Clarity,consistency elude indigenisation policy

via Clarity,consistency elude indigenisation policy – The Zimbabwe Independent January 16, 2015

SINCE the enactment of the contentious Indigenisation Act in 2007, Zimbabwe has lost at least US$4 billion worth of potential mining revenue in five years due to the negative effects of the policy which continues to fuel capital flight and spook investors.

Government’s indigenisation programme remains an albatross around the neck of the economy amid lack of a clear policy informed by a realistic economic agenda beyond the current legal framework.

Research papers and recommendations from various top global institutions have, since 2009, particularly called for clarity and even amendments to the Act, which compels all foreign-owned companies to relinquish majority shareholding to Zimbabweans.

The recommendations are largely premised on the fact that Zimbabwe is recovering from a decade-long economic crisis and needs investors to revamp its productive sectors more than investors, who have alternative investment destination options, need Zimbabwe. Under the stewardship of Saviour Kasukuwere during the inclusive government (2009-2013), the Ministry of Indigenisation took a hard line approach to foreign investors. Kasukuwere then argued that the days of “colonial looting of natural resources” in Zimbabwe were over.

He set deadlines for foreign-owned companies, including banks and mining companies, to meet the indigenisation targets, compelling them to cede at least a 51% stake to local blacks.

Kasukuwere propagated a one-size-fits-all approach, leading to damaging public clashes in government with former Reserve Bank Governor Gideon Gono and former vice-president Joice Mujuru, who preferred a sectoral approach. Gono argued the banking sector was already indigenised, as the majority of the players were locals, while Kasukuwere insisted on bulldozing through.

When Francis Nhema took over from Kasukuwere in September 2013, he adopted a sober approach, but maintained the rules of the game. During his short reign as Indigenisation minister, Nhema did not publicly attack a single company over compliance issues. He also said he preferred negotiation to confrontation.

However, Nhema was last month fired by President Robert Mugabe and replaced by former Manicaland Provincial minister Christopher Mushowe, who has already set the tone for more radical indigenisation and added to the confusion repelling investors.

On only his third day in office, Mushowe said government could compel foreign-owned companies to relinquish as much as 99% ownership to Zimbabwean locals, in sharp contrast to Vice-President Emmerson Mnangagwa’s recent pronouncements that government would relax the controversial indigenisation policy in 2015 to attract much-needed foreign direct investment, as Zimbabwe’s economy continues to sink, resulting in accelerated company closures and retrenchments.

Mushowe and Mnangagwa’s opposing views are the latest in a process that has been mired in confusion and opacity.

A top local mining consultant, Chris Hokonya, said in the five years between 2007 and 2012, Zimbabwe Platinum Mines and Mimosa planned to have invested in excess of US$2 billion, but the companies slowed down their capitalisation.

“I think we need to look at bigger projects, Zimbabwe Platinum Mines, Mimosa Mining Company. If you look at their big plans five years ago, by now Zimplats would have put in US$2 billion for expansion, Mimosa would have put in another US$0,5 billion for expansion,” said Hokonya.

Zimbabwe Economic Society president Lovemore Kadenge said Mushowe’s appointment does not inspire investor confidence, judging from the pronouncements.

“The new minister (Mushowe) seems to have taken a hardline approach that is at odds with pronouncements by the Minister of Finance and Economic Development Patrick Chinamasa during the national budget presentation and also pronouncements from the newly appointed Vice-President Emmerson Mnangagwa,” Kadenge told the Zimbabwe Independent.
In his 2015 budget statement, Chinamasa proposed that the indigenisation process be handled by line ministers.

According to Chinamasa, companies would submit indigenisation implementation plans for approval to their line ministers who then carry out an indigenisation and empowerment assessment rating.

If the company meets requirements, a compliance certificate is then issued within 14 working days. These divergent pronouncements add to the damaging uncertainty and confusion surrounding the indigenisation policy, said Kadenge. “The ultimate result is an increase in the risk premium attached on Zimbabwe as a potential investment destination and thereby repelling foreign direct investment. This is not helped by the high cost of doing business currently prevailing in the country,” he added.

Kadenge proposed a collective effort to come up with lasting solutions to indigenisation. “There is need for unity of purpose and a social contract involving all key stakeholders. Let’s go back to the drawing board and to basics.”

Although it remains possible that Mnangagwa could actually push for a relaxed policy framework, the fact that only three laws out of the more than 400 have been realigned to the new constitution since the formation of the Zanu PF government 18 months ago does not give much hope, Kadenge said.

“There is need for political will to realign these laws and it should not be difficult since Mnangagwa doubles up as Minister of Justice and Leader of the House in parliament.”

Economist John Robertson said Mushowe’s statements were a clear demonstration of his ignorance on investment processes.
“He hasn’t got the slightest idea of what goes on in an investment deal,” he said.

Robertson argued pushing for 99% local ownership of currently foreign-owned business is disastrous and would scare off investors more as it is tantamount to robbery. He said indigenisation has created an unfriendly environment which has cost the country both foreign and local investors.

“We actually don’t need this legislation at all; this Act needs to be repealed otherwise we are not going to get the investment which we the country desperately needs.”

Robertson however said involvement of line ministers has no benefit except to put an extra layer of bureaucracy.

“It’s just an extra layer of bureaucracy and possible corruption; what this country needs is investment and not such policies. Foreigners are saying we are not giving away anything for nothing so they are investing elsewhere; even Zimbabweans are doing the same now.”

It seems Zimbabwe has a long way to go before the clarity and consistency the indigenisation policy is crying out for becomes a reality.