Reserved sectors not so reserved

via Reserved sectors not so reserved | The Zimbabwean 14.01.14 by Clemence Machadu

The country’s indigenisation and economic empowerment laws are being put into action without transparency and with a lot of confusion, says CLEMENCE MACHADU. Using reserved sectors to empower Zimbabweans is doomed to fail unless the government accepts the reality.

Presenting his 2014 national budget, Patrick Chinamasa confirmed that the implementation of the indigenisation law was marred by confusion. Chinamasa is on record as saying: “As policy-makers, we have not been speaking with one voice on this issue –a development that has tended to create and add to the confusion. Confusion over indigenisation and economic empowerment seems to be emanating from the process rather than the law.”

In my view, much of this confusion lies in poor communication by the authorities responsible for executing the indigenisation law. The purpose of communication is for the message to be understood accurately, not to leave different recipients with different meanings. The issue of reserved sectors is one such case in point.

The first communication by the permanent secretary for youth, indigenisation and empowerment, George Magosvonge, left the public with the impression that by January 1 this year, all foreigners occupying the reserved sectors would be driven out and the public was left for a while under that mistaken illusion.

Magosvonge, late last year, told parliament that: “I confirm that some non-indigenous entities are still operating in reserved sectors and there is a deadline of January 1 (2014) for them to comply with the requirement to relinquish their holdings in that sector,” adding that government was in the process of identifying indigenous Zimbabweans who would take over ownership of those businesses in the particular sectors.

This was followed by Minister Nhema recently saying that: “We are saying from January 1, 2014 we will not be issuing foreigners licences in areas reserved for locals… Foreigners who are already operating in those areas reserved for locals should seek indigenous partners to buy shares.”

Minister Chinamasa also added his voice to the discourse, saying: “It should be clarified and understood that the investor has a privilege of choosing his/her Zimbabwean partner. Only when this arrangement has failed would government assist.”

Flawed laws

From the above, we can see that the issue would have made more sense if the pronouncements of the three officials above had been said as one message.

In his budget, Chinamasa cited “lack of clarity on key policies, particularly the IEE programme” as one of the “major risks over the realisation of the macroeconomic and budget framework”. Chinamasa even cited “clarity and flexibility in the implementation of the indigenisation and economic empowerment regulations” as one of the supportive factors of the 2014-15 macroeconomic and budget projections. The words ‘clarity’ and ‘flexibility’, when featured in a very important policy such as the budget, should come with serious commitment and action. It also is a hypothetical admission that the indigenisation law is flawed.

My research has led me to understand that there are two types of certification in the reserved sectors: the normal compliance certificate issued where the 51 per cent local ownership existed and the indigenous certificate, which confirms that an entity or applicant is 100 per cent indigenous.

The reserved sectors are agriculture (primary production of food and cash crops), transportation, retail and wholesale trade, barbershops, hairdressing and beauty salons, employment and estate agencies and grain milling as well as bakeries, tobacco grading and packaging, tobacco processing, advertising agencies, milk processing and provision of local arts and crafts, marketing and distribution.

Will the indigenous folks benefit from the manner in which indigenisation in the reserved sectors is being handled? One reason why those sectors were classified as reserved is that the sectors are low-hanging fruits. They are easy to start, simple to operate and do not require a huge initial outlay or much formal education.

The National Indigenisation and Economic Empowerment Board (NIEEB) also said that reserved sectors were put in place with a view to empowering Zimbabweans and also to curbing capital flight out of Zimbabwe.

No room for business

When you look at the current level of foreign occupation in the reserved sectors, you realide that they already dominate and that the sectors are already saturated. It therefore defies logic to say that from now on licences in the reserved sectors will be issued in favour of locals. It is like trying to put water in a bucket that is already full. Logic would say: let us first throw away the water in the bucket and then refill it with fresh water. The Chinese, Nigerians, Indians and other foreigners are well established in the reserved sectors and some of them have key links with suppliers from their originating countries. This also put them at an advantage over the locals.

We have already heard that at least 90 per cent of foreigners seeking indigenisation compliance certificates in reserved sectors do not have bank accounts, therefore implying that they are not banking their money. The NIEEB boss, Wilson Gwatiringa, is on record as saying: “These operators were operating without bank accounts; they are not registered with the Zimbabwe Revenue Authority. This means that they are not paying tax and that their money is not being accounted for in the banking system.”

Are they now going to start paying taxes and banking their money? What guarantee do we have? To me it’s economic sabotage when 90 per cent of foreigners do not pay taxes or bank their money, in the face of falling government revenues and a biting liquidity crunch.

Many would be quick to argue and say that foreigners in reserved areas are going to relinquish 51 per cent of their shareholding to locals. What difference would that make, compared to non-reserved sectors that are also relinquishing 51 per cent? What’s the point of calling them reserved? What is the wisdom behind that?

One could also argue that, given the level of local unemployment and how marginalised our people currently are, even if the reserved sectors were to be entirely given to locals, it still would not be able to reduce unemployment by half.

How about when we still have foreigners owning 49 per cent of the reserved sectors? You also realise that many of these businesses in reserved areas are family-owned establishments where they employ their children and relatives and only hire locals when there are excesses. Some foreign operators might find local figureheads to front as new owners, especially from among their loyal employees.

Distorted by cartels

The business conditions in reserved sectors have also been significantly distorted by foreign operators with the result that the locals may not be able to thrive. A case in point is that of rents in Harare central business district, where the foreigners have occupied many business shops by offering high rents that cannot be afforded by locals. That market distortion has resulted in the locals occupying shops that are inferior and paying higher rents, which drives their costs upwards to unsustainable levels.

Indigenous folks cannot benefit from indigenisation in the reserved sectors, if they are to operate in an environment whose fundamentals are heavily distorted by a cartel of foreigners who are willing to part with just about anything to secure their interests. We cannot talk about empowering locals by giving them licences to operate in reserved sectors, when the doing business environment will be to the advantage of the remaining foreigners with their 49 per cent.

Government needs to rethink its methodology for indigenisation in the reserved sectors of the economy.

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4 comments on “Reserved sectors not so reserved
  1. Fallenz says:

    Forced indigenisation will never improve Zim’s economy. Face it, Zim is broke… busted. Industry must have capital to operate and expand. There will be no foreign capital investments as long as there is no guarantee of the protection of those investments from the government. Instead of offering tax advantages to encourage that influx, and articles to protect the investors, the government has chosen to strangle investors with forced indigenisation. No foreign investments, no industry. No industry, no jobs. No jobs, no salaries. No salaries, no markets. No market, no return for the investor. In many aspects, “Economics” is simply an umbrella term to describe “common sense”… and by forced indigenisation, this government has proven it has none.

  2. John Thomas says:

    This guy thinks the problem is communication! How about the blatant racism and corruption of this policy. Just another person who wants to reap where he is not capable of sowing

  3. fkr says:

    I will sure not be investing my hard earned money in zimbabwe and then the government giving my business to someone else. Who on this earth would be stupid enough to do that? Does anyone in the zim government have a functional brain?

  4. Mixed Race says:

    Our government cannot change economic policies because it is being held at ransom by the war vets who have no clue on how the economy works.To them money falls from Zimbabwe teak trees all the time.The government has to be firm and tell them that they do not owe them anything since they were paid Z$50 000 each which was worth about $40 000 USA dollars at that time.Once they control these guys they can then implement sound economic policies without distraction from them.

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