Corporate renewal challenges in Zim

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Zimbabwe’s business sector bears little resemblance to the well-diversified and cost-competitive collection of companies that used to keep the country head and shoulders above almost all the other countries in Africa.

John Robertson

Today, we can boast of very little. Zimbabwe has become a high-cost producer that is now more famous for exporting skilled people than competitive goods, so corporate renewal can easily be described as a very challenging objective.

Frequent claims that the country has been going through important political changes in recent months have led to other claims that these changes have brought the country to the threshold of an economic transition as well.

However, the evidence suggesting that the business climate is receiving attention have so far amounted only to assurances that indigenisation policies that will be changed to better reflect the specific needs of investors and labour laws will be changed to tie wages to productivity and make staff changes less costly.

However, nothing has happened yet to change the laws, so nothing has yet taken place to encourage investors.

Corporate renewal will depend upon people, money and prospects. Zimbabwe’s policy choices in recent years have encouraged some people to believe that they were soon to be empowered by these policies, so for a prosperous life, they had to do no more than accept the offers of free land, allocations of shares in big companies and hold onto jobs that are protected by impossible retrenchment laws.

But the people who were persuaded that the empowerment promises would be kept cannot ever be described as the people who will help generate corporate renewal. Genuine investors are needed to spearhead corporate renewal and such people never hover around waiting to get something for nothing.

Genuine investors never hover around anywhere. They have special skills, which they use to assemble resources that can be applied to the creation of value not previously in existence.

If the needed conditions are not available where they are, they will move. So, the country that wants to keep them has to ensure that they feel safe and will get all the respect they deserve.

In exchange, people of that calibre will make the extraordinary commitments needed to slowly and methodically generate sound businesses that will produce goods and services that will hold their own in increasingly difficult markets.

They will train their staff members by investing in their skills and keep pace with ever-changing technologies and market preferences.

Because people with these special skills are both rare and valuable, any country that wants them has to deserve them. Sadly, Zimbabwe appears to have targeted such people for extremely harsh treatment.

As a result, the major executive change that can be identified is that people, who are not the founders and, with few exceptions, never possessed the needed talent to be the founders of such companies, are now running the larger businesses.

As these managers will not form a strong enough body of entrepreneurial ability to energise a corporate renewal process, Zimbabwe has to make sure that it never again encourages people with such abilities to leave the country, and it also has to make sure that such people are attracted from abroad.

Money was listed above as the next requirement, and people with the necessary business acumen will always be able to find the money if the right conditions are in place. Because Zimbabwe has done so much damage to the business environment, the country now has to put the shortage on money near the top of its lists of problems.

Of course, the money scarcity has a great many causes, such as the lower production volumes, the lower exports, the falling employment, the failing banks, the shrinking tax revenues, the need to pay for import consignments of food and so many other necessities that used to come from our own factories.

But all of these would be overcome if we had an acceptable investment climate that offered investors acceptable prospects. The trouble is that we don’t.

Instead, every investor bringing money from abroad faces the demand that, to obtain the necessary licences and permits, they have to put up 100% of the money, take 100% of the risks, supply 100% of the plant and equipment, provide for 100% of the staff training and other social services, comply with lengthening lists of regulations and, of course, generate the desired output. And when the business is running profitably, the investors must relinquish 51% of the shares.

Investors can handle all but the last of these requirements. None of those who have expressed their feelings have ever suggested that they did not want local partners, but they have all emphasised the need for the partners to pay for their shares and accept their share of the risk up front.

But more serious is the threat, carried in the 51% share surrender requirement, that the slightest argument with the authorities could see them voted off the boards of directors of the companies they started.

With the negative impressions that stem from the cancellation of property rights experienced by commercial farmers constantly in the background, it is clear that the political courage needed to amend or repeal the Acts of Parliament that formed the basis of the land reform and the Indigenisation policies cannot be expected to gel before major changes have taken place in the political structures of the country.

However, any prospects of a corporate renewal process starting and succeeding depends absolutely on full respect being not only shown to new investors’ property rights, but written into law in ways that persuade them that unacceptable changes will not be made by future politicians.

For any corporate renewal plan to succeed, Zimbabwe will also have to rebuild its base of skilled personnel and its banking sector’s capacity to offer longer-term financing at acceptable rates of interest.

Robertson is an economist. He is also a past president of the Zimbabwe economic Society.

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