HomeBusiness Digest‘Indeginisation rules create system of patronage’

‘Indeginisation rules create system of patronage’

ZIMBABWEAN businesses want Empowerment Minister Saviour Kasukuwere’s powers curtailed to limit possible corruption, businessdigest has learnt.

The Confederation of Zimbabwe Industries (CZI) and the Chamber of Mines of Zimbabwe (COMZ), the two main business bodies have sent a paper urging government to amend at least 13 key points relating to the state’s plans to compel foreign-owned businesses to “cede” controlling stakes to indigenous Zimbabweans.

A document seen by this paper reads: “Any law that requires the continuous involvement of an individual will not be consistent or permanent in its administration, and is likely to be less credible and leave room for abuse or corruption.

The business bodies also want the term “ceded” changed to “sell”. Instead, a “sell” assigns responsibility to the indigenous investors.

The definition of indigenous must include all Zimbabweans, the document adds, saying it was discriminatory. But Kasukuwere defended the definition saying it was non-racial arguing the law had only been necessitated by racial imbalances.

According to the document, CZI and COMZ want government to set up empowerment boards representing all sectors of the economy to advise the main indigenisation board. The regulations provide for a single empowerment board.

“It is highly unlikely that a single board under the Youth Development, Indigenisation and Empowerment ministry will be sufficiently knowledgeable about sector specific dynamics, (which is the domain of various responsible ministries) and be able to efficiently decide on applications compliance programmes. Setting up industry focused boards will result in better and more efficient decisions.”

COMZ said the Indigenisation and Economic Empowerment Regulations of 2010 do not support economic growth and put off investors.

Rather, government should explore equity and empowerment credits for the sector.

“The regulations as promulgated do not support economic growth and will not attract investors. A focus on ownership will not necessarily empower people and in fact does the opposite as 51% of nothing is nothing, “said the chamber.

Mines also believe that aiming for controlling stakes is “too ambitious.”

“51% equity shareholding is too ambitious. The regulations must clearly state that the final percentage is a combination of equity plus credits. Most countries have done away with the 51% requirement and have come down to much lower levels.”

The chamber cited the case of United States and Australia. The two countries used to have a limit of 28% foreign ownership in broadcasting and telecommunications but have in the last 10 years removed such restrictions.

Nearer home, South Africa’s Black Economic Empowerment is based on 26% local ownership, the chamber said.

The chamber also wants government to recognise listing on the Zimbabwe Stock Exchange saying pension funds and asset management companies that represent a large segment of the population will be the biggest takers of listed shares.

The chamber also urged government to raise the compulsory thresholds of companies targeted from US$500 000 to US$5 million.

This according to the chamber kills the incentive to grow small businesses that have potential.

Economist Daniel Ndlela was quoted saying the new indeginisation rules would create a system of patronage.

He said: “The point here is, let me go back a little bit and say who in fact are these ‘indigenous Zimbabweans’ that will benefit from this law? The letter of the law simply says that the people who registered their names with the minister and there will be an allocation procedure. Definitely this is patronage, it is a continuation of patronage as we have seen it in Zimbabwe and that those who will benefit are people in the gravy train in the patronage system. This letter of the law is quite clear that if you don’t comply, five years in prison, if you don’t do this, five years in prison. The issue here from an economist’s point of view is if you want investments from your own country, existing investments and/or new investments out there, you are not going to threaten people that come here, invest but if you don’t comply you are going into prison for five years. From an economist’s point of view, you’ll not have any investors coming into this country.”

Ndlela added that the spirit of the law did not encourage investment.

He added: “The spirit of the law itself, not the letter of the law, the spirit of the law itself has a morality element that does not really auger well with all investments internationally because you really don’t have a situation where there’s an allocation of your shares via a minister at this point in time. In other words, from an economic point of view, the existing investors will lose interest in their businesses. They will run down the businesses in the five years so that by the five years actually you are taking on something that is no longer at its best, they are not going to invest in the five years, during this period and the enterprises that will be there will be enterprises that are really down. The new investors will not be persuaded to bring in their technologies, bring in their money here.”

Meanwhile, the main labour union, Zimbabwe Congress of Trade Unions attacked the empowerment regulations saying the rules had the potential to throw Zimbabwe into economic anarchy.

“The Zimbabwe Congress of Trade Unions has been following closely developments in the country over the past weeks with particular concern over the Indigenisation and Economic Empowerment Regulations.

“We believe this move that is coming under the guise of empowering ‘indigenous’ people has the potential to throw the country into anarchy just like the chaotic land reform programme did. It is ironic that these regulations that are anti-investment are taking centre stage when Zimbabwe is playing host to a tourism and investment indaba,” the main labour union said in statement this week.

But Mugabe is adamant on the issue saying “49% is hell lot of equity, only the foolish ones will say so.”

Mzembi on the other hand believes there is no need to pursue empowerment in the tourism sector saying over 80% of the sector is already in the hands of blacks.

He said: “Whilst we are aware of the ongoing debate around the investment legislation for Zimabwe, we believe all that might actually be required is further engagement on the part of stakeholders.

We are confident that clarification on certain aspects of the legislation, explaining areas of apparent contradiction and insensitivity to valid concerns of some stakeholders, will bring about consensus.

“Happily 80% of the tourism sector is already in indigenous hands and therefore it has scope for greater external shareholding, as well as other innovative models that can give comfort to the external investor, than might be the case in our other sectors. But for us the ability and willingness to engage is key”.


Chris Muronzi

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