1 June 2014

Zimbabwe: Indigenisation Policy Review Was Long Over Due

analysis

Climb down or climb up -- the indigenisation policy needs a review since it has proven in practice to be a treacherous model of development.

The government recently said it was proposing a review of the indigenisation and economic empowerment policy after realising that the policy has brought pressure to bear on Zanu PF and the government since it has failed to stimulate growth in the economy.

Since the adoption of the policy, there has been nothing to write home about when it comes to economic growth -- instead, there has been hullabaloo over the implementation which is seen as a resemblance of the land reform programme -- where white-owned farms were grabbed willy-nilly.

Government says it is in the process of reviewing the policy in a move that allows 100% ownership of resources in the hands of locals. In other words, government is advocating for a Production Sharing Model which is a climb down from the initial 51% equity sharing in the hands of indigenous people.

Under the Indigenisation and Empowerment Act, all foreign-owned businesses worth at least US$500 000 are to cede 51% shareholding to indigenous Zimbabweans.

The motive behind the policy review was to deal with the country's ailing economy which has badly affected has the productive sectors -- mainly mining -- which is the backbone of the economy.

In the wake of the indigenisation policy, we have witnessed mining firms either scaling down operations or suspending production while a number have shut down throwing the nation into poverty.

According to the Chamber of Mines, the mining sector was showing signs of decline, registering a growth of only 6,5% in 2013 and was expected to slow down further this year.

The way the first stage of the indigenisation policy was implemented left a lot to be desired. The Community Share Ownership Scheme was mired in controversy in some parts of the country.

In Manicaland province, diamond mining companies never remitted any money to Marange villagers under the Community Share Ownership Scheme while in Matabeleland North and South provinces, the mining firms involved are finding the going tough as far as committing themselves to the Community Share Ownership scheme is concerned.

While success stories have been told about the Chegutu, Tongogara and Zvishavane share ownership schemes, there hasn't been any meaningful development taking place in the mining sector since the promulgation of the Indigenisation Act.

The once flourishing mining sector is going through a difficult patch due to a combination of factors, chief being flawed government policies, particularly the indigenisation policy.

The sector's demise started with the adoption of the Economic Structural Adjustment Programme (Esap), which was launched in 1990 and meant to herald a new era of modernised, competitive, export-led industrialisation.

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It was the turning point for the country's mining sector. Despite a high-performing mining sector in its early years of independence, Zimbabwe faced erratic growth in the sector during and after five years of Esap.

There was no point in time when government intervened and reviewed Esap among other skewed policies, like this ostensible shift on the indigenisation policy.

Within a short space of time, the indigenisation policy had ripped into the existing economic and social infrastructure of the mining sector - investors fled while other foreign-owned companies scaled down operations.

The policy shift in which government is pushing for the Production Sharing Model is welcome.

It is also investor-friendly especially as the government awards the execution of exploration and production activities to an investor who bears the mineral and financial risk of the initiative and explores, develops and ultimately produces on the field as required.

When successful, the investor is allowed to use profit realised from the minerals to recover capital and operational expenditures.

The remaining profit is split between the government and the investor, at a rate determined by the two parties. In some production sharing pacts, changes in international mineral prices or production rate can affect the investor's share of production.

It is a model worth trying considering the country's economic hardships.

With Zimbabwe's unemployment rate of over 80%, there is no other way the country can resuscitate its economy.

Zim Asset, the new economic blueprint which is an offshoot of the Zanu PF election manifesto, is failing to flourish because its foothold is the indigenisation policy.

A review of the indigenisation policy also entails an evaluation of Zim Asset which has failed to bear fruits since its adoption last year.

Investors have not been forthcoming and the economy is bleeding.

More firms face closure and there is nothing in place to save them. Our current policies are not friendly enough to boost productivity.

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