via Indigenisation will not feed us! | The Zimbabwean by Vince Musewe 24.09.13
Food security, decent housing, health and access to clean water are more pressing issues than the ownership of shares.
Please make no mistake; I am not against the idea of indigenisation at all. Zimbabwe’s natural and mineral resources belong to all Zimbabweans regardless of race or political affiliation. We were endowed with such huge mineral riches so that we could use them to the benefit of all our citizens – not just a select group of greedy individuals.
These riches cannot be dominated by any single group of people at the expense of developing our country and eradicating poverty. Colonialism was wrong in that it accessed these riches to the benefit of the British. The same would apply where Zanu (PF) uses indigenisation as an enrichment process and treats these resources as theirs alone, as has been happening to date particularly with regard to diamonds. That is wrong and indefensible.
The process of the ownership of our resources will be a long and protracted one, if we do it correctly. I worry that unrealistic expectations have been formed in the minds of ordinary Zimbabweans by Zanu (PF)’s electioneering. That is not fair.
Of course we want to have Zimbabweans as owners of established entities, but this process must involve those who can actually add value to those entities. After all we wish to create sustainable business entities.
There should be no political entitlement or interference. In addition, those who are selling must have a choice in whom they wish to do business with and must sell at a fair value. The idea of “approved” empowerment partners brings in the scourge of patronage through the back door, while the idea of a free transfer kills entrepreneurship and the work ethic.
It is also important to note that these transactions involve high levels of debt and risk. They cannot be consummated at the behest of politicians but through sound business foresight. In addition, it will take some time for the new black shareholders to retire the debt that is mostly funded through future dividend flows.
It is important to appreciate that this type of indigenisation will not create cash in the medium to long term; Zimbabweans must not be fooled that benefits are immediate and new jobs will be created.
Where new companies are created from day one with indigenous partners aboard, what will be critical is that those partners have access to capital to invest in the new venture. This is high risk startup capital and means that this nation must become an attractive destination for new investors.
In addition the cost of capital being borrowed must be affordable. Again in such cases, the benefits are medium to long term and depend largely on the economic environment. Our task must, therefore, be to attract investors by creating a stable economic environment that respects the rule of law and private property ownership.
Now you will note that in all these instances, capital is required first. This means that indigenisation actually requires cash outlay first – because money has to be invested before it can be made; we can expect no cash windfalls in the short to medium term from this process.
Now, the argument promoted by President Mugabe is that Zimbabweans need not pay for their stakes in instances where land is part of the investment. Let us look at mining for example.
The idea here is that a foreign investor invests in a venture in partnership with indigenous investors where the contribution of the latter is the land from which the minerals will be extracted. The foreign investor must lay out cash for operations and capital for the technology to mine.
The question here is; who qualifies to participate as the indigenous investor? In other words when Mugabe says “we” own the land and the minerals underneath it, who is the “we”? Therein lies the catch.
Our experience through agriculture and indigenization deals to date is that the “we” is a very limited circle of politicians and their cronies. It excludes most ordinary folk especially those outside Zanu (PF). It is a partisan “we” and not a constitutional “we” and we the people must reject that thinking because it is of no benefit to us at all.
The other problem, of course, is how we value those minerals underneath so that we get the most value but do not make it onerous on potential investors. We must appreciate that, as long as those minerals lie underneath and unexplored, they are literally valueless. Clearly there cannot be a one size fits all approach. Even if we accepted this model as correct, it still does not create cash for the country in the short to medium term.
It requires long term investment and patience. We just can’t afford that right now. In my opinion, food security, housing, health and access to clean water are more pressing issues to ordinary folk than the mere ownership of shares. Indigenisation will not feed us. The expectations created by Zanu (PF) about the immediate benefits of indigenisation are false, misinformed and unachievable in the short term; we must not expect apples from a mango tree.
Indigenisation is so important that we need to be cautious and circumspect; unfortunately the people are waiting for results that are likely to come much later if at all. Another fantastic failure is in the offing. If I were President, I would focus more on reviving agriculture as the benefits will be immediate and more widespread.
I am still waiting for a counter argument on the immediate benefits of indigenization, especially given that the country faces serious starvation and joblessness. I will not hold my breath.
Vince Musewe is an economist based in Harare. You may contact him on email@example.com