Zimbabwe: Mixed Signals in 2014 Budget

editorial

WHILE Finance minister Patrick Chinamasa was clear yesterday he wants Zimbabwe to re-engage with the international community and promote the country's image following years of isolation, he also sounded confrontational and intransigent when it came to indigenisation, the biggest policy threat to investment.

Delivering his maiden budget statement in politically-charged language which engulfed his fiscal tenor, Chinamasa said his budget will continue to support marketing efforts, targeting participation at international fairs and expos, development of a National Convention Bureau and opening tourism offices in major source markets, among other things. He indicated government would take advantage of the prevailing conducive environment to further promote the penetration into those markets that remain untapped. He also pointed out the peaceful environment further offers a good opportunity for investment.

Chinamasa also spoke about policy certainty and consistency. He said policy stability, credibility and certainty are critical building blocks for confidence, over and above the prevailing stable macro-economic environment. He noted clarity on indigenisation, liquidity and the banking sector situation, public enterprise reforms and other things remain critical. Up to that point, we were with him. We thought finally he had got it right. However, his "clarification" on indigenisation turned out to be unhelpful. Chinamasa said in the case of resource-based investments, government's contribution would be the depleting asset in the form of the in-situ value of the mineral which would ensure a 51% equity in the business.

"The investor who comes with capital, technology and managerial skills to exploit this depleting resource is entitled to 49% of the shareholding," he said.

On other investments, he said the 51/49% share structure still applies even though 51% stake for locals would not be for free where enterprises do not benefit from natural resources or local raw materials.

"In the same vein, where the enterprise does not benefit from a natural resource or raw material derived from Zimbabwe, the business partners in the investment are free to make their own decisions on how and when, within the gazetted framework, the 51% contribution is to be financed or achieved," he said.

Effectively, this means there was no clarification of anything here. It was just repetition and reinforcement of the same policy position. So indigenisation -- which does not even have a policy document to guide it beyond the legislative framework -- will remain as it has been.

There would be no attempt from government to refine, properly structure and cautiously implement the programme. It was clear from Chinamasa's approach and tone, government doesn't care about the damage being inflicted on the economy by this incoherent policy. As we have said many times before, the destabilising effects of indigenisation on the economy are very serious.

Without going back to the drawing board to rework the policy to make it real-world and acceptable, Zimbabwe will remain poor with all its abundant resources. Chinamasa and his colleagues must get real.

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