Eric Bloch: Little given, much to be taken

LAST week government announced that it was effecting amendments to the economically-destructive Indigenisation and Economic Empowerment Regulations.

Presumably, it was motivated to do so by the extensive, vociferous and very authoritative reactions to the disastrous enactment of those regulations in January, and responsive to the flood of representations and submissions made by most sectors of Zimbabwean society, by potential foreign investors, and by well-intentioned and very concerned elements of the international community.

It was probably also in reluctant recognition of the devastating consequences of those regulations on the economy in general, and in particular its deterrent impact on greatly needed investment (both foreign and domestic), access to international lines of credit, and the very depressed levels of business confidence.
Regrettably, the announcement was not only, to a major extent, a non-event, but in a major respect it compounded the negative circumstances created by the initial promulgation of the regulations.  Partially on the positive side, the announcement stated that:

The reference to businesses having to “cede” a controlling interest to indigenous persons is to be amended by the substitution of “dispose of” for “cede”.  The intent is to dispel the perception that the transfer of shares would be free of consideration.  However, if the ambiguity and associated doubts and concerns were to be wholly set aside, the substitutory provision for “cede” should have been “dispose of at fair value”.

Fourteen economic sectoral boards are to be established to consider enterprise applications for exemption from the mandatory 51%  equity disposal, the share transfer to be to a lesser extent, and for the period within which enterprises are to comply being extended beyond the promulgated five-year period.

Negatively, the announcement did not include details of the composition of such boards, or comprehensive details of the exemption criteria that would apply (save for some very generalised criteria), and the extent of the intended powers of the boards, save for fulfilling an advisory role to the Ministry of Indigenisation and Economic Empowerment.  Therefore, although commerce and industry, and businesses in other economic sectors, can be marginally reassured that an obligation to divest of 51% of their enterprises control is not necessarily absolute, nevertheless a continuing aura of uncertainty exists.  For many, all that has been created is a perception that the establishment of the boards will be nothing but the usual creation of “jobs for the boys”.

Negatives in the announcement included:
lGovernment is to pursue alternative methods of funding the National Indigenisation and Economic Fund.  Regrettably, however, if statements by the fund’s chairman have any substance, it is still planned to impose a levy upon businesses (as if they are not already over-taxed!).  Such a levy would be iniquitous in the extreme for, to all intents and purposes, it has the effect that private enterprise will be funding the acquisition of its shares by third parties.  In effect, that will be disguised expropriation or theft.

lThe announcement also preshadowed that in instances where shares are offered to the workers of a business, but the offer is not for whatsoever reason accepted, then such shares must be disposed of if they represent at least 28% of share capital to the National Indigenisation and Economic Empowerment Fund.  This is a tragic requirement, for government should be disinvesting from its array of over 70 parastatals and other governmental bodies, and not indirectly increasing its portfolio.

lThe worst element of the announcement, however, was the statement that despite the intent that in selected instances, on the advice of the Sectoral Boards, government will allow the levels of indigenisation of and economic empowerment in certain businesses to be less than the prescribed 51%, this does not mean that government and the indigenous population will not “take” 100% of businesses in the future.

This ill-considered, implied threat can only intensify the concerns of potential foreign investors, and be a big deterrent to their investing in Zimbabwe.  It is of similar concern, and as great a deterrent, to non-indigenous domestic investors  and has widely refuelled thoughts on the part of some existing Zimbabwean businesses that they can best protect themselves by now closing-down their businesses, sell off their assets (in part to purchasers in neighbouring countries), and externalise the proceeds.

 

It is inevitable that one must ponder whether making such an unjustifiable threat of future total expropriation of some businesses was not motivated by some governmental determination to bring about and hasten the total destruction of the Zimbabwean economy, and the intensification of extreme poverty for the majority of the already economically oppressed Zimbabwean population.

That which was not contained in the announcement must provoke as great concern as does much that was said.  In particular, it was abysmal, on the part of government, that it did not foreshadow amendments to the Indigenisation and Economic Empowerment Act to remove all actual, and implied, racism therein.  Racism is barred by Zimbabwe’s present constitution (and undoubtedly that too will be an element of the new constitution that will ultimately emanate from the current Copac exercise), but it being barred does not appear to preclude some governmental extremists and bigots pursuing it relentlessly.

The other deplorable omission from government’s announcement was any reference to the legislation not being an authorisation for workers, and activists, to demand transfer of business control to them.  Ever since the promulgation of the regulations in February, radicals amongst worker representatives have vociferously and threateningly been demanding that there be immediate transfer of shares to workers.  These radicals have been strongly supported by diverse activists, such as the Affirmative Action Group and the Zimbabwe Federation of Trade Unions, and groups of war veterans, as well as by some of the more extremist in the political environment.

 

These demands are destroying the few remaining dredges of business confidence, which is a prerequisite for business viability and for new investment.  They are major contributants to the reluctance of foreign financiers to provide lines of credit critically needed by Zimbabwe’s financial sector, and for advances by that sector to commerce and industry, mining, tourism and agriculture.

The bottom line of the announcement is that, yet again (and as is more often that not the norm) government is giving little, and creating fears that much will be taken.  As a result, the economy and the Zimbabwean populace will suffer even more.

 

By Eric Bloch

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