‘Indigenisation’ policy threatens to derail Zimbabwe economy

Zimbabwe’s ‘indigenisation’ policy was introduced in 2008 but never implemented. Now a new deadline to meet the 51% local-ownership target could derail an economy in dire need of foreign funds.

Patrick Zhuwao, Zimbabwe's minister for its 'indigenisation' policy, has issued an April deadline for foreign firms 1 to meet 51 per cent local-ownership targets, or be ejected and have their assets seized. Office of Patrick Zhuwao
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CAPE TOWN // A game of chicken is playing out right now in Zimbabwe, as foreign firms wait to see if the government will live up to its threat to expel companies that fail to meet local-ownership targets.

The southern African country had given foreign firms until April 1 to meet 51 per cent local-ownership targets, or be ejected and have their assets seized. The “indigenisation” policy, as it is called, was introduced in 2008 but until now has shown few results. Instead, foreign firms have managed to fend off implementation even as they drew up elaborate indigenisation plans to be dusted off and shown to officials whenever the issue raised its head.

This time, though, the government appeared to mean business after Patrick Zhuwao, the government minister with oversight of the policy, issued the April deadline.

“The failure to adhere to the law of the land must attract immediate consequences,” Mr Zhuwao said in late March. “These consequences must be severe and dire enough to ensure the law is adhered to.”

As a result, hundreds of firms submitted their indigenisation plans ahead of the deadline, some with just hours to spare.

Zimbabwe is home to a diverse mix of foreign companies, including UK banks such as Standard Chartered and Barclays, the South African miner Zimplats and energy majors such as Shell and BP. Most have worked towards indigenisation without actually implementing it.

Localisation is not unique to Zimbabwe. The UAE requires that all businesses operating on its soil must be at least 51 per cent owned by Emiratis, unless they are based in free zones. Zimbabwe’s neighbour South Africa also has requirements for strategic industries to meet set targets of black citizen ownership.

However, the UAE’s GDP is more than US$400 billion and the economy robust. Zimbabwe’s, by contrast, is flailing amid drought and years of ruinous economic policies. Its GDP is just $4bn, according to Bloomberg data, and those foreign firms that remain are struggling to keep the lights on.

“We’ve hung on through everything while the economy burned down around us,” says a Harare-based British businessman, who asked not be named. “Coming to us and demanding we hand over control of our business to a partner who likely can’t – or won’t – contribute capital will be the end for many of us.”

Businesses certainly do not have it easy in an environment where crisis follows upon crisis. Most are literally battling to get their hands on cash, which is now in chronic short supply. In 2009, the country abandoned its currency, the Zimbabwean dollar, after years of hyperinflation resulted in trillion-dollar notes being used to purchase single loaves of bread. Instead, Zimbabweans now use US dollars and South African rand as currency.

While this has stabilised the inflation rate, it has also meant the country’s reserve bank must rely on imported notes of foreign currency, which are not easy to come by. Notes remain in circulation for as long as possible, with sticking tape pasted across fading greenbacks, if that is what it takes. Without enough cash to go around, companies are forced to pay staff late and fall behind on bills.

Problems such as this have made it difficult to attract and retain foreign investors, and it is not certain just how far the authorities are willing to push businesses that already have one eye on the door.

Already Mr Zhuwao has engaged in a public spat with the finance minister Patrick Chinamasa, whose job it is to try to plug as many leaks in the economy as possible.

This month, Mr Chinamasa issued a statement to reassure banks that they were in compliance and would not, therefore, face censure, a direct contradiction of Mr Zhuwao’s position that the finance sector was not, in fact, compliant.

“I am pleased to advise that all the affected foreign-owned financial institutions operating in Zimbabwe have submitted credible indigenisation plans before the deadline of March 31 2016,” Mr Chinamasa said.

Mr Zhuwao soon responded with a statement of his own, suggesting not only banks but their clients, too, were at risk of legal censure.

“[Mr Chinamasa’s] position puts at risk the savings and investments of depositors and shareholders in an already compromised financial services sector,” Mr Zhuwao said.

Public disputes between senior government figures are not new to Zimbabwean politics, especially as various factions within the ruling Zanu-PF administration jostle for position. The president Robert Mugabe is 92 years old and, although still appearing to be in robust health, competition between contending factions over who will replace him has become increasingly fierce.

A leading group in the jostling is the so-called “G40” faction, because it consists largely of younger men and women who were born after the struggle to end white rule in 1980.

This group includes Mr Mugabe’s inner circle and relatives, such as Mr Zhuwao himself, as well as Grace Mugabe, the president’s wife.

As happened with previous efforts at redistribution, such as the transfer of thousands of white-owned farms to landless blacks, the beneficiaries of indigenisation are likely to include people in the senior ranks of Zanu-PF.

A widespread belief is that Mr Zhuwao is hoping to channel some of the localisation towards members of the G40, which would give them the resources they need to continue their fight for dominance.

However, there is always a possibility that this attempt to get business compliance will fade away as it has numerous times in the past. Mr Chinamasa is among those within Zanu-PF who are trying to restore investor confidence and lure offshore capital to Zimbabwe. If he prevails, foreign corporations will quietly return their indigenisation plans to the shelf until the next crisis.

As long as Mr Mugabe remains president, though, they should not rest easy as the eddying currents of factions will continue to swirl around Zimbabwean politics and business, as Mr Mugabe himself noted.

"You then see a stampede now; they will be saying the president is dying," Mr Mugabe told a gathering of military veterans this month, according to the state-owned Chronicle newspaper.

“I am not dying, shame on you. I am there at the mercy of the people. If the people say ‘no, go’, I go. But if the people say ‘no, we still want you’, I stay on.”


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