Zim flying in the middle of a storm on auto-pilot

I WOULD like to wish all my readers and their families a very happy New Year and best wishes for 2016. Let’s hope that the year brings you much joy, peace and happiness.

Finance minister Patrick Chinamasa presenting the 2016 national budget

Finance minister Patrick Chinamasa presenting the 2016 national budget

Sadly, 2015 was yet another difficult year for Zimbabwe and 2016 is unlikely to be better unless we see fundamental changes in economic and investment policy. I hoped we would get some clarity on the indigenisation laws before Christmas as announced by Finance minister Patrick Chinamasa in the 2016 budget statement, but that was not to be. Unfortunately, it seems government cannot agree on the right investment policy framework for Zimbabwe.

The recent confusion surrounding the eagerly anticipated amendments to the indigenisation regulations reflects the chaos we find ourselves in. The amendments were meant to provide clarity on indigenisation while simplifying the process. Once again, government ministers contradicted each other with Chinamasa and the Reserve Bank of Zimbabwe governor John Mangudya walking out ahead of the press conference on December 24. They subsequently held a press conference earlier this week with the Minister of Youth and Indigenisation with an agreed position, but it’s probably too late. The damage is already done and once again Zimbabwe missed an opportunity to woo investors back to Zimbabwe.

It is somewhat disturbing when such discord and diametrically opposing positions on the same issue emanate from colleagues in cabinet. Surely, this was discussed and agreed by cabinet?

Distressingly, most investors may have already given up on investing in Zimbabwe and this only serves to reinforce their view that Zimbabwe is not serious about doing business and attracting foreign direct investment. Perhaps I am missing something here, but our lethargy in attracting investment and creating a favourable business environment is incomprehensible.

The proposed 10% indigenisation levy for “non-compliant” firms will only serve to increase the burden on companies already struggling to survive. Worst still the levy will be imposed on turnover/revenue rather than profit, which means that even firms making losses will be required to pay the levy. While enhancing government revenue, the levy is likely to lead to more company closures, especially among foreign-owned firms which will bear the brunt of the burden. The net effect is likely to be negative for the fiscus and will most likely increase unemployment in Zimbabwe. Can one honestly and confidently say that this will improve our economy and uplift the lives of the majority?

To be clear, I am not against the principle of indigenisation. In fact, I strongly believe in local participation, especially in the non-renewable sector where I believe that government should maintain the 51% threshold. For all other sectors the thresholds should be reduced to reflect the local contribution in terms of capital, expertise and resources.

The amendments announced this week reflect a hardened approach from those announced 10 days earlier. The 10% indigenisation levy will be applied across the board on a sliding scale based on compliance. Compliance will be determined by equity participation as well as empowerment credits for supporting socially and economically desirable objectives (which are of course are subjective). Have the laws really been simplified? Do you have the systems and processes to evaluate and monitor compliance? Are we not opening up the process to further corruption?

However, greater clarity and simplification of the indigenisation laws is what everybody is hoping for. The changes would open doors and create new opportunities for Zimbabwe.

The proposed amendments appear to be a step back and create a more hostile and uncertain investment environment. It also increases the financial burden on existing businesses. It’s unlikely that Zimbabwe will attract any meaningful investment this year dragging the economy further down.

The poor rains mean that we cannot rely on the agricultural sector to uplift the economy and depressed commodity prices means that the mining sector is unlikely to perform this year.

It’s seems to me like we are flying through the middle of a storm in auto-pilot with little or no direction. It remains to be seen, how much more can our ailing economy take?


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