3 February 2011

Zimbabwe: 'Policy Uncertainty Bad for Investment, Growth'

Government's failure to revise controversial indigenisation regulations last December has raised anxiety among business as Zimbabwe faces a possible election later this year.

Indigenisation regulations compelling foreign-owned companies with a net asset value of US$500 000 or more to dispose 51% shareholding to black Zimbabweans took centre stage at an economic outlook symposium amid business leaders fears the new law could retard economic growth.

Last August Youth Development, Indigenisation and Empowerment minister Saviour Kasukuwere commissioned several sector-specific committees to advise government on the regulations following a furore over the policy.

He promised to announce new regulations after taking on board various submissions from committees but barely a month after the proposals, Kasukuwere has remained mum on which way to go.

But Zanu PF, one of the partners in the coalition government formed two years ago, is on a campaign trail selling possible takeover of foreign-owned companies as an election trump card.

Mining and the financial services sectors have criticised the disposal of the mandatory 51% shareholding owned by foreign investors saying the move could result in divestment of Zimbabwe's capital starved economy.

Stanbic Bank chairman and renowned corporate lawyer, Sternford Moyo told delegates at the Mandel Economic Outlook Symposium on Monday that empowerment regulations could trigger expropriation of properties, a development that could result in massive capital flight.

"It has raised the ugly possibility of violation of property rights," said Moyo.

"It has been received with such a strong mixture of emotion, suspicion and fear that it has been very difficult for rational discussion on the way forward to take place. Very little attention has been given to possible ways in which to respond to and mitigate the negative effects of the legislation."

University of Zimbabwe School of Business professor Tony Hawkins said a policy discord within government would derail economic recovery.

"The mixed message policy environment of the past two years is not conducive to sustained recovery," he said. "All the evidence tells us that policy uncertainty - such as over indigenisation - is bad for investment and growth.

"This economy emerging from not one but three decades of underinvestment cannot afford a period of protracted policy and political uncertainty. Nor should business be as complacent as it is about the build-up of an additional US$750 million of debt annually."

Zimbabwe's is saddled with a US$6,9 billion debt and government is struggling to attract lines of credit and foreign direct investment - currently standing at 5% of the Gross Domestic Product from a high of 25%.

"Because there can be no sustained growth without investment and because policy uncertainty and instability and policy paralysis inhibit investment decision-making. Government should be talking to the International Monetary Fund about a Staff Monitored Programme, as a prelude to debt relief," Hawkins said.

Economic Planning minister Tapiwa Mashakada, representing the Morgan Tsvangirai-led MDC in the unity government, accused unnamed people of intending to arbitrarily take over companies under the guise of empowerment warning the plan could paralyse the economy. He downplayed the possibility of a general election this year, a process business fears would plunge the country into economic turmoil.

"There are some unscrupulous elements in society who have taken it upon themselves to interpret indigenisation as seizure and invasion," he said.

"The year opened with an election mantra which is slowly dying down as it appears parties are now committed to the completion of the constitution-making process, and organise elections after referendum."

Imara Asset Management CEO John Legat said government can achieve empowerment objectives and stimulate the Zimbabwe Stock Exchange - lowly ranked in the region in terms of market capitalisation - by listing targeted foreign-owned companies.

He said foreign-owned mining companies are considering going public once there is clarity on the empowerment regulations.

The ZSE is targeting platinum giant Zimplats, which is trading on the ASX, Aqaurius platinum (ASX, JSE, LSE), Anglo American owned Unki mine, and ACR (LSE).

The Chamber of Mines of Zimbabwe says the mining industry requires up to US$5 billion to recapitalise after years of hyperinflation, limited capital inflows, foreign exchange controls, hamstrung operations.

"There is no shortage of capital in the world, there is plenty of it," Legat said. "But it wants to go where it can achieve the highest returns for the level of risk that is taken. I think indigenisation is one major area that is restricting the availability of capital".

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