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