Industry has opposed a cabinet resolution to cancel licenses for foreign-owned companies that are not compliant with the Indigenisation and Economic Empowerment Act effective April, saying it exacerbates the current economic malaise that is largely a result of policy uncertainty and failure.
Last Tuesday, government ordered the cancellation of operating licenses of companies that have not complied with the country’s controversial indigenisation laws after a unanimous cabinet resolution.
Indigenisation minister Patrick Zhuwao announced cabinet had resolved to enforce the Indigenisation and Economic Empowerment Act Chapter 14:33 which provides for the cancellation of non-compliant companies, operating licences across all sectors of the economy.
“On Tuesday 22 March 2016, cabinet unanimously passed a resolution directing that from 1 April 2016 all line ministries proceed to issues orders to licensing authority to cancel licencesof non-compliant business within their respective sectors of the economy,” Zhuwao said.
Zimbabwe National Chamber of Commere CE Chris Mugaga said although companies should comply with the laws of the land, there is concern over the inconsistent implementation of the policy.
“What damages a country’s standing in the global economy is more of perception than the intention. What is more important at this juncture is to view a thorough audit and profiling of companies which have failed to meet the deadline. Armed with such information, we are well positioned to know the best action we are to take,” said Mugaga.
“Blindly calling for closure of all non-compliant firms is indeed disastrous and may lead to more job losses, weakening of the banking sector as they will be deposit flights, need for a revision of the 2016 budget estimates as tax contributions from the said companies will dwindle with both the current account and capital account balances receding into turmoil.”
He said government should look at other feasible and progressive solutions before resorting to extreme measures that may be detrimental to the economy in the long run.
“For starters, when law of the land is established, it is advisable to adhere to its letter and spirit. This therefore means all companies operating in Zimbabwe have to oblige with the requirements of the law without fail,” he said.
“However, there is a flip side to the whole drama, what if they do not comply in stipulated time, is shutting their doors the solution? Any attempt to invoke section 5 of the indigenisation Act which calls for cancellation of licenses of non-compliant companies is a direct slap on the attempt to improve ease of doing business.”
Zimbabwe’s currently ranks 155 out of 189 in terms of the ease of doing business largely due to poor governance, policy inconsistency and entry barriers into business.
Chamber of mines officials who spoke to businessdigest on condition of anonymity said the developments will only bring more uncertainty.
Buy Zimbabwe said Zimbabwe’s contentious indigenisation programme remains a millstone around the neck of the economy amid lack of a settled and progressive policy informed by a realistic economic agenda beyond the current legal framework.
Buy Zimbabwe chair OswellBinha said the economic reforms should strive for appropriate sequencing of policies, consistency, coherence and certainty. He said government need to deal with adverse expectations, undue anxiety and progressively to entrench stabilisation and recovery as opposed to the current approach of arbitrary deadlines, orders and directives.
“We therefore call upon government to observe economic dissonance and realise that the indigenisation confusion has been the biggest albatross in the economy and the sooner we sanitise the whole policy discord the better for the wellbeing of the economy,” Binha said on Tuesday. He added 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 industry capacity utilisation which fell from 36,5% in 2014 to 34,3% in 2015, company closures and massive job losses.
“The proposed cabinet directive to close companies as a punitive measure against companies is tantamount to condemn Zimbabwe into continued economic decline and abject poverty. This issue of government trying to decimate the private sector is very unfortunate and uniformed. Threatening to close companies shows a lack of understanding of the economy and forces of economic prosperity,” Binha said.
The Buy Zimbabwe chair said the government needs to take stock of the impact of the actions of indigenisation ministry at a time the consequences of the confusion that has emanated from the numerous pronouncements on indigenisation are already being keenly felt.
Buy Zimbabwe, added Binha, believes that the programme of economic reform and economic empowerment is premised on the foundations of genuine broad based stakeholder buy-in.
He said the approach is critical for effective synergies across all the various stakeholders; government, business and labour, but also including local civic organisation and the population at large.