13 March 2008

Zimbabwe: Stakeholders Cautious On New Law

Harare — The Indigenisation and Empowerment Act has been received with mixed feelings by economic stakeholders, with foreign-owned firms expressing caution while local critics and business executives warned it could explode into an unprecedented crisis if not managed properly.

Jane Mutasa, president of the Indigenous Business Women's Organisation, welcomed the signing of the bill into law last week, but warned government had to tread carefully to avoid dragging the economy further down the abyss by precipitatingcompany closures.

"As the people who championed indigenisation in this country, we are happy the bill has been signed into law but hope things will be done in a proper manner," Mutasa said yesterday.

She noted that transformation had to be embarked on in a manner that does not upset foreign capital, and that the indigenisation programme should not benefit a few politicians and their cronies.

"It should also involve women who have been culturally excluded from the mainstream economy. Communities should also benefit from the indigenisation of companies mining in their areas," Mutasa said.

Her concerns resonated with those expressed by critics who however, feared the new law was signed as a political gimmick aimed at oiling the tired ZANU PF election machinery.

Foreign-owned companies will be compelled to give up at least 51 percent shareholding to local people under the new law, signed by President Robert Mugabe last week.

Government argues that the new law creates an environment for greater participation in the country's economy.

Under the law, a fund will be created to finance the acquisition of shares, working capital and other forms of finance for indigenous people.

The National Investment Trust, which has failed to raise cash for the purchase of a 15 percent stake reserved for locals in platinum miner Zimplats, will be constituted as a special account for the planned empowerment fund.

Market analysts said the Bill would effectively seal Zimbabwe's fate as a pariah to international capital.

A labour economist who declined to be named because of his consultancy work with government said Zimbabwe was maintaining its trajectory down the economic abyss.

"Implementation has always been bad on the part of government and with this I-don't-care attitude, we might witness something worse than what we saw with the land reforms," he said.

Investigations indicated that shareholders in mining companies were the most worried, particularly given that they were the ones likely to be seriously affected by the new law.

Parliament passed amendments to the Mines and Minerals Act recently, and with the latest development, this is likely to be signed into law before the March 29 elections.

The amendments allow government to take over a 25 percent stakes in foreign-owned mining companies for free in part fulfilment of the 51 percent indigenisation quota.

According to a confidential document prepared by the Chamber of Mines in 2006, Zimbabwe's mining industry is valued at more than US$20 billion. This gives the value of the 51 percent indigenisation threshold across the sector at more than US$10 billion.

The 25 percent stake to be forcibly taken over by government would amount to US$5 billion.

Mining industry executives were not willing to discuss the issue publicly, saying they were still assessing the likely impact of the new law.

President Mugabe has specifically said his government would want domestic control of the country's mineral resources.

Daniel Ndlela, an economic consultant, told The Financial Gazette in an earlier interview: "The forced acquisition is tantamount to nationalisation. Assuming we have the foreign currency (to buy out foreign-owned assets), this will trigger a massive outflow of cash."

Apparently, the new act comes as ZANU PF, seeking re-election in the March 29 harmonised elections, has anchored its campaign around the issue of economic empowerment, with an abrasive theme: "Defending our land and national sovereignty: building prosperity through empowerment."

In its manifesto released last month, the party said: "ZANU PF says as long as nationally conscious Africans remain salaried managers running white-owned industrial and commercial concerns, prosperity will continue to elude the people of Zimbabwe.

ZANU PF believes there is a real opportunity for building on gains already made through empowerment achieved on land. It must now extend to the rest of the economy so that the politics of the country begin to address and rearrange the economic domain."

However, its chaotic land reform exercise has been blamed for plunging the country into its worst economic crisis in history, characterised by acute commodity shortages that have spawned a thriving black market and fuelled inflation, currently topping 100 000 percent year on year.

There are fears the programme could benefit ruling party and government bigwigs and their cronies.

For example, the Indigenisation Minister will be empowered to review and approve all black economic empowerment arrangements, and can order a licensing authority of any business to cancel the licence if he/she is not happy with the transaction, or the beneficiaries of the deal.

However, Paul Mangwana, the Minister of Indigenisation and Empowerment this week sought to calm fears of a disastrous implementation of the programme, saying "it was not as bad" as critics had described it.

He told a press conference this week that government would not force black partners on foreign-owned companies and that not all firms would be compelled to sell their shareholding to blacks.

"It's not every business, which will have to have 51 percent indigenous ownership. The minister will prescribe on the basis of capital (investment) and employment levels," Mangwana said.

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