Re-calibrating indigenisation by Vince Musewe

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