Indigenisation changes fuel rent-seeking

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AMENDMENTS to the contentious Indigenisation and Empowerment Act blamed for spooking foreign investors are widely viewed as artificial as they fail to address the major concerns of the investors, instead opening the door to rent-seeking behaviour by government ministers.

Kudzai Kuwaza

Government has made amendments to the act, primarily giving line ministers power to approve indigenisation plans for sectors under their purview, with the Indigenisation ministry only issuing compliance certificates on the recommendations of line ministers after their assessments.

“In order to ensure that government’s policies and objectives of indigenisation and economic empowerment are implemented, businesses shall submit indigenisation and implementation plans for approval by the line minister and the line minister shall carry out an indigenisation and empowerment assessment rating of every business,” the amended act states.

It further says that should the plan meet the ministers’ approval, he/she shall, at the written request of the business, issue a certificate of compliance to the business no later than 14 days after such a request is received by the line minister.

The intention to effect the amendments was announced by Finance minister Patrick Chinamasa when he presented the 2015 national budget last year.
However, analysts say the amendments fall far short of adequately addressing concerns which include the excessive powers given to the Indigenisation minister to decide shareholding structures, and how the prescribed 51% indigenous shareholding would be fulfilled.

Investors have regularly voiced their worries over inconsistencies in the policy framework, with various top government officials making contradictory public pronouncements and even clashing over the act, leading to then Indigenisation minister Francis Nhema’s complaints that there were “too many cooks” managing the programme.

The amendments are also silent on the contentious 51/49% ownership policy in favour of indigenous people. Various business delegations that have visited the country have expressed deep reservations over the indigenisation policy, including China which has strong ties with Zimbabwe. Foreign investors and economic analysts have repeatedly complained that it is unreasonable to expect an investor to pour capital towards setting up a company only to cede 51% of equity to locals.

President Robert Mugabe told a visiting French delegation in January this year the 51/49% ownership policy in favour of indigenous people only affected the extractive sector, a pronouncement welcomed by business and investors who viewed it as bringing clarity to the issue.
However, this is not stated in the changes, which does nothing to reassure jittery investors.

The indigenisation problem was aptly summed up by outgoing Australian ambassador Matthew Neuhaus who said investing in Zimbabwe was “like swimming in the Zambezi between crocodiles and hippos”.

“Instead of policies to encourage foreign direct investment (FDI), you have chosen indigenisation, especially in the mining sector,” he told delegates at a Sapes conference last year.

Even some within Zanu PF have expressed disquiet over the recent amendments.

Zanu PF senator for Manicaland, Mike Nyambuya, said while devolving indigenisation assessment to line ministries was a bold move, it would have been ideal to clarify the indigenisation law from a centralised authority.

“Because again, if you leave it to line ministries and officials, you might create some room for rent-seeking behaviour. It would be good if we could lay down one solid policy which is friendly to the investors,” Nyambuya said.

“We need fresh money in this country and FDI is one clear source of attracting fresh money into the economy. What I am saying is that, I would have been happier if the clarity had been done from a ministry point of view, rather than delegating it to the line ministry.”

Chief Fortune Charumbira also warned of possible corruption with the decentralisation of the indigenisation process.

“… I doubt if this (amendment) will take away the issue of possibilities of corruption. We have just moved from one ministry to another ministry but as I am saying, it is good that we move to the line ministry but within that ministry, we need checks and balances,” he said.

Economist Godfrey Kanyenze said this week the amendments do not address the obstacles presented by the law to investment.

“The amendments have not resolved the earlier conundrum which gives the minister the power to decide, which leaves the discretion to just an individual.” Kanyenze said.

“This is a highly contentious issue that should be discussed nationally with key stakeholders. Leaving it to the minister opens it up to the abuse of subjective judgement.”

Kanyenze said a committee comprising individuals from civic society and various political parties, among other key stakeholders, should be put in place to come up with a framework that will balance the interests of locals and foreign investors.

“The minister is a political animal susceptible to the party line which may not coincide with the national interest,” he said.

Leaving the process to ministers whom, according to the damning comptroller and auditor general’s reports, could not even run their own ministries properly is a recipe for disaster, Kanyenze warned.

“If you look at the issue of diamonds, the alluvial diamonds have run out but the nation has not benefitted and neither has the fiscus as Chinamasa himself said. So giving ministers the responsibility to decide on indigenisation is throwing the process to the sharks,” he said.

2 thoughts on “Indigenisation changes fuel rent-seeking”

  1. All headlines one reads at the present clearly points to the fact that unless the question of leadership is addressed nothing is going to work.The nation can not continue to bury its head in the sand and pretend things will work out in the end.
    Most nations of the world are grappling with issues of making their economies to grow after the financial meltdown which caused the great recession which forced a lot of world nations adopting austerity measures to get their economies to get back on track.
    For a government to come up with economic policies which will work amidst the harsh economic climate facing most of the world it needs those making policies to face the reality that it is not about indigenisation only but it is about first and for most to get the economy growing after the world recession. it would seem to me that the government has lost the plot.

  2. Shela Zane says:

    they are saying one thing and doing one thing

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