Zimbabwe has abandoned its populist indigenisation policy in a desperate attempt to lure offshore capital required to revive the country’s disintegrating economy, the Financial Gazette can report.
The move is meant to bailout a sick and struggling economy, which has suffered from widespread company closures and job losses, estimated to have pushed the unemployment rate to over 90 percent.
Foreign-owned companies had been given ultimatums to comply with the law before the end of this year or risk nationalisation.But indications are that this has been abandoned.
The indigenisation policy, which gained traction following the promulgation of the Indigenisation and Economic Empowerment Act in 2008, has been widely blamed for the country’s failure to attract foreign direct investment, amid sagging economic fortunes.Highly placed sources in the Executive said government was now convinced the contentious policy had to be abandoned in order to pull the country’s economy from the brink of collapse.The indigenisation law compels foreign-owned companies to cede at least 51 percent of their shareholding in locally-based companies to blacks or specific entities designated by government.
An official within the Ministry of Youth, Indigenisation and Economic Empowerment said government has shifted significantly from the indigenisation policy, by softening its hard-line stance with regards to its application.
President Robert Mugabe has since instructed line ministries to directly handle all acquisitions and transactions linked to their portfolios to circumvent the onerous requirements of the indigenisation law.
More recently, his Cabinet has sanctioned transactions by foreign investors that are far in excess of the thresholds set in the Act.For example, Blue Ribbon Industries is to be taken-over by Tanzanian firm, Bakhresa Group, which is to inject US$40 million into the business in exchange for a 100 percent shareholding.The deal was handled by Industry and Commerce Minister Mike Bimha with Cabinet’s express approval, despite the law clearly proscribing such ownership thresholds by foreign companies.
Other recent transactions confirming the paradigm shift in government’s earlier position is the 63,25 percent takeover of Astra Holdings by Tokyo-listed paint manufacturing giant, Kansai Plascon.
President Mugabe appeared to reiterate government’s latest position when he addressed the nation on Heroes Day a fortnight ago, saying: “Being a country that observes and respects the rights of investors, as government, we are prepared to listen to all investor concerns and address them”.
And on Tuesday, he reinforced the position in his State of the nation address.
“In order to buttress the positive economic gains recorded to date, government will implement policies that will improve the business environment, and promote, and attract both domestic and foreign investment”.
Bimha is already taking President Mugabe’s word to foreign investors.
While in Dubai for the Chartered Accountants of Zimbabwe Winter School, the Industry Minister confirmed that government had softened its stance but said this was backed by the indigenisation law.
He said except for resource-based operations such as mines and land ownership, investors in other sectors of the economy were not compelled to comply with the indigenisation law.
“We have (foreign) companies that are coming saying, yes, this is the position but we are prepared to go this way (own more than 49 percent) because we are bringing technology, we are bringing capital, we are bringing a lot of things.And in each of those cases we have had, we have had no problem. For example, I have dealt personally with the case of Blue Ribbon Industries and others. I have been really involved and in each and every case, proposals have been coming from investors themselves.So I say, the flexibilities are there within the law. Also, we have to ensure we support the investor in terms of what exactly the investor wants, depending on his or her circumstances.”-Bimha
He said Cabinet ministers insisting on 51 percent local shareholding for foreign-owned companies were ignorant of the law.
“The interesting thing is that some of the ministers are not even conversant with the lawWe are very ignorant about this Indigenisation and Economic Empowerment Act. And what we have been doing, which is a wrong thing to do, is just to talk about this 51/49 percent and yet the Act has got a plethora of possibilities.It’s not a question of flexibilities when you talk to the minister but it’s a flexibility contained within the law itself.The issue of credits that are allowed, people don’t talk about it, but the emphasis has been more on 51/49 percent ownership. The clarity is that when we are talking about 51/49 percent, we are talking about it in terms of mineral resources and land ownership but in other areas, there are flexibilities that depend on what the investor wants.We say here is the menu, choose what suits you and we engage. There is no problem. The number of cases that I have dealt with, we have never came to where we say you (investors) have to do this.So, we believe that the mere fact of now saying you (investor) engage line ministries first is actually more of an attempt to ensure we give support to the investor because the ministry understands the circumstances of the investor.The involvement of line ministries is a departure from what we used to do. It’s now up to the line ministers, permanent secretaries and officials to be conversant with the law and work out a deal to suit the investor.”-Bimha added
Vice President Emmerson Mnangagwa, Finance Minister Patrick Chinamasa and Youth, Indigenisation and Economic Empowerment Deputy Minister Mathias Tongofa have also previously highlighted the changing indigenisation policy.
Tongofa recently told a Parliamentarian Portfolio Committee on Youth, Indigenisation and Economic Empowerment that government would not force foreign-owned firms to comply with the law.
Legislators had raised disquiet that the ministry was failing to enforce the law.
Youth, Indigenisation and Economic Empowerment Minister, Christopher Mushohwe, promised to call back when contacted by the Financial Gazette, but had not done so by the time of going to press.
His mobile phone was no longer reachable, when this newspaper tried to call him later.However, soon after his appointment to the current portfolio, Mushohwe said government would force foreign-owned company to relinquish as much as 99 percent ownership to Zimbabwean locals, insisting that the indigenisation policy had not been abandoned.
His comments followed Mnangagwa’s remarks that government would relax the controversial policy.Zimbabwe Investment Authority (ZIA) chairman, Nigel Chanakira, said the indigenisation policy had scared away foreign investors and made it difficult for the country to access international capital.
“Clearly, the internal surveys done by ZIA, alongside surveys done by the Common Market for Eastern and Southern Africa and the Southern African Development Community, point to the fact that the 51/49 percent (indigenisation threshold) scares away a lot of investors,” said Chanakira.