Zimbabwe acts against foreign business owners

President Robert Mugabe's government will impose a five-year jail term on owners of foreign companies who are not prepared to sell a 51% stake to blacks.

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HARARE // The government has issued a set of regulations related to a controversial economic empowerment law that compels foreign-owned firms to sell 51 per cent of their businesses to blacks over the next five years.

Passed by parliament in 2008 amid international condemnation, the Indigenisation and Economic Empowerment Act and its regulations take effect on March 1. They prescribe five-year jail terms to foreigners who fail to submit an indigenisation plan by April 15 or those who use locals as fronts. Supporters say the law will ensure blacks play a more prominent role in the economy. Its opponents say the law is draconian and will scare away foreign investment for a country that desperately needs funding from abroad to recover from the economic crisis of the past decade.

Others claim that a provision that allows the minister of youth development, indigenisation and economic empowerment, Saviour Kasukuwere, to keep a database of indigenous businesses from which foreigners can pick partners would instead be used by the ruling party to give its allies the best deals. Mr Kasukuwere belongs to Zanu-PF, the party of Robert Mugabe, the president. "Definitely this is patronage," Daniel Ndlela, an economist, told SW Radio Africa recently. "It is a continuation of patronage as we have seen it in Zimbabwe. Those who will benefit are people in the gravy train in the patronage system. This letter of the law is quite clear that if you don't comply, five years in prison.

"The issue here from an economist's point of view is if you want investments from your own country, existing investments or any new investments out there, you are not going to threaten people that come here. From an economist's point of view, you'll not have any investors coming into this country." The law defines an indigenous Zimbabwean as "any person who, before the 18th April, 1980 [when Zimbabwe gained independence from Britain], was disadvantaged by unfair discrimination on the grounds of his or her race, and any descendant of such person, and includes any company, association, syndicate or partnership of which indigenous Zimbabweans form the majority of the members or hold the controlling interest".

Foreign-owned companies with assets valued at more than US$500,000 (Dh1.8 million) are subject to the provisions of the empowerment law. It also lists sectors that are reserved for local investment and in which foreigners are barred from investing. These include agriculture, passenger transport, retail and wholesale trade, employment, advertising and estate agencies, hairdressing and beauty salons, grain milling, tobacco processing, milk processing, provision of local arts and craft, and marketing and distribution.

The regulations have divided the unity government that Mr Mugabe formed in February 2009 with the Movement for Democratic Change leader, Morgan Tsvangirai, now the prime minister. Mr Tsvangirai, whose party was a minority in parliament when Zanu-PF passed the law, has declared its regulations null and void. Mr Tsvangirai said: "I am in charge of all policy formation in cabinet and neither myself nor the cabinet were shown these regulations before they were gazetted. They were published without due process as detailed in the constitution and are therefore null and void."

The Confederation of Zimbabwe Industries said the timing of the law is wrong because industry is struggling to rebuild. The Chamber of Mines, which represents mining firms and is dominated by South African, Canadian, British and Australian transnational companies, is conferring with the government before commenting. Kumbirai Katsande, president of the industries confederation, said: "Civil servants are on strike because the economy is not generating enough money. How is indigenisation going to help create jobs? It is not making sense and we need to get our priorities right."

But Mr Mugabe has defended the law. "Forty-nine per cent is a hell of a lot of equity. It's only foolish ones [foreign investors] who will say no, wise ones would take it up." Supa Mandiwanzira, president of Affirmative Action Group, a black economic empowerment lobby, said governments worldwide have policies that promote economic development of native investors. "Botswana, India and other countries have similar laws, but you cannot tell me that there is no foreign investment in these countries," Mr Mandiwanzira said.

"The gazetting of the regulations gives clarity regarding our investment policies so this will not scare away anyone. The government is saying 51-per-cent shareholding for locals will economically empower them because they were marginalised by 100 years of colonialism." Mr Kasukuwere said he will implement the law, regardless of the objections. "Like I said in parliament last week, a minister who administers a law does not have to consult everyone. I am surprised that there are these personal views that are against the operationalisation of the law that seeks to economically empower them."