HomeBusiness DigestNew statutory instrument threatens production capacity

New statutory instrument threatens production capacity

Conrad Dube

THE recently gazetted statutory instrument which allows government to take over companies indebted to it, will further reduce production capacity.

ial, Helvetica, sans-serif”>Under the new Presidential Powers (Temporary Measures) Act (Reconstruction of State-Indebted Insolvent Companies) Regulations 2004 gazetted two weeks ago, the state can convert into equity debt owed by a private company if there is evidence the company is unable to repay.

Industry production capacity is currently 40% and industrialists say the instrument will drive away much-needed foreign direct investment. The instrument is a direct attack on efforts to rebuild confidence and trust in the business environment, analysts say.

The government has so far taken over Mutumwa Mawere’s Shabanie Mashava Mines under the new law.

Zimbabwe National Chamber of Commerce president Luxon Zembe said the worst fears of business are that the instrument is in the wrong hands and is likely to be used as a tool to take over competitors assets on the pretext that they owe government.

“This is a dangerous statutory instrument which we as a business group will strive to make sure is repealed. The instrument will be used by predators in government who are supposed to be custodians of the law to send tremors to targeted business entities and this is not good enough to attract investment,” said Zembe.

The instrument kills the spirit of entrepreneurship and will drive away potential investment.

Zembe said the statutory instrument was designed with a bias towards particular entities and was likely to be used against government critics whose companies owe the government. He said the instrument was vague in terms of its application and criteria used to determine the level of indebtedness which might be described as being beyond the entity’s ability to repay. He said the instrument was also not clear on the level of debt which would lead to government taking over the company or what period that debt may have been outstanding.

Government, said Zembe, should avoid double standards in its operations and policies. He said the government gave billions of dollars to new farmers who are struggling to pay but it had not taken over their farms.

The government last year disbursed over $60 billion to new farmers through Agribank but the new farmers have so far failed to pay back these loans due to a failed harvest.

Zembe said companies would resist any forms of government assistance even facilities such as the RBZ’s productive sector finance scheme. The phobia, said Zembe would lead to companies becoming content with current production capacity and it kills the desire to expand. He said this would lead to retrenchments and closures.

“Government should concentrate on creating a conducive environment for business and not on taking over companies. They should find ways to help improve production capacity and re-engineer failing businesses,” Zembe said.

Past experiences have shown that government is not a good business manager. Parastatals are in a rundown state with most of them facing imminent collapse. Most of the parastatals have not published audited accounts for more than five years but they continue to receive aid from the government.

Farms that were taken over by Agricultural and Rural Development (Arda) are derelict as the parastatal has no capacity to fully utilise these farms. National Railways of Zimbabwe has failed to resuscitate its ageing signalling system, while Zesa is failing to expand electricity supply due to capacity constraints at its Hwange and Kariba Power stations.

Chairperson of parliament’s portfolio committee on Public Accounts Priscilla Misihairabwi-Mushonga sa-id the government was moving back the hands of time by introducing legislation that brings back a command economy.

Misihairabwi-Mushonga said government has no business running industry but should assume the position of facilitator and regulator.

“Most countries in the world are moving away from being command economies because how then does government regulate if it is also a key player in the market?” she said.

Misihairabwi-Mushonga said the government commercialised companies like Astra Holdings but is now going back to reclaim companies through this statutory instrument.

“Parastatals have failed to perform due to government interference. The state is virtually defining how these institutions should operate and also the pricing structures which are often not viable,” Misihairabwi-Mushonga said.

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