On Thursday, October 6 2016, President Robert Mugabe told Parliament his government would amend the controversial Indigenisation and Economic Empowerment Act, which seeks to compel foreign investors to transfer majority stakes to local blacks. The law, enacted in 2008, has been blamed for Zimbabwe’s lacklustre FDI performance in particular and the economy in general. The proposed amendments, Mugabe said, would be in line with his April policy statement which hinted at a softer stance on foreign-owned mines and banks.
Here, we reproduce an opinion piece we ran in April, after the president’s policy statement:
By Ranga Mberi, HARARE, April 14 (The Source) – The temptation to point and laugh at Patrick Zhuwao is very hard to resist.
Youth and Economic Empowerment Minister, Zhuwao has called other ministers “liars”, written tedious, preachy articles in the state-owned press, walked out on radio interviews, threatened to shut down companies, and even bizarrely described foreign investment as “ungodly.”
These are hardly the sort of attributes one puts on their CV when applying for the job of economically empowering an entire nation.
The statement by President Robert Mugabe to “clarify the government position on indigenisation” was a slap in the face for Zhuwao. All his fighting rhetoric on closing down companies and taking over banks was shredded for the more pragmatic positions taken by Finance Minister Patrick Chinamasa.
So, we all pointed and laughed at Zhuwao.
However, while the President’s statement was widely welcomed, it points to deeper flaws in government’s whole approach to economic empowerment over the past decade.
Firstly, Zimbabwe’s approach to empowerment has been based on false premises; that we are swamped by a multitude of foreign investors, and that they are so eager to get into Zimbabwe we can keep them waiting while we decide what exactly it is we want to do with our empowerment laws.
The truth is foreign investors have options. Zimbabwe received just $510 million of the $5 billion worth of FDI that the region got in 2014, according to the United Nations Conference on Trade and Development.
Secondly, almost a decade after enacting the empowerment law, the government is yet to decide how exactly it wants to implement it. Policy pronouncements are made, but they are only valid until the next rally.
Thirdly, in its current form, the law leaves far too much to the interpretation of different ministers, has too many loopholes for kickbacks, and leaves room for the sort of unclear clarifications that government has had to repeatedly make.
Tuesday’s statement, for instance, has too many riddles. What, for example, does government mean by stating “local content retained in Zimbabwe” by mines should not be less than “75 percent of gross value of the exploited resources?”
We looked at Zimplats’ local spend in the last quarter of 2015. As a percentage of revenue, local spend – a rough estimate in which we include procurement and taxes – was around 76 percent. So, does this mean Zimplats now complies, and can now, finally, be left alone to get on with business?
What are the “linkage programmes” referred to in the statement that foreign banks are expected to fund?
Instead of empowering Zimbabweans, the law has only been a tool for political rhetoric, and a way for the well-connected to drain state resources down a maze of “youth funds.”
Default rates on Old Mutual’s Kurera-Ukondla Youth, for instance, are as high as 99.5 percent. In Mashonaland East, only 0.5 percent of the loans was paid back, according to figures from Zhuwao’s own ministry.
A new state fund, worth $10 million, is now being distributed to 210 constituencies. There, thousands of youths in each constituency are, somehow, expected to share $47,000 to start businesses, and, somehow, still be able pay it all back.
The damage has been massive, but it could have been worse. Thankfully, some investors ignored the rhetoric. It is in fact foreign money that has kept the economy afloat. On the Zimbabwe Stock Exchange, with local investors struggling, foreign investors now account for up to 70 percent of trade.
Now that they are net sellers, investors have lost over $400 million on the market since January.
Iconic Zimbabwean brands are being saved by foreign money; South Africa’s Investec buying into OK Zimbabwe, Tanzania’s Bakhresa buying into Blue Ribbon, France’s Société Industrielle Lesaffre buying Anchor Yeast, Kansai Plascon saving Astra.
Today, as liquidity shortages deepen, it is just six banks importing cash; Barclays, Standard Chartered, CBZ, MBCA, Stanbic and FBC Bank. Just two of these are local, with significant direct government and indirect shareholding. Barclays has also raised up to $130million in offshore lines of credit for Zimbabwean businesses.
Authorities like to cast Zimbabwe as the pioneer of resource nationalism and empowerment. It is not. Many other countries realise how necessary local ownership is. They are just more predictable and pragmatic about it.
Mozambique’s Mega-Projects Law, passed in August 2012, demands local equity of up to 20 percent in major projects. Zambia, DRC, Kenya and Namibia set royalties on mines. When these are changed everyone knows about it. Investors go in knowing what they are getting into, because it is in the law, and not tied to the whims of whoever speaks last or the loudest.
Tuesday’s statement is an admission that something is wrong in the empowerment law itself, and in how it has been implemented. It goes beyond Zhuwao, however entertaining his smack-down was.
For the first time ever, President Mugabe has offered to amend the law. He must, in fact, take an even bolder step; drop the law entirely, draft a better one and, this time, stick to it.