Local content achieves more than indigenisation

via Local content achieves more than indigenisation – NewsDay Zimbabwe January 28, 2016

THE Indigenisation Act must go because it is the wrong policy at the wrong time for the wrong reasons.

VINCE MUSEWE

For the umpteenth time, I must repeat myself that indigenisation will not inevitably result in the economic growth and employment creation which we seek. What it has done to date is to discourage investment when we need it most. It also continues to expose the lack of cohesion within government as each one has their own idea of what is the best way forward.

For a change, I concur with Finance minister Patrick Chinamasa here that we really do not need a minister of indigenisation masquerading as our economic saviour. Indigenisation minister Patrick Zhuwao is certainly succeeding in frustrating potential investors and interfering with business common sense and the investment cycle. In my opinion, we should not have a ministry of indigenisation or empowerment at all since this ministry adds no value whatsoever.

Let us start at the beginning. Indigenous (for lack of a better word) Zimbabweans do not fully own companies in Zimbabwe 36 years after independence because of the Zanu PF patronage culture and their fear of the emergence of a strong, independent business class that would soon challenge their political hegemony by sponsoring opposition parties.

The same fears that destroyed a strong white commercial farming community are the very same fears that still exist with regard to the business sector. A strong non-partisan business class is the antithesis of Zanu PF hegemony.

The counter measures taken by Zanu PF to date to stifle the development of a vibrant local business class that cares little about Zanu PF politics and is, therefore, most likely to support a multiparty democracy started a long time ago through patronage and the interference of Zanu PF in the private sector to ensure that those who are anti-establishment do not succeed locally. This has afforded them the space to establish a partisan looting machine that has stolen prodigious amounts of our national resources including overpaying cronies within State enterprises under the pretext of indigenisation.

The diamond sector remains a clear example of this, so does the recent forced acquisition of by government of Telecel shares, despite the fact that there are existing Zimbabwean owners who could have acquired the required local majority stake.

No wonder why so many smart Zimbabweans left the country and are very successful creating and leading huge business entities throughout the world.

They voted with their feet because of the lack of economic freedom in their country.

We need to repeal these laws post-2018 because there are better instruments and more effective ways to achieve broad-based economic empowerment and employment creation without the need to acquiesce to political demands.

If we are to achieve internally-driven economic growth, we must support the emergence of a strong local business class, particularly SME’s which can drive economic growth and create massive employment opportunities as is the case in most developed economies.

One way to do this is by us insisting on local content which will no doubt create a much more effective knock-on effect of growing locally-owned small to medium enterprises which are viable and competitive.

Local content will result in the development of homegrown enterprises which are 100% owned by Zimbabweans. In this scenario, foreign investors can own their companies 100% if they wish, but must do business with local companies and thereby create more sustainable value here in Zimbabwe.

A simple example is that of the retail sector. If we take the food sector, for example, we are importing up to 70% of our food products from South Africa. There is no incentive to buy local goods. Rightly so because they are probably non-existent or more expensive and of poor quality. The same applies to all the other sectors such as mining, transport, manufacturing and energy sectors, among others.

If we are to promote local content, there will of course be a delay factor from the time we establish the policy to the time locally-owned business have built the necessary capacity to produce competitive products. The likes of Chinamasa need to realise that the banning of imports or raw exports overnight by decree does not work as this does not give adequate time for the development of local capacity to replace imports or to add value to exports, but rather creates smuggling and corruption opportunities.

So we need a phased-in approach where we increase the local content requirements over time. But what will be more important is that we make it easy for local companies to emerge and grow their capacity through various mechanisms such as tax incentives, access to cheaper capital, training, innovation, access to markets and some measure of protection from imports, but only as we develop the capacity to replace the imports.

In agriculture, for example, we need to create industrial hubs where large-scale mechanised farming works in symbiotic relation with small-scale farmers to empower the latter through skills transfers, economies of scale, value addition and the creation of a ready market for their produce. This produce can then find its way into our retail food sector as finished products, for example, and thereby reduce imports while having a positive impact on incomes and employment levels in that sector. That is true empowerment.

For me, this is a more sustainable approach that actually creates the results we seek over long term than indigenisation, which only focuses on ownership and not wealth creation or employment creation for locals.

It is a fact also that the local ownership of equity does not necessarily result in economic growth and job creation. We have seen this throughout Africa and particularly in South Africa, where black economic empowerment through equity ownership has not resulted in job creation at all, but has resulted in the emergence of a politically connected predatory black capitalist class which behaves in the same manner, if not worse, than foreign-owned conglomerates. It has merely entrenched a predatory coalition of struggle politicians and dubious businessmen contrary to the intended outcomes.

I think that our problem is that we have a minister with a tenuous appreciation of how the economy works hidden under exuberant arrogance and the false belief that all solutions lie only within his brains. Nothing can be further from the truth!

In the Zimbabwe we want, we shall create a country that embraces the full empowerment and economic freedom of its citizens regardless of race or political loyalty. Only then can we begin to see sustainable economic recovery led by a vibrant non-partisan private sector which is the only engine for growth.

Vince Musewe is an economist and author based in Harare. You may contact him on vtmusewe@gmail.com

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