, and that of the private sector is working within the environment so created to ensure economic prosperity, then surely the burden of implementation lies on us, the people. A major complaint raised about Black Economic Empowerment (BEE) in South Africa was that it benefited a few blacks, who were already in the elite. These so-called fat cats’ response was that the rest of the people did not step forward to benefit, and it was valid.
Blacks were happier to be used as fronts and smokescreens by whites, rather than to rightfully claim what was theirs. Despite the programme being positively viewed worldwide, most of the affected whites were also very reluctant to let go of their former advantage, and therefore passively resisted or covertly sabotaged the programme. No matter how competent, it was unthinkable for these die-hard characters that blacks could sit on the same boardroom table as them. Thus up to now, BEE in South Africa is still facing teething problems. It therefore stands to reason that in Zimbabwe, given our already existing polarised and pariah status, the program is likely to be that more difficult to implement.

To ensure proper execution, it is thus necessary that first and foremost we change mental attitudes around the program. Poor implementation can only be the result of lack of engagement and participation, because we certainly have the necessary brainpower to successfully carry out this programme. If Barclays Bank could operate as ABSA in South Africa, why can’t a similar arrangement be set up here? We have so many Zimbabwean experts in the mining field both locally and internationally; why should we believe the mines will shut down if the ownership is localised?
Mutumwa Mawere is famously known for having bought Shabanie Mashaba Mines without using his own money. Can we only structure such transactions when they are for individual benefit and not for the national good?
Year after year it has been said that the Municipalities should not grant shop licenses to foreigners, and yet we still see them running all the down-town shops, evading taxes and usurping our balance of payments positions. That is not Government’s problem. That is our problem, especially at the level of associations and chambers. Why do we sit and do nothing when the rights of our members are violated? Why are we not increasing lobbies and activism around such areas?

I am not, for one moment advocating for xenophobia. I am saying that the 51:49 shareholding structure should apply. Locals should, in the truest sense of the word, be leading partners in all such ventures. That way, the bulk of profits are retained in the country, and we rise out of the liquidity crunch we are currently facing. It does not help us one bit that someone from China lands a container here for US$20 000, and leaves with US$80 000 in cash, having paid minimal amounts towards rent and underpaid wages, and completely foregoing the tax element.
At a higher level, I once sat in a meeting where the head of SME banking for one of the large foreign banks bluntly stated that they were happy to lend to someone going to Brazil to bring back a container of chickens, but would not support small-scale chicken farmers locally. This stance was not as shocking as the fact that it was coming from a fellow black Zimbabwean’s mouth. What saddens me most is the fact that most of our local SMEs bank with these international banks, yet these banks’ policies unequivocally state that they will not lend amounts below figures as high as fifty thousand dollars — and they want all the bells and whistles as far as stringent conditions are concerned.

Most executives of such foreign-owned institutions are not able to tailor solutions that are suitable for local conditions as they are under strict instruction from their parent head offices. Many also aid their foreign owners in carrying out activities such as transfer pricing, in exchange for personal perks and rewards. One would think that a person in such a position is better off advocating for localisation of their operation, but perhaps that inferiority complex sits deeper, even in more educated minds.
It is better under such scenarios to be on the side of Zimbabwe and to craft workable indigenisation strategies, than to become an obstacle which will need to be removed once the process has been rammed down your company’s throat. You can actually end up as major shareholders as has happened in companies like Schweppes.
The long and short is that indigenisation is an imperative, and it is going to happen whether or not people like it. No one disputes that it is a good policy, therefore we need to participate if we are to make it happen the way we would like to see it. The land reform program has seen over 250 000 families benefiting; we want to see the 2,8 million Zimbabwean SMEs come out winners from this round. Zimbabweans working in “affected” companies need to see it as an opportunity, not as a threat. As business associations and chambers we need to engage with Government and our members to ensure that this program succeeds resoundingly.

Farai Mutambanengwe is the founder and Executive Officer of the SME Association of Zimbabwe. For details on the Association, visit www.smeaz.org.zw or e-mailenquiries@smeaz.org.zw. You can join the debate around this issue on the SME Association of Zimbabwe group page on LinkedIn.