Re-calibrating indigenisation by Vince Musewe

via Re-calibrating indigenisation | The Zimbabwean by Vince Musewe 28.04.14

Since last year I have been advising that indigenisation is important but not urgent. The serious liquidity crisis and lack of foreign direct investment have resulted in high unemployment levels and increasing poverty.

Any government that is worth its salt should get these priorities right first. Let us revive our economy first, attract new investors and increase employment levels. This is far more urgent than a few well-placed individuals owning shares in not-so-viable companies.

Well, thank goodness the penny has dropped. I welcomed Finance Minister Patrick Chinamasa’s recent statements that it is better to increase liquidity in the banks than to insist on ownership for now. The positive impact of a liquid financial sector far outweighs a few of us (or a few Zanu (PF) cronies) owning shares in a bank.

Struck off

I hear that 200 companies have been struck off the companies register this month alone. Now these are small enterprises that create employment who have called it quits, i.e. they have given up and possibly relocated to Zambia. Our priority is to stop this bleeding and create an environment where entrepreneurs who take risks are respected and incentivised to grow and create employment.

Now we have a former minister who came out guns blazing and causing unnecessary alarm and despondency with ill-informed policy utterances that did more harm than good.

That is my problem with Zanu (PF); policies are not well thought out before being implemented rather, you get directives from ministers where the potential negative consequences are ignored. When these negative consequences become a reality, nobody takes responsibility. This is despite some of us trying to point them out before they are implemented.

For example, let us look at the banning of the export of raw hides in order to encourage local value add. Good intentions on paper but bad thing if the tanneries do not have the capacity to process high volumes.

As a result, you get a glut of unprocessed raw hides; this drives down local prices of raw hides and destroys enterprises.

Not working

In turn the tanneries than have a monopoly and begin to control the prices resulting in an inefficient local market for raw hides. This is killing a potentially viable industry simply because someone in Zanu (PF) had a “bright idea” of banning exports. It’s not working!

My stance on indigenisation is very simple. First, why should the government prescribe? Let each sector come up with its own model which they commit to with no pressure from politicians. Second, you then need a funding model that does not put strain on current operations because you want indigenization to enhance value of the enterprise. There is no point buying a company that is not viable and is likely to close. Third, indigenisation is a process and not an event and it’s better to incentivise change that to have punitive measures that results reactive implementation where everyone loses.

Our problem is politics where you have hidden vested interests; you cannot create a growing and viable economy where political interests dominate.

It is also critical to realise that some sectors need indigenization some don’t. For example where they are high start-up costs like mining, you don’t want your indigenization partners to be stuck with high debt levels that they are unable to pay for and you don’t want to dis incentivise potential investors. Rather, get the investors to come in with 100% ownership and let them create linkages with indigenised enterprises. You then get enterprise development where locally owned suppliers develop through new business. This creates more value for the country than a few people owning equity.

High debt

The high debt created by indigenisation is also a problem. This happened in South Africa where black partners who had borrowed heavily to invest in companies with the expectation of using future dividends to finance their debts found themselves owing the banks because the dividends did not materialise or the share prices tanked. They then had to sell their stakes in order to finance the debts ending up with very little ownership stakes.

You see, there have been so many precedents on what does not work and yet we seem to steam ahead without taking into consideration the mistakes that others have made.

What really gets me is that we have the intellectual capital to do these deals here in Zimbabwe, we have the expertise to do things properly but our politicians always play like little gods and are arrogant. That must change.

The ownership of our economy is important and critical going forward but we need to be clinical and intelligent in how we go about it without destroying our economy. Look at agriculture, we could have come up with a viable model for indigenisation but, yet again, we have destroyed significant value and lives because of arrogance, greed and corruption.

I encourage Minister Nhema to consult before he comes up with another political solution so that, just for once, we may implement viable solutions to what remains a contentious yet important issue. – Vince Musewe is an economist and author based in Harare. You may contact him on vtmusewe@gmail.com

COMMENTS

WORDPRESS: 11
  • comment-avatar
    John Thomas 8 years ago

    Back to George Orwell again and the use of words to disguise truth.

    In the Zimbabwean context the word “indigenise” is code for race based expropriation. More simply theft from anybody who is not black African by race. This might sound good to some, but it is theft and it is racism. Justify it how you will, but the plain facts are undeniable. If you are good with this policy you are a racist.

    The author seems to argue in the article that the degree of theft can be moderated by economic sector. His concerns are all about handling the predictable negative outcomes of practicing racism. At no time does he in this or other articles question the basic racist premise of the whole policy.

    Musewe you are a racist

    • comment-avatar

      I agree with you JT except I know Vince is not a racist. He really does have a heart for this nation but, Vince aside, I am enough of all this racism and grabbing everything just because a Zimbabwean is white. It disgusts me. What, exactly, is the meaning of our constitution and is there any decency left in Zim’s leaders? The economy is careering off a cliff and they just cannot see. restore the rule of law and act fair and just and you will see what begins to happen.

    • comment-avatar
      wensil 8 years ago

      John, I wouldn’t say that Vince is a racist as such, but the indigenous policy is indeed a racist policy. Not only is it racist it goes further than that in that its only open to Zanu PF supporters.

      Even if somebody is black and they don’t support Zanu PF they get nothing out of it. So its for a very minority black people.

      I also think that its a policy that should not be pursued in a corrupt environment like Zimbabwe where corruption starts from the very top in RGM and drips down to the party cells.

      And Vince no need to support such policies.

  • comment-avatar
    Canuck 8 years ago

    Quite correct John Thomas……..

  • comment-avatar
    Jono Austin 8 years ago

    Correct JT. There is NOTHING to prevent over 99% of the population-blacks, to create their own wealth. The Government for 34 years could have used the taxes to assist them in enterprise startups. But no, far easier to steal private companies from less than 1% of the population, not to mention take all the public companies. It is a sad state of affairs that over 99% of a country’s population cannot create wealth independently.

  • comment-avatar
    Itayi 8 years ago

    Wrong again Vince. So indigenization becomes important but not urgent. You and Elton Mangoma go full scale subscribing to theories that you do not fully comprehend but want everybody to accept them as gospel truth. It exposes you Vince Museve as a lackey of Zanupf hook line and sinker. What is important about indigenization if at all anything? One of the things that the next Zimbabwe government (hopefully an MDC T government) must make as its top most priorities is simply to revoke this indigenization in both name and deed. I stress there is no need to panel beat it. Zanupf are not fools to have coined their programme indigenization in place of well-known economic concepts of empowerment.

    What is indigenization Mr. Vince Museve? Let us start with economic empowerment: a recognition of the past racial or otherwise economic imbalances that still exist in Zimbabwe 34 years after independence. It does not matter whether the imbalances have the color of white or black. There is gross injustice in a country of 13 million people when the ownership of national wealth is placed in the hands of only a few. That is a issue that can never be in dispute. It does not matter whether that few are pitch black like me – injustice is injustice. All progressive social revolutions that mark the history of Europe; (England, France, Russia etc) were never characterized by the factor of vauyi (foreigners.) A kulak was as much of Slav origin as any of the citizens of Russia before the 1917 revolution. Progressive social revolutions were essentially about a contestation of the wealth of the nation falling under the control of too few of Russia’s citizens. But here we have to add the caveat that the resolution of that contestation in progressive social revolutions is not about making the rich poor but instead it is about elevating the poor into middle income and wealth classes. In short it is about growing the national cake but in an equitable way. So 24000 Zimbabweans whether black or white owning all the national wealth when everyone else has nothing is obscene and deserves not a day longer in life.

    In Australia the salary differentials between the least paid category of worker and the general manager is not in the half million dollar threshold like we have seen at the national broadcaster ZBC. Not to mention the salary differentials of Sweden, Denmark and so on. Instead there is some form of equitable distribution that allows everyone to buy a decent house, drive a car, sent children to school and most important be able to put food on the table, access health and shelter. Wealth in the hands of a few; be they black or white is just obscene and deserves to be dismantled. In American jargon – we want a chicken on every table; no child is left behind etc. In other words Mr Vince economic empowerment is urgent and at the same time important. How Vince is able to apply the terms urgent and important in a so muddled way perhaps exposes where his real political affinity lies. What we dispute is the attempt to pull wool over our faces as if he stands for justice.

    What then is indigenization? To start with one has to accept the context of the indigenization as a populist program designed to save Zanupf from sinking into oblivion after having failed to deliver in 34 years to transform the economy. ESAP came it failed etc.

    Indigenization has three essential attributes:
    1) Firstly, it is cronyism – that is a skewed allocation of national productive resources to an elitist club of Zanu pf chefs. Anyone sitting outside of this circle is not supposed to benefit and is therefore excluded. It is no longer enough to be citizen of Zimbabwe to have a right to access those resources but that one must belong to a certain grouping at the top of the hierarchy of political power in order to benefit. So you have the top heavies of the military, the top heavies of zanup pf, family members of the same and so on as exclusive beneficiaries.
    2) Secondly, it is about asset stripping. All productive factors are redistributed within that cycle not as a way of accumulation of capital. So the Cashberts are deployed into the parastatals and national institutions to milk them dry regardless of whether there is economic justification for the continued existence of the same enterprises. The clueless are made to drive the potential cash cows in diamond mining and so on. Competitiveness is cast asunder and you just sustain the enterprise as vehicle for redistribution of the available cake to this privileged clique.
    3) Thirdly, it is about creating a captive audience on whose blackmail the elite can remain in power. So viable enterprises as well as vast tracks of land are taken over on the basis of colour of the skin and allocated to an unsuspecting populace in exchange for loyalty. There are told they cannot have title on that land but are kept hoping that rationale will prevail someday. When convenient crumbs are thrown at this lot in the form of inputs and other support.
    So if Zimbabwe had about 11 000 rich people at the beginning of the program fourteen years down the line there are only the Chiyangwas in Harare. The middle class disappears down the route never aspired for.

    We can only conclude that indigenization is neither urgent nor important.

    • comment-avatar
      John Thomas 8 years ago

      Nice argument

      • comment-avatar
        Nkiwane (M'kiwa) 8 years ago

        Seconded.

        It’s about growing the national “cake” not chopping it up!

        There is such enormous potential for wealth generation in Zimbabwe – it’s shocking how it’s been mishandled.

        Remember these commandments:
        Thou shall not steal
        Thou shall not covet thy neighbour’s (farm) house

        Continue to ignore these at thy peril.

  • comment-avatar
    Straight Shooter 8 years ago

    Indigenisation is utter nonsensical rubbish. Only Adam & Eve are indigenous anywhere on mother earth. Everyone else followed later. Its always funny how later-day thieves of other people’s lands love claiming to be more indigenous than others.

  • comment-avatar
    Little Dorrit 8 years ago

    Thank you Itayi for such an excellent insight. Regarding the Oz model the national economic cake makes for equitable distribution because it has responsible population growth. If we want to replicate this model family planning will have to become a national priority. Simple mathematics as you and other contributors no doubt appreciate.

  • comment-avatar
    Rwendo 8 years ago

    Thanks Itayi for putting this into its proper “ZANU PF” survival strategies and tactics rather than broad, “all black” and “all white” generalizations.