Indigenisation? Absolutely, but …

via Indigenisation? Absolutely, but … 10/11/2013  by Lovemore Fuyane NewZimbabwe

THE majority of the world’s most advanced economies are dominated by indigenous corporations and so, in order to achieve meaningful advancement, we must also indigenise our corporate landscape. The obvious advantage of having a large indigenous base of corporations across the whole value chain is that during downturns in business cycles, they are less likely to disinvest, and particularly less likely to relocate the highest value employment creating parts of the value chain offshore. These are the parts that give you meaningful employment without question.

However, on the basis of available evidence I’m afraid the current Zimbabwean Indigenisation model is likely to turn out to have been nothing more than a market destabilising political tool, one that is unlikely to solve our most pressing and persistent problem – the problem of inequality and lack of sustained economic growth. There is simply no known precedent of success of such a model anywhere in the world as far as meaningful indigenisation is concerned.

Let us place the key argument in context. A simple search on any public source reveals that in most of the world’s advanced economies you generally find a rather interesting trend. In many cases, among the five to ten most dominant corporations across the value chain in these economies are not just partially indigenous influenced but indigenous founded, grown, owned and controlled entities. The key words there are “founded”, “grown” and “controlled”. This is quite different from the current Zimbabwean Indigenisation process which aims to take a short cut towards the seductive “owned” bit.

Among the top ten largest publicly traded companies in the USA by market capitalisation you will find the likes of Apple Inc., Exxon Mobil, Berkshire Harthaway, Wal-Mart, General Electric, Microsoft, IBM, Chevron, a significant number which are all American founded, owned and controlled. Even by revenue Wal-Mart stands head and shoulders above the rest and is by far the largest corporation in the USA and the world at large. No wonder the USA is the world’s largest economy; it is the contribution of American founded, grown and controlled entities that make it thus.

A similar trend prevails in Japan where the largest corporations list includes the likes of such household names as Toyota, Nippon, Hitachi, Nissan Motor, Honda Motor and Sony. The exact same trend repeats itself in South Korea by whatever measure be it market capitalisation or revenue with the likes of Hyundai, Daewoo, Hankook Tyres, Samsung, the LG Group, Huawei, the list goes on and on. In all these countries, local investors started their own enterprises then attracted funding, both locally and offshore. The state of their respective economies today is not due politicians skilled at coercing Indigenisation transactions.

Germany is no different with its larger auto makers whose cars we love to drive here in Africa as Chika Onyeani once observed. These German auto makers are a classic example and will only relocate offshore the final assembly processes, the least valuable part of the value chain which you can easily automate or migrate to robotic processes should the need arise while retaining the most valuable skilled aspects such as research and development and the manufacture of complex components in Germany itself in exchange for all manner of tax breaks under the guise of creating manufacturing capacity locally. These are all mundane processes where the experience curve has been fully traversed and no real lucrative employment benefit can be obtained from them. Bavarian Motor Works (BMW)’s most skilled and highest paid workers and shareholders will always be located in Germany.

Contrast that with Zimbabwe, where among the top ten largest companies you only really have the likes of Econet Wireless, Innscor, and National Foods among a list that includes the likes of South Africa’s SABMiller controlled Delta Corporation, Old Mutual, Shoprite South African controlled OK Zimbabwe, Hippo Valley Estates controlled by South African entity Tongaat Hullet Sugar and British American Tobacco whose name says it all. A substantial number of Zimbabwe’s largest corporations are foreign owned and/or controlled. But even so, the few that we control are involved in basic, agro or extractive industries or retail such as TSL, National Foods mentioned above and Innscor and that’s not where the value is. We are simply not where it matters the most economically.

There is simply no way that Wal-Mart will ever fully relocate to China. In spite of the obvious temptation of bigger and faster growing consumer markets, Wal-Mart will remain largely American. Indeed they will move parts of their value chain offshore such as the sourcing of materials and moving some low value, low skill manufacturing operations offshore but the highest value creating parts will always remain onshore. Again, Wal-Mart’s most skilled and highly paid workers and shareholders will always be in the USA.

What Zimbabwe needs therefore is its own cake or cakes, conceived from the ground up in exactly the same way as Econet Wireless and the likes of the BancABC, Alpha Media Holdings were started. We need our own Wal-Marts, our own Hyundais, our own Samsungs and not half of an already foreign owned and controlled extractive enterprise or bank this late in the game. India is now one of a handful of countries that now manufacture jet engines through a deliberate procurement process aimed at promoting indigenous entities and such entities are not half owned by outsiders or grabbed as part of political gamesmanship. They are Indian birthed and grown.

Like an iceberg there is far more to an enterprise than a 51% paper ownership; there is far more that lies beneath such as unstated intellectual capital, knowledge of supplier sources, markets and interrelated networks something which a 51% equity drive will simply not achieve. There is not much you can tell Strive Masiyiwa about the telecoms sector owing to his method of entry into the sector – from the bottom up – whereas if you had, for example, asked him to rather assume a 51%v stake in a hypothetical already-existent MTN Zimbabwe he would definitely not end up in the same position he is in today.

Botswana is a classic example of partial ownership with limited control, De Beers and the Botswana government have a 50/50 arrangement on Debswana, the diamond mining concern, and yet you can hardly recognise the Tswana-ness of the arrangement beyond extraction. The diamonds they mine and marketed and sold in London and all further value derived offshore. Apart from some basic cutting and polishing functions in Serowe, it’s only recently that Botswana has started making moves to bring in related parts of the value chain into the country, decades after diamonds were discovered there and now all but waned in global economic importance.

But even then their efforts are aimed at enticing foreigners rather than enabling locals. In just the last couple of years, foreign jewellery manufactures set up shop in Botswana. The real value from diamonds meanwhile sits in London, India and some jewellery Souk in Dubai. There is simply no way of accounting for or recovering the lost forty something years of value from the mineral since its discovery in 1967. And so, although relatively better than most, Botswana remains a third world economy.

Even when you follow the history of Europe’s journey towards first world status, post the industrial revolution, starting with the likes of the resource-less Netherlands all the way to the then laggards such as Spain, none of these latter-day followers ever went out looking for 51% deals with companies from their already developed neighbours. The USA went about establishing their own enterprises until they became the world’s largest economy as are China, Russia and India doing today. Distributive indigenisation via corporate transactions is simply no viable short cut to Zimbabwe and Africa’s economic emancipation. There is no successful precedent for it; South Africa has been at it since 1994 yet remains one of the most unequal societies in the world, this in spite prattling nonstop about broad based empowerment.

Lovemore Fuyane is a Zimbabwean who resides in South Africa

 

COMMENTS

WORDPRESS: 16
  • comment-avatar
    Nyoni 8 years ago

    Within the context of expanding an economy , it must be realised that already established businesses must continue to be supported to sustain growth. Where there is political upheaval there is no incentive to invest , finish and klar. In the case of Zimbabwe enterprises that were created by hardworking Zimbabweans were targeted by Mugabe. This forced many to close shop and move abroad. Now what incentives is the regime giving to us to open shop again. There is non at the present time because the regime has insisted they must be part of the locally established business. The term PPP is heard now . The government expects Zimbabweans to help it out of its own mess but is giving nothing back in return. An unattenable position one would say.

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    vukani madoda 8 years ago

    Interesting statistics but questionable conclusions.The success of the companies in USA may have very little to do with them being indigenous to America and similarly those in Japan.All these companies are Capitalist based and ownersip is by way of shareholding where shareholders buy shares with thier hard earned savings-these shares are not restricted to American or Japanese indigens-in the last 10 years we have seen the Chinese buy out many big companies in the West:Jaguar-Landrover for instance is no longer British owned as the majority shareholders are non-British.I think the analysis in the main story is an oversimplification of the real reasons why these mega companies are where they are.The Chinese are taking a major share of supplying world markets even though they operate a totally different system which is largely exploitative-low wages and production costs which benefit the Western economies to whom they export but they leave at home a relatively poorer per capita income even if they gross domestic product is high.It is beginning to smell like Zim diamonds where a lot of money is being made but remains quite invisible which leads one to conclude that it is more to do with transparency and good business and political governance and having a competitive edge- period!All these theories of past exploitation and minerals being taken out to enrich the west are absolute rubbish!Many our own people who have worked in these advanced economies lament how we in Zimbabwe are a bunch of lazy people who are fond of just moaning all the time-and I have to admit that we in Zimbo have a big appetite for huge salaries with very little to justify this.I think what must fundamentally change is our outlook and expectation in the fast electronically driven era where we have to be innovative(like Econet wireless have shown),hard working and look after our customers and making sure they get good service(value for money)

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    Jrr56 8 years ago

    I think you may also find in the US there is no such thing as indigenously owned business. There might be American created businesses though I would hardly call them indigenous. In the case of Zimbabwe you can have instances of a 4th generation born Zimbabwean who is not allowed to own his or her business just because he or she is white or origins from Malawi. How does it run with persons of mixed race. Do they need a certain percentage of indigenisation? The whole concept is worse than the old apartheid.

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      Angel 8 years ago

      Say that again brother. We have become the world’s worst racists.

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    BossMyass 8 years ago

    The world has changed; foreign investors are no longer just companies from western countries. Most fierce competitors come from countries like China, India, Mexico, the Middle East, Nigeria, as well as South Africa.Africa needed “quality” investors as well as expertise and capital injections to extract the resources that it boosts of having.And if we make unreasonable demands, the quality investors do not quarrel with you, they just leave quietly, and you will be left to the mercy of chancers, or bottom feeders, who promise you the moon, and deliver nothing, and also rip you off.THIS IS EXACTLY OUR CURRENT SITUATION OF OUR BLESSED NATION. ONLY THE ZANU-PF PEOPLE ENJOY THEIR LIVES. WHAT ABOUT US ?

    I do not care what colour the cat is, as long as it catches mice.Blood is red, the sky is blue and U.S dollars are green for everyone.The ‘mice’ are ‘decent jobs’ and some food on our tables.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 start-up capital and means that this nation must become an attractive destination for new investors. It requires long term investment and patience.

    Indigenisation will not feed us. The expectations created by Zanu (PF) about the immediate benefits of indigenisation are false, misinformed and unachievable. Zimbabwe’s wealth must be shared equitably to create new jobs and improve the people’s quality of life. In other words when Mugabe says “we” own the land and the minerals underneath it, who is the “we”? Therein lies the catch.

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      Angel 8 years ago

      The mining sector, driven by foreign multinationals despite the enrichment disguise of “indigenisation” does not on its own do anything to promote local industry. Korean land reform occurred with the United States fully committed to its success in an era of sustained global economic expansion and driven by cold war era concerns. None of these conditions pertain to Zimbabwe. Land reform requires the state to have the capacity to provide post settlement support, secure title and cheap capital. Zimbabwe shows that undermining the large farms undermines the capacity of the state to provide these things. Zimbabwe’s smallholders deserve a state that provides such support. And it cannot be a Zanu-PF-Mugabe state.

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    Tsuro Magen'a 8 years ago

    I am a Zimbabwean Businessperson/investor now based out of Zimbabwe. The world is now littered with Zimbabweans operating successful businesses outside Zim and some still operating in Zim. You will notice the successful businesses never got a cent or support from Zanu but instead were victimised as not supporting them.

    If you show me two people whom you know personally outside ZANU circles who have been empowered and are running successful businesses I will be really surprised.

    As long as these thugs are in power no shrewd investor(black or white, Chinese or African) can trust them with their wealth. What you will have is “siphon investment” ie just enough investment just to make your money which keep out of the country. You do not put long term structures just in case Gushongo will wake up one day and say he now wants 65%, or accuse you of being whiteman’s front, Econet is a case in point.

    NB By the way even the staunch ZANUs are putting their wealth elsewhere, ask Gushungo.

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      BossMyass 8 years ago

      IT’S THEIR LAND, THEIR MONEY, THEIR BUSINESS, THEIR COUNTRY, THEIR PEOPLE, THEIR WORLD. SELFISH CRIMINALS.

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    We can not always through away our wealth and just let it go , companies which want to operate must share the business with the government , if South Africa is doing it as they have companies involved in this -51/49 percent , so whats your problem , please understand the meaning of the word before you just comemnt badly , Westerns are rich today because of the minerals they dug from African , this time the government must be part of the business so that they can fail on their own but having funds to deliver services . Why don’t you take your own garden and give it to anybody for free without incetives coming back to you , so please we can’t through away our precious stones just for free. You can opposite indegenisation if you are born of a Bush or a Blair .

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      Angel 8 years ago

      You have absolutely no idea from business.And if we make unreasonable demands, the quality investors do not quarrel with you, they just leave quietly, and you will be left to the mercy of chancers, or bottom feeders, who promise you the moon, and deliver nothing, and also rip you off.THIS IS EXACTLY OUR CURRENT SITUATION OF OUR BLESSED NATION. ONLY THE ZANU-PF PEOPLE ENJOY THEIR LIVES. WHAT ABOUT US ? What exactly makes think that any serious investor will jeopardize HIS money in this stupid place of earth for OUR notorious land to share HIS investment and HIS effort and HIS risk with US? What exactly makes you think that the whole world owes money to us. How stupid,isolated and delusional can we be ? We can keep OUR land and stay alone for ever. I think that we should ask investors to invest money for fun. Nothing at all for them. Just WE, just US. ALL FOR US.

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    @Tsuro , please make a difference between indeginasstion and Privatisation , i can see yuo mix the two , indeginisation only involves the sharing between the state and the private companies/organisations .

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    Excellent thoughts from majority of speakers! The bottom line is that the state should protect its citizens from foreign forces but at the same time the state should be a politically legitimate entity and not a pack of thugs. We are going nowhere under the status quo. Land distribution was noble and a necessity agreed and accepted. But the same land must be paid for and deeds issued to the new owners; and all this to be done on realistic values and terms. It’s fair to those who didn’t get the land. It discourages multiple land ownership and is equitable. This should release more land for the landless. A proper formula can be formulated to address this. The government getting such land sales proceeds should build schools, roads, clinics and pay labour. What’s wrong with that? Producers on the land as is the case in industry should pay annual levies to government. This is empowerment civilisation-style. Anyone should be able to set up shop anywhere in the country freely and gov should be able to buy the 51% shares in strategic firms on mutually agreed terms. Above everything else, the pack of ruling class is immoral as they got in by ‘ginya’ and not fair play. This alone blocks their minds so much so that they can’t think optimally for the benefit of the nation. To give you an example: where is the business incubator framework to help new businesses/starters; where is the cheap capital support for farmers like what SMITH did to his farmers and industry, the pack earns and consumes 75% of the national budget for no results to show and at the expense of national economic development; they spend millions on world tours when Pari has no drugs nor operating machinery; after elections they introduce 2nd murambatsvina to destroy the little assets of the poor [merciless dogs], corruption projects breed in their offices, the list goes on. Oh Lord, have mercy on Zimbos!

    • comment-avatar
      Pastor 8 years ago

      God helps those who help themselves. In which place on earth, investors have to pay 51% of their earnings ?

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    BossMyass 8 years ago

    Any foreign investor should still be prepared to accept that he or she will have to part with a 51 percent stake to locals in line with the policy, making it difficult for one to put in their money, It is very likely we will still remain the least attractive third world country to do business in. I don’t expect to see much improvement on that front. Whether policies such as the indigenisation policy are noble or not, they have had a negative effect on investors, worse still after it has now been turned into a political tool by the Zanu PF party. We remain our own enemies with regards to policies that are implemented. Black cited countries with high growth rates such as Nigeria, Angola, Tanzania, Ghana and Botswana as more favourable in terms of investment. Africa is attracting “huge foreign direct investment but Zimbabwe is not part of it” and “the indigenisation law is not attractive”. The law forces companies to sell a majority stake in their businesses to indigenous people.

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    Fred Hunidzarira 8 years ago

    Land was stolen from Africans and now you expect them to pay for that land Then I am sorry to say the majority of Africans will see you as just an apologist for western thieves. I fail to understand how some people can stand up and talk of western corporations as if they were created out of genuine hard work. Please visit the industrial revolution and find out what really powered it and se if Indian textile industry was not looted. How Congo was raped to enrich Belgium the list is endless and please read your history before you confuse issue.

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      Angel 8 years ago

      It is very likely we will still remain the least attractive third world country to do business in. I don’t expect to see much improvement on that front. Whether policies such as the indigenisation policy are noble or not, they have had a negative effect on investors, worse still after it has now been turned into a political tool by the Zanu PF party. We remain our own enemies with regards to policies that are implemented. Black cited countries with high growth rates such as Nigeria, Angola, Tanzania, Ghana and Botswana as more favourable in terms of investment. Africa is attracting “huge foreign direct investment but Zimbabwe is not part of it” and “the indigenisation law is not attractive”. The law forces companies to sell a majority stake in their businesses to indigenous people.