Indigenisation policy ruins economy

via Indigenisation policy ruins economy – The Zimbabwe Independent April 8, 2016

THE ongoing feud between Indigenisation minister Patrick Zhuwao and Finance minister Patrick Chinamasa over economic empowerment laws, which came to a head last week when the two namesakes publicly clashed over foreign banks’ compliance to indigenisation requirements, is further inflicting damage on the country’s already low investment prospects and economic recovery.

Kudzai Kuwaza

The latest altercation between the two ministers was set off by Chinamasa’s press statement on Friday evening to the effect that foreign banks had complied with indigenisation requirements.

“The indigenisation plans so submitted are promotive of socially and economically desirable objectives and goals as set out in the gazetted indigenisation frameworks…,” he said.

Before the ink on Chinamasa’s statement had hardly dried, Zhuwao responded “with a heavy heart and great disappointment”. He angrily accused the minister of being “ignorant”.

“I had previously requested my colleagues to desist from making utterances that display their ignorance of the Indigenisation and Economic Empowerment Act (Chapter 14:33) and advising them that such actions would leave me with no option other than having to force me to correct them in public,” Zhuwao charged.

This is not the first time the two ministers have publicly clashed over the policy. Chinamasa, through a government gazette on Christmas eve last year, announced changes to the indigenisation laws.

However, Zhuwao hastily convened a press conference on Christmas Day to slam Chinamasa, accusing him of “treachery” and declaring that there were no changes to the law. The two ministers and Reserve Bank of Zimbabwe (RBZ) governor John Mangudya later announced the government would withdraw the gazetted amendments.

In January, Chinamasa and Zhuwao announced they had agreed on amendments, which entailed a 51/49% ratio of local/foreign ownership for resource-based sectors of the economy such as mining. They agreed that non-compliant companies would no longer be threatened with seizure or closure, but will instead be required to pay an “indigenisation compliance levy” as a tradeoff for non-compliance, with a cap of 10% of gross turnover.

However, as the deadline neared, Zhuwao backtracked on the amendments stating that the levy, which many people were already questioning as they felt it would lead to the collapse of companies, would instead be dumped as government moves to shutdown companies.

The heated verbal exchanges between the ministers reminded many of the fierce tiff between former indigenisation minister Saviour Kasukuwere and former RBZ governor Gideon Gono over indigenisation. Kasukuwere and Gono traded barbs over the indigenisation of the financial sector in 2012, with the former indigenisation minister threatening to shutdown foreign banks, which did not comply with empowerment requirements, while the ex-central bank chief declared that banks would not be touched.

In 2014, former indigenisation minister Francis Nhema reacted angrily to then information minister Jonathan Moyo’s remarks in a local weekly that two new models were being looked at to amend the empowerment laws.

Nhema furiously disputed Moyo’s suggestions, confusing business and potential investors in the process given that the two ministers, just like Zhuwao and Chinamasa, sat in cabinet together. The latest differences came at a time Zhuwao had issued an ultimatum that foreign-owned companies which failed to comply would be shut down with effect from Friday last week.

It also came at a time President Robert Mugabe was in Japan for a five day state visit where he was scouting for investment. Mugabe was forced to clarify the indigenisation policy to Japanese business executives.

The president told the Japanese investors: “I am inviting Japanese companies to invest heavily in Zimbabwe, which carries the promise of handsome returns for the investor. We have abundant opportunities for investors and they should look forward to a mutually rewarding relationship with us.”

However, the proof of the pudding is in the eating, and the endless fights over the policy as well as the mute response from nearly 80 business delegations that visited the country last year paints a very different picture to the one potrayed by Mugabe to Japanese executives.

The policy contradictions have been criticised even by the state broadcaster ZBC, which last week broke with tradition when it invited analysts and experts highly critical of the indigenisation programme to feature in its news bulletins. ZBC stated in its top story that Zimbabwe was in the habit of indicating left and turning right as was the case when Mugabe was in Japan trying to attract foreign investment, while Zhuwao was threatening to shut down companies.

The report sparked a furious response from Zhuwao who accused the broadcaster of being an “opposition mouthpiece”.

The spat between Chinamasa and Zhuwao shows that a policy paralysis has gripped government, according to economist and Bulawayo South legislator Eddie Cross.

“This (policy discord) is very serious and goes to the heart of the political and economic crisis that we are facing as a country,” Cross said.

“There is a crisis of leadership and paralysis of policy and competent decision-making because of the divisions in government as shown by the open fight between Chinamasa, one of the most senior ministers in government and Zhuwao, who is a junior minister.

“The indigenisation laws should be repealed because it is not doing any good whatsoever.

“We should look for other ways to empower our people. There are many ways of killing a cat.”

The implications of the chaotic indigenisation policy are also reflected in the grim foreign direct investment inflows.

According to the latest United Nations Conference on Trade and Development World Investment Report 2015, Zimbabwe remains an economic backwater, with paltry FDI inflows.

Zimbabwe’s 2014 FDI inflows of US$545 million paled in comparison to neighbouring countries in the Sadc region such as Mozambique, which received US$4,9 billion, almost nine times more, South Africa (US$5,7 billion) and Zambia (US$2,4 billion). Buy Zimbabwe chairperson and economist Oswell Binha noted that the indigenisation policy remains “a millstone around the neck of the economy”.

“The latest flip-flops on indigenisation is likely to further discourage investment in a country already hard hit by a debilitating liquidity squeeze, low capacity utilisation, company closures and massive job losses,” Binha said.