Zimbabwe’s Sober Second Thoughts on Indigenisation.

11 03 2010

Last week Zimbabwe’s government has informed that it was reviewing indigenisation regulations according to which firms were supposed to cede a 51% equity stake to black Zimbabweans. The Government admitted that rules the new rules had been released prematurely last month.

Remember, the regulations were released so “prematurely” that Zimbabwean Prime Minister Morgan Tsvangirai declared them “null and void” as its Cabinet had not seen the regulations prior to their publication, which is in breach of Zimbabwe’s power-sharing agreement. This situation could lead to the regulations not being implemented but as far as a review is ongoing it is worth examining sensible options that would make indigenisation manageable for businesses.

New Ownership Laws [as Currently Standing]

As set out in February, the regulation would require firms to cede 51 per cent of their shareholding to indigenous Zimbabweans. This would apply to every firm with business assets above US$500,000. Firms are given 5 years to comply with this requirement but will have to present plans on how they intend to comply with this regulation by April 15th.

The scope of the policy goes way beyond the Zimbabwe Chamber of Mines’ initial proposal. In discussions with government official, the Chamber had proposed that local equity ownership be of a minimum of 10% with empowerment credits making up to 15% and was covering local procurement. Industry was of impression that this proposal had been well received.

Many mining firms with activities in Zimbabwe have expressed concerns with the regulations. Nick Cobban, a spokesman for RioTinto, indicated that the legislation was “draconian and unworkable” and that legislative uncertainty and the threat of indigenisation law were factors hindering the development of some of their assets in the country. Many statements echoed those views. Impala Platinum, one of the largest mining investor in Zimbabwe had foreseen indigenisation risks and reached an agreement in May 2006, regarding the operations of Zimplats, under which it released 36 % of its resource base in return for 19.5 percent empowerment credits as well as a cash credit of US$51 million.

New ownership laws came just as the Zimbabwean Minister of Finance was trying to attract foreign direct investment. Unless the policy is significantly reviewed, money may not exactly be pouring in.

South African Experience with Economic Empowerment

Empowerment of a population long disadvantaged is a legitimate goal. Now, why, in a world of policy contagion, would one disregard examples in good standing of economic empowerment that happen to be working just fine next door? Yes, I am talking about South Africa’s Black Economic Empowerment (BEE). This initiative was also welcomed with lots of criticism too but businesses have been successful into complying with its requirements.

BEE sets sector-specific targets regarding equity ownership, management representation, employment equity, skills development, preferential procurement, enterprise development and socio-economic development. Equity ownership in BEE was set at 26%. Management control is set to 40%. Preferential procurement was to account for 70% of inputs. These targets had to be achieved over 10 years and compliance is weighted differently for each component so as to come up with a score that reflects compliance. BEE Charters and Scorecards can be found here.

Compared to Zimbabwe’s new ownership laws requirements set out by BEE come across as very reasonable. As currently gazetted, Zimbabwe is requiring firms to achieve twice as much in half the time. South Africa as also been able to frame BEE in such a way that it is not a mere transfer of property from one group of citizens to another but is instead an economic growth strategy. With Mugabe’s repeated seizures of white-owned farms, we’re not really sure whether he’s not just handing in the wealth of others in exchange of political support.

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