via Indigenisation: Failure in the offing – The Zimbabwe Independent by Vince Musewe October 4, 2013
Food security, decent housing, health and access to clean water are more pressing issues than the mere ownership of shares.
I continue to try and have as many conversations as I can around this very important subject of indigenising the Zimbabwean economy. I think, although important, the idea of instant benefits from indigenisation has been oversold.
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 humoungous untapped mineral riches so that we could use them to the benefit of all Zimbabwean citizens and not just a select group of 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 electioneering. That is not fair.
Where we wish to have Zimbabweans as owners of established entities, 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 possible patronage through the back door while the idea of a free transfer kills entrepreneurship and the work ethic.
It is important to also 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.
It will also take time for the new black shareholders to retire the debt which 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, first, benefits are immediate and, second, that new jobs will necessarily be created.
Where new companies are created from day one with indigenous partners aboard, what will be critical is that the indigenous partners have access to capital to invest in the new venture. This is high-risk start-up capital and this means Zimbabwe must be an attractive destination for new investors. The cost of capital being borrowed by indigenous partners must be affordable.
Again, in such cases, the benefits are medium to long-term and depend largely on our 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.
You will note that in all these instances, capital is required first. This means indigenisation actually requires cash outlay first because money has to be invested first before it can be made; expect no cash windfalls in the short to medium-term from this process.
Now, the argument promoted by President Robert 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 indigenisation 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 on 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 Mugabe, 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 indigenisation especially given that the country faces serious food shortages and joblessness. I will not hold my breath.
Musewe is an economist based in Harare. E-mail: email@example.com