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Indigenisation policies need urgent change

ON various occasions this column has addressed issues of Zimbabwe economic indigenisation, but the great need for substantive economic recovery and growth necessitates that the issue be addressed yet again.

Eric Bloch

It is indisputable that indigenisation of the economy must be pursued vigorously, and equitably.

It is impossible to justify the innumerable obstacles to meaningful indigenisation of Commerce and Industry, and all other economic sectors, until Independence in 1980.

The racial discrimination that prevailed was a monumental economic retardant.

For 20 years after Independence government’s actions to address reversal of the barriers to meaningful entry of the indigenous population into the mainstream economy were quite minimal and ineffective.

However many of the political hierarchy, those with the right connections to that hierarchy, rapidly (and not always lawfully and equitably) enriched themselves to an immense extent.

But this was not so for the majority of the population constrained from any meaningful economic engagement, and had to resort to informal sector activities that barely afforded them basic necessities.

More than three quarters of the population struggled to survive on incomes below the poverty datum line.

One of the many major negative consequences of those circumstances is that hundreds of thousands of skilled Zimbabweans reluctantly left to seek employment in neighbouring countries, South Africa in particular, or much further afield including the European Union, Australia, USA and Canada.

Much of their incomes were, and still are, remitted back to Zimbabwe to fund their families and other dependants, to such an extent that although not authoritatively quantified, such remittances became one of the greatest elements of the Zimbabwean economy, notwithstanding that the funds did not meet their dependants’ needs.

Although most of those who obtained employment and other income-generating opportunities externally were determined that they would return to their homeland one day, many have progressively sunk new roots and relationships and major life-changes, and will not return save for periodic visits. This is not only regrettable, but a permanent loss of skills which in a recovering economy are of critical importance.

It is tragic that, after 34 years of Independence, Zimbabwe has achieved relatively little towards economically empowering the majority.

It is important that more people are now accorded the opportunity of meaningful engagement in the economy. But that cannot be achieved by only enforcing that 51% cent of existing enterprises be forcibly transferred to indigenous Zimbabweans, all too frequently being the politically favoured few.

Moreover, in most instances, either no compensation payments are forthcoming to the deprived current owners, or the compensation is only effected over a long period.

Moreover, in many instances, the new controlling owners do not have the technical knowledge and skills for the successful operations of the commandeered business ventures, resulting in a decline in their operations, thus stimulating yet further contraction of the labour force.

The negative manner in which government has been pursuing indigenisation persists, demonstrating its oblivion to the harmfulness of its indigenisation model. One of the greatest adverse effects of the actions is that they have become a great deterrent and effective barrier to Zimbabwe obtaining considerable foreign direct investment (FDI).

Foreign investors are aware of the great opportunities of high-yielding investment in Zimbabwe (and especially so in the fields of mining, manufacturing, tourism and technological service provision). Zimbabwe is in critical need of investment if it is to achieve economic upturn.

But despite widespread recognition of the magnitude of outstanding investment opportunities in Zimbabwe, and the desire to pursue those opportunities, almost none are motivated to pursue them if they are not substantively assured of investment security, and the current pursuit of indigenisation is such as to create concerns of total insecurity.

With rare exception, the foreign investors are unwilling to provide most of required capital, with no assurance that they will be compensated for the 51% of which they are deprived.

Similarly, they are not willing to effect technology transfer, cessions of patents, trade marks, and the like, to such enterprises in which they only have minority status and, therefore, no authority and hence no protective control against abuse of the patents, trademarks and technological assets.

In addition, an investor does not wish to have co-investors imposed upon the enterprise without the investor having any authority in the selection of such co-investors.

All too often such co-investors are either government-managed community funds, or Community Share Trust Funds, or persons accorded the investment only so benefitting by virtue of political connections, being devoid of requisite knowledge to run the enterprise’s operations.

This is presently especially so in respect of the mining sector. It is that sector which can generate the greatest contribution to Zimbabwe’s economic recovery and growth, and enhance employment.

The country is endowed with vast quality minerals including gold, platinum, diamonds, chrome, nickel and iron ore, hence there is immense investor interest in the sector. However hardly any, save for some Chinese investors, are willing to invest under prevailing conditions. Consequently, Zimbabwe is not realising the possible economic benefits that would otherwise be realised.

Moreover, an indigenisation policy which merely seeks ownership transfers does not beneficiate economic growth, for such transfers do not generally result in business growth and development, nor stimulate the creation of new enterprises.

While government should motivate and stimulate indigenous participation in existing enterprises without enforcement of excessively high percentage holdings, much more is needed to achieve wide-ranging indigenisation.

Such needs include that high school students should, in their education, be taught the basic and fundamental principles of operations within the economy, be they industrial, commercial, or others. Such fundamental principles include such issues as client/banker interactions and utilisation of bank facilities and services.

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