HomeAnalysisIndigenisation process gets murkier

Indigenisation process gets murkier

THE flip-flopping by Indigenisation minister Patrick Zhuwao on the country’s empowerment measures to be taken against foreign companies which fail to comply with the Indigenisation Act is further evidence of the growing uncertainty and chaos shrouding the process which critics describe as racketeering by regulation.

Kudzai Kuwaza

In yet another damaging volte face, Zhuwao this week told a local weekly that companies which do not comply with the indigenisation requirements by April 1 2016 will no longer be charged an indigenisation levy as he had earlier proposed, but will be shut down.

“We will now, instead, put in place appropriate measures to invoke Section 5 of the Act which calls for cancellation of licences of non-compliant companies. In attempting to make the companies comply, we had initially come up with the idea of a levy that could be moderated by the extent of compliance,” Zhuwao said.

“However, on further reflection and consultation, we realised that such a levy would be payment for companies to continue disregarding the law. I, as minister, would have been complicit in committing an illegal act and enabling companies to break the law (which) is contrary to the spirit and intent of a constitutional democracy like Zimbabwe.”

The latest turnaround in flip-flops on indigenisation are likely to further discourage investment in a country already hard hit by a debilitating liquidity squeeze, low capacity utilisation of less than 35%, company closures and massive job losses.

Should Zhuwao carry out his threat and shut down companies that have not complied by the beginning of next month, it will worsen the country’s de-industrialisation and unemployment rate at a time when just 5% are employed in the formal sector, according to a report by the International Labour Organisation.

The closures will also add to the 4 610 companies that shut shop between 2011 and 2014 due to the failing economy which has resulted in the loss of 55 443 jobs.

The latest official somersault comes only three months after Zhuwao and Finance minister Patrick Chinamasa’s instructive public row over the indigenisation programme, which for many was an indication that there was no consensus in cabinet over how the programme should be handled.

Chinamasa, through the Government Gazette on Christmas Eve last year, announced changes to the indigenisation laws.

However, Zhuwao hastily convened a press conference on Christmas Day to slam Chinamasa accusing him of “treachery” and declaring that there are no changes to the law.

The two ministers, with Reserve Bank governor John Mangudya, then later announced that the government would withdraw the gazetted amendments showing growing policy confusion within government as ministers who sit in the same cabinet every Tuesday failed to speak with one voice on a law signed by President Robert Mugabe in 2008.

On January 4 Chinamasa and Zhuwao announced they had agreed on the implementation of the Indigenisation Act in a move aimed at clarifying the controversial policy to attract foreign investors.

“All companies that have not yet submitted their indigenisation implementation plans as required by the Act should submit their applications through ZIA (Zimbabwe Investment Authority) by the new deadline of March 31 2016,” Chinamasa said.

The amendments agreed by Chinamasa and Zhuwao maintained a 51/49% ratio of local/foreign ownership for resource-based sectors of the economy such as mining. They agreed that non-compliant companies would no longer be threatened with seizure or closure, but will instead be required to pay an “indigenisation compliance levy” as a tradeoff for non-compliance, with a cap of 10% of gross turnover.

But as the deadline nears, Zhuwao has backtracked on the ammendments stating that the levy, which many people were already questioning as they felt it would lead to the collapse of many companies, would instead be dumped as government moves to shutdown companies.

The indigenisation policy has been a major concern to would be investors as pointed out by various business delegations from Britain, Russia, United States and France who visited the country last year. That very little has come out of the visits of nearly 80 business delegations last year points to the poisonous effect of laws such as the indigenisation act.

An International Monetary Fund delegation, that was recently in the country for the third and final review of the Staff-Monitored Programme also expressed concern over the indigenisation policy.

Economist and former Zimbabwe National Chamber of Commerce president, Oswell Binha said the threats by Zhuwao could not have come at a worse time.

“I think that the challenge is the timing of the punitive measures against companies. We are behaving as if everything is normal,” Binha said. “If companies close, what next? This issue of government trying to decimate the private sector is very unfortunate and uninformed. Threatening to close companies shows a lack of understanding of the economy. I do not subscribe to this approach. I do not subscribe to this ideology.”

He said Chinamasa and Mangudya need “to take stock of the impact of what is being done by the Indigenisation ministry”, adding that the unintended consequences of Zhuwao’s actions are “dire”.

“Why is the indigenisation portfolio always under pressure? Why are the punitive measures always so hard? These are some of the questions that need answers,” Binha said.

The consequences of the confusion that has emanated from the numerous pronouncements on indigenisation are already being keenly felt.

Zimbabwe remains an economic backwater, with paltry FDI inflows.

According to the report, Zimbabwe’s 2014 FDI inflows of US$545 million paled in comparison to neighbouring countries in the Sadc region such as Mozambique, which received US$4,9 billion, almost nine times more, South Africa (US$5,7 billion) and Zambia (US$2,4 billion).

The threats by Zhuwawo to close down companies that do not comply with indigenisation requirements are unconstitutional, according to economist and former Economic Planning minister, Tapiwa Mashakada.

“This (Zhuwao’s threats) is akin to trying to manage the economy through violence,” Mashakada said. “Companies in question are private entities. The constitution does not allow such intrusions by the minister. If he proceeds to close down the companies, he will be in breach of the constitution and will snuff out investor confidence. I do not know how many times we have to repeat it for this clueless regime to understand.”

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