6 December 2013

Zimbabwe: Foreign Shop Owners in Panic

HUNDREDS of shop owners of foreign descent with enterprises in sectors reserved for locals have in the past week been in a flurry approaching authorities with applications to indigenise their businesses ahead of a January 1, 2014 deadline that could see them prosecuted should they continue operating without certification.

Following recent remarks made by the permanent secretary for the Ministry of Youth, Indigenisation and Economic Empowerment George Magosvongwe before the Parliame-ntary Portfolio Committee on Youth, Indigenisation and Economic Empowerment, the Ministry and the National Indigenisation and Economic Empowerment Board (NIEEB) have over the past week been inundated with foreign shop owners looking to regularise the standing of their businesses in line with the Indigenisation Act.

In his presentation before the Parliamentary Portfolio Committee on Youth, Indigenisation and Economic Empowerment, Magosvongwe said: "I confirm that some non-indigenous entities are still operating in reserved sectors and there is a deadline of January 1 (2014) for them to comply with the requirement to relinquish their holdings in that sector."

Enterprises reserved for locals include retail and wholesale businesses, beauty salons, barbershops, bakeries, employments agencies and grain milling among others.

"We have been overwhelmed with people coming to our offices and those of our ministry with applications for certification. In just one week we had well over 200 applications to process and we are expecting even more to come through," said Zweli Lunga, general manager in charge of compliance at NIEEB.

A big number of the applicants who have thronged NIEEB and the parent ministry with applications have been those of Indian descent, among others. While some applications were successful, there were a number that were declined.

"Not everyone will get a certificate," Lunga said, stressing that no one would operate without a certificate.

According to Lunga, there are two types of certification: the normal compliance certificate issued where the 51 percent local ownership existed; and the indigenous certificate which confirms that an entity or applicant was 100 percent indigenous.

An indigenous person is regarded as one who was disadvantaged before 1980 by reason of their race.

While Nigerians, who make quite a substantial number of business operators in the reserved sectors, could only qualify for certification if they had "properly acquired" Zimbabwe citizenship or permanent residency as they could also be considered of the race previously disadvantaged; the grounds of being disadvantaged by reason of race would not extend to the Chinese, who make another substantial number of business operators in affected sectors. Chinese business operators in the reserved sectors can only get certification and continue operating if they cede 51 percent ownership to locals under the compliance certification provisions. Failure to comply on deadline will result in them being prosecuted.

While a number of Indian business operators were Zimbabwean citizens and could qualify for certification, there were a few who did not.

"We are interpreting the regulations to give protection instead of removing protection for Indian and coloured business owners who are Zimbabwean citizens. While broadly speaking Indians may not be counted under the group of those 'disadvantaged by reason of their race' before 1980, some interpretation of the law can actually include them, because if you look at it Indians were actually also discriminated against during the colonial era," Lunga said.

Likely to be most affected by this regulation are the Chinese.

"We want them to invest in the mining sector and others that are not reserved for locals," Lunga said, adding that the influx of foreigners in reserved sectors was one of the reasons the country was facing a liquidity crunch.

"We have a cash crunch because people are repatriating profits to their countries. We have cases of people bringing into the country US$20 000 to invest and then taking away US$90 000 back to their countries in profits. This is not good for the economy and it is such things we are trying to address -- the effects of allowing foreigners to do business in sectors which are reserved for locals at the expense of those same locals," Lunga said. "We would like the Chinese to bring in at least US$300 000 and invest in other sectors."

The early 2000s to date had seen an influx of Chinese and Nigerian businessmen in the country's downtown areas. While consumers have patronised these businesses in large numbers at the expense of the local entrepreneurs because of the lower prices offered, the unfair competition this has given to local business has had a negative effect as it killed local enterprises, in addition to repatriation of profits, among a host of other ills.

Lunga said reasons why such an influx had thrived, even against a policy that denies foreigners such enterprises, are because of lack of enforcement of the rules and regulations by the Zimbabwe Investment Authority (ZIA) as well as the lack of harmonisation of efforts by the city councils and the indigenisation ministry.

"The law has always not allowed foreigners to get into reserved sectors but ZIA has not been regulating to ensure the law is being adhered to. The other reason is that there has been free for all by the city councils which have been allowing these foreigners to get into reserved sectors by issuing them, and not denying them, licenses. You must understand that these foreigners have been providing quite a lot of revenue for the councils given their numbers and this has been favourable to the councils. But we are currently talking to the city councils to ensure that we harmonise our efforts," Lunga said.

But ZIA denies issuing licenses to foreigners in reserved sectors.

ZIA spokesperson, Nixon Kanyemba, said the authority only issue out licenses to those operating in the regulated sectors and have no certificates issued out for the reserved sectors.

"In any case our position as ZIA is clear: any foreign investor coming to invest in the country should comply with all statutes and this includes the ZIA Act and the Indigenisation Act, both of which agree on setting aside on reserve some sectors for the locals."

Leslie Gwindi of the Harare City Council could not be immediately reached at the time of going to press.

Economic analyst, John Robertson criticised government for allowing the foreigners to operate in the first place and then later forbid them to.

"This leads to lack of confidence amongst investors. When people are allowed to work or set up businesses and then later face forced closures it amounts to serious breach of property rights. It means you are being mugged by government," Robertson said.

"Government needs to give assurances to people that if you come and set up your business here not even one percent let alone 51 percent will you lose from your investment."

Copyright © 2013 Financial Gazette. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.

AllAfrica publishes around 2,000 reports a day from more than 130 news organizations and over 200 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.