HomeBusiness DigestIndigenisation mantra — Risk of transposition

Indigenisation mantra — Risk of transposition

I OBSERVE with concern that the indigenisation policy is regaining momentum, not because l am against the empowerment principle, especially of formerly disadvantaged people, given the context of colonial experience, which was exclusionary.

Kipson Gundani

Rather, it is because the law creates a moral hazard and fails to properly take into account the nature of the problem they are trying to resolve. Far from being a tool for empowerment, it is likely to create incentives for lethargy and rent-seeking behavior. The moral hazard is that you create a generation that believes that you can benefit from the efforts of others. But precisely speaking, having property or a an stake in a company alone is not the key to success.

Rather wealth creation is a result of many factors. More importantly one needs to possess the knowledge, ability and the drive which are the tools needed to make property work.While government’s empowerment objective is understandable in view of the years of marginalisation of indigenous people from the main stream economy, it is critical that the need for affirmative action be balanced with the need to attract the much-needed foreign direct investment (FDI) in order to unlock value in the national economy.

The Indigenisation and economic empowerment of the magnitude that Zimbabwe has embarked on, is a huge programme entailing the transformation of the whole economy. It is important to note that Zimbabwe is not the first nation to implement a fully-fledged Indigenisation and economic empowerment (IEE) programme underpinned by policy and legislation.

The strong principle underlying IEE is that economic empowerment and disempowerment transcends generations. In that regard, it is argued that the white minority, who controlled the Zimbabwean economy, during the colonial era, passed on that advantage to the present white generation. The reverse is true for black indigenous Zimbabweans whose ancestors experienced the disempowerment, discrimination and exclusion and passed on this to the current majority black indigenous Zimbabweans. In such a context, it does not make sense to argue on the basis of plain playing field.

Instead, there should be a deliberate effort to bring the disadvantaged majority into the mainstream economy, before a level playing field is said to exist. This is why there is almost unanimous agreement by stakeholders on the need for IEE in Zimbabwe. Disagreements are there on the modalities of implementing IEE, but not on the need of it.

The current law approach has pursued a narrow view of the simultaneous relationship between ownership and economic empowerment. Instead of empowering the indigenous population in order to achieve economic growth and higher control over the domestic economy, the law starts by imposing ownership through state intervention, hoping that this will eventually translate into economic empowerment for the disadvantaged population or community.

However, the broad based effect could also be realised had the government taken a bottom up approach with the aim of creating wealth from below especially in rural communities and the giant informal sector in Zimbabwe.

The informal sector employs an estimated 80% of the Zimbabwe workforce including graduates who have failed to enter the declining formal sector. Arguably the informal sector has the biggest potential for long-term economic development in the country; therefore the government should have started by empowering this sector. In this regard, it is unfortunate that the whole strategy of IEE through the Small and medium enterprises (SMEs) sector, which has the potential to unlock new value in the economy, is not given due emphasis in the Act and Regulations, although it is one of the strategies highlighted in the revised IEE framework of 2004.

It is argued that, indigenisation and empowerment of the economically disadvantaged people should not only be in the form of equity acquisitions by the indigenous people but can be through control of the downstream industries, that is, MSME development. Blanket equity acquisitions in foreign companies can hinder future investment as investors may shun the stringent measures being enforced by the legislation. Some countries such as Malaysia, India and China have managed to come up with laws and guidelines that balance the need for empowerment and attraction of investment, into selected strategic sectors, creating a win-win situation. The country stands to lose future benefits in the form of high technology and skills transfer, if FDI is not given special consideration under IEE.

The other possible response could be capital flight as the foreign investors will re-invest their proceeds elsewhere, in preparation for eventual relocation, resulting in worsening balance of payment position for the country. Another concern is that industries are currently operating of less than 50% of their capacity and are heavily undercapitalised. Given this situation, there is no further incentive to recapitalise a company whose ownership will be transferred to someone else when fully operational.

One would ask whether this was the right time in view of the challenges bedeviling the economy. The adoption of the multicurrency system, although positively correlated to economic stabilisation, has resulted in a highly illiquid financial market, where banks have no capacity to lend. The government has been calling on donors and other international financiers to support its recovery programme, but very little has trickled into the country. Given that Zimbabwe is facing liquidity crunch partly due to the constraints of dollarisation and low credit worthiness, within the context of the worldwide negative impact of the global, financial and economic crisis. The country cannot claim sustenance or assume that the indigenous people will have enough currency to buy equity shares from foreign companies and to talk of levying companies that are already bleeding and operating below 50% due to crippling liquidity challenges and obsolete equipment and whose priority is survival is condemning the industry to its death.

IEE is a process and not an event. Even the countries that have been relatively successful in implementing the IEE, such as Malaysia, it has taken them three decades to yield meaningful progress. In this regard, Zimbabwe’s short-term approaches for achieving IEE objectives may need to be reviewed as the programme implementation unveils.

However, IEE cannot be implemented indefinitely. A lot of investments have long gestation periods of even up to 15 years before profits are realised, particularly those in the mining, energy, construction, among others. However, a time would come when affirmative action will be found not necessary due to economic realities.

Economic empowerment of the indigenous people in any sector would achieve more if it involves the private sector as the engine for economic growth. The private sector provides an array of support, from financial, technical, skills, business development and business linkages. This is particularly important in the nurturing of and mentoring of SMEs and the overall expansion of the indigenous private sector in the country.

Many times, when the economy has been subjected to challenges over a protracted period of time, the attendant difficulties can pervasively impair the understanding of causes and symptoms. Policymakers may run the risk of transposition — treating symptoms as causes and vice versa. It is, therefore, necessary to clearly identify and separate causes from symptoms. The economic reform programme is designed to deal with the underlying causes and the symptoms will progressively disappear as the policies become entrenched and take effect.

The programme of reforms and empowerment is premised on the foundations of genuine broad-based stakeholder buy-in. The approach is critical for effective synergies across all the various stakeholders; Government, Business and Labour, but also including local civic organisations and the population at large. Stakeholder buy-in cannot always be quantifiable but the effects are readily discernible. The absence thereof is marked by apathy, distance and preponderance by those feeling excluded to standby in detached indifference. The presence thereof creates an infusion of fresh energy, visible passion, unleashing a national synergy, for economic recovery and empowerment. It is therefore important to note that the empowerment should be an integral part of the country policy framework. The economic reforms envisage appropriate sequencing of policies, firstly to deal with adverse expectations and progressively to entrench stabilisation and recovery.

The foundations of economic stabilisation and recovery are premised on both programme efficacy and long term sustainability. Efficacy in terms of practical applicability and relevance within the socio-economic context of the country. Long-term sustainability in terms of the policy matrix that confers incremental advantages for wealth creation on an on-going basis, as well as broad-based economic transformation. The programme has to be designed and articulated as presenting opportunity for all, across the broad spectrum of society.

Economic policy coordination is at the heart of economy policy effectiveness. The empowerment package should be constituted by policies that flow together in a seamless pattern. Effective co-ordination will ensure that the various policies are ordered concretely to minimise gaps, undue and costly overlaps as well as inordinate delays, often characteristic of policy implementation. Entrenching macro-economic fundamentals and strengthening capacity of black empowerment requires a marked paradigm shift by all stakeholders — government, business and labour, in respect of charting a common approach and mutually shared way forward.

Government has to recognised that no country can hope to live beyond its means in perpetuity. We need to move forward to a state committed to a technically-sound long term development agenda. Developmental states are able to trigger and sustain growth and poverty reduction over extended periods of time leading to a structural transformation of the economy and society.

They successfully remove impediments (capability deprivation) to participation of the poor in a growth dynamic.
There is undoubted need to establish clear property rights and security of investments so as to widen the participation of Zimbabweans in the economy. A functioning democracy protects property rights and thrives from the creativity of entrepreneurial individuals who create jobs and provide goods and services. Securing of property rights is thus necessary for the expansion of the market economy for the benefit of the community at large and achieves sustainable development.

Gundani is the chief economist of the Buy Zimbabwe Trust. The views expressed in this article solely belong to the writer. These New Perspectives articles are co-ordinated by Lovemore Kadenge, president of the Zimbabwe Economics Society (ZES) E-mail: kadenge.zes@gmail.com and cell: +263 772 382 852.

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