Zimbabwe’s Indigenisation policy has been widely criticised as among the major deterrents to foreign capital inflow into a country that requires investment to revive the economy and save industry from collapse.
Analysts argue there is need for clarity on the law to enable investors to make informed decisions.
As the indigenisation debate rages, with some proponents pushing for the law to be repealed, the government last week announced proposed reforms to the law, stimulating debate on government’s commitment towards attracting investment.
The state media was quick to describe the changes as a climb down on the part of government, but some circles in government believe the changes are a way of tightening the law.
Information minister Jonathan Moyo announced government is reviewing the Act to facilitate for sector-specific implementation.
Moyo said a Production Sharing Model (PSM) and the Joint Empowerment Investment Model (JEIM) have been proposed.
PSM, according to media reports, covers an assortment of production sharing agreements signed between governments and extraction companies relating how much of a resource extracted from the country each will receive.
The reports say under this model, Zimbabweans retain 100% ownership of mineral resources and agricultural land, while investors are allowed to recover their initial capital and operational costs before the sharing of production outputs or profits.
Under the JEIM, locals will enter into joint ventures to generate capital and build wholly Zimbabwean-owned enterprises.
Moyo said the reforms are meant to give clarity on how the minimum 51% local ownership would be achieved and are not a departure from the law which government will continue to implement.
Speaking at a forum for chief financial officers held by the Institute of Chartered Accountants of Zimbabwe on Tuesday, Indigenisation minister Francis Nhema expressed concern over the indigenisation furore in the state media.
“The debate in the paper left a sour taste in my mouth,” Nhema told delegates. “It was not the place to discuss it.”
Econometer Global Capital head of research Takunda Mugaga said the reforms are technically a climb down from the initial policy.
“At what point is it realisable that one has recovered initial investment because there will always be costs of upgrading the investment which will effectively continue deferring the recovery prospects so indeed it is a phenomenal climb-down by government,” said Mugaga.
He said the indigenisation crisis was worsened by a lack of clear consensus on policy direction in government, citing the fact that Moyo announced the changes in the absence Nhema as a source of confusion.
“The crisis we have is Moyo spearheading the indigenisation discussion. Is he not slowly becoming a super minister?”
Mugaga said a one size fits all approach has always been doomed to fail, hence the clear systematic method based on sectors.
“Why the government is heeding our old advice could be because a more respectable closer foreigner had hinted the top brass in Zimbabwe to revise their laws and it could also be the result of a weaker MDC. With the opposition party on its knees, now the Zanu PF government has breathing space to amend the populist law,” he added.
Mugaga argued the same can be experienced in the land policy considering the effects of the laws were tragicomic and a cancer to investor sentiment.
He, however, said the decision would not necessarily inspire confidence among investors as the controversial law remains in place.
“The investors are aware that indigenization chant has been the cornerstone of Zanu PF victory in 2013 therefore the party cannot discard the law on a willy-nilly therefore the confidence curve will be U shaped. To worsen it ZimAsset (the Zimbabwe Agenda for Sustainable Socio-Economic Transformation) places so much emphasis on indigenising resources hence heightening policy uncertainty,” Mugaga said.
Economist John Robertson said the argument and concern among investors has always been on clarity hence the need to amend the legislation and perhaps in parliament and the Act being repealed.
He said the country needed a clear policy solution to the empowerment policy to attract foreign investment.
“Statements so far are not enough and we need to make follow up through some Act of parliament,” Robertson said.
He said there was a possibility the amendments were just lip service and will not be followed by action.
“I am not yet persuaded government is willing to make changes to the indigenisation policy,” the economist said.
“Any kind of statement that says there are changes to the regulations are not enough, what a foreign investor needs is to open a business freely and government benefits through taxes, royalties, infrastructure and employment creation.”
Top banker and Bankers Association of Zimbabwe immediate past president George Guvamatanga earlier this month said government should ensure policy consistency and clarity in order to attract foreign investment.
Guvamatanga told an international economic conference on Zimbabwe policies must also be clear cut and straightforward to ensure there is no room for corruption.
“Most of these policies give discretion to implementers and we need clear policies that are backed by legislation,” he said.
“We don’t want to hear that we are flexible or this minister is flexible. If he is not flexible, the question is how to make him flexible.”
The latest African Economic Outlook (AEO) report notes that Zimbabwe’s political future remains uncertain, negatively affecting an already fragile economy.
According to the annual report-jointly prepared and published by the African Development Bank, the Organisation for Economic Co-operation and Development Centre and United Nations Development Programme covering all economies across Africa, the risk of policy reversals remains in Zimbabwe though minimal.
The AEO said the indigenisation policy has also been a source of confusion and a deterrent to foreign capital inflows.
The reports argued the indigenisation process is not focused on creating new wealth, but rather on distributing the little remaining foreign-owned wealth into a few hands.