Thursday, 14 January 2016

Mugabe conceded key indigenisation demands and yet still no takers - law is now mile stone round his neck.

A few weeks ago this Zanu PF government carried out a major concession to its indigenisation law; instead of selling the 51% shares the foreign investors will be allowed to apply for exemption in which they can sell reduced shares down to zero and pay instead the empowerment levy. The Levy will be worked out on sliding scale in inverse proportion to the shares sold.

To the Zanu PF hardliners empowerment levy was a major climb down for them but even they had to admit that since the passing of the indigenisation law in 2008 foreign investors have definitely shied away from Zimbabwe – we must let the numbers speak for themselves.

“Zimbabwe’s Foreign Direct Investment (FDI) inflows were a measly $105 million (2009), $166 million (2010) $387 million (2011), $400 million (2012), $410 million (2013) and $545 million (2014),” reported Ken Yamamoto, Japanese researcher on Africa, in a recent article.

“Compare this with Mozambique which got FDI as follows in the same period: $898 million (2009), $1 billion (2010), 3.5 billion (2011), 5.6 billion (2012), $6.1 billion (2013) and $4.9 billion in 2014. The average FDI that has gone into Mozambique during this period is roughly equal to Zimbabwe’s entire annual budget.

“Zambia has also fared far better than its southern neighbour, receiving in the same period the following FDI amounts: $426 million (2009), $634 million (2010), $1.1 billion (2011), $2.4 billion (2012), $1.8 billion (2013) and $2.5 billion (2014).”

The most notable difference between Zimbabwe and its two close neighbours is that they, like almost all other countries in the world, they do not have obnoxious indigenisation laws forcing the would-be investor take on a parasitic local partner (s).

Of course all the local partners were going to be Zanu PF loyalists given it was the regime who would allocate the local partners. No doubt Zanu PF hardliners considered themselves front runners in the selection of local partners. Naturally they were disappointed that the foreign investors would now be paying an empowerment levy which would be paid to government over which they, as the potential local partner would have no special claim to.

Still they will have a better chance to a share of the empowerment levy than if the foreign investors paid it all as tax!

Most, if not all, the FDI stated above would have been is government related projects, parastatals or special projects in which government could not force the investor to sell 51% shares as required by law. So since the passing of the law very few local partners would have benefited from the passing of the law. The hardliners now hope the concession would finally open the flood gate of FDI!

"I have not received any (requests of firms seeking exemptions), these are issues dealt by the various line ministries, but so far I have not heard of any companies that have requested exemptions," Minister for Youth and Indigenisation, Patrick Zhuwao admitted.

The Minister and Zanu PF hardliners were being na├»ve if they really expected investors to be impressed by the meaningless concession. The empowerment levy is an unknown tax and the fact that it is being imposed as some form of punishment for refusing to take on a local partners makes it worse; it will always be the sword of Damocles hanging over the investor’s head. Considering one is dealing with a regime renowned for disregarding its own laws and treaties the risk of losing one’s business and investment become unacceptably high.

The only area where Zimbabwe’s indigenisation law has worked is in the mining of alluvial diamonds in Marange and Chiadzwa but only because the business is unique in that it is low investment with a high value product that can be sold on the black market. The local partner who owns the mining concession and the foreign investor doing the mining share the spoils and do not pay any other taxes or levies and no one else, not even government authorities know the quantity, quality, value of the mined diamonds or where they being sold.

The indigenisation law was passed to placate Zanu PF hardliners who know the huge fortunes being made in Marange and are naturally bitter they have been left out. Of all people Mugabe would know that if Zimbabwe had attracted the same level of FDI as Mozambique or Zambia had done since 2008 when the indigenisation law was passed then Zimbabwe’s unemployment rate would not be the nauseating 90% plus they are today and collected revenue would be a lot better than the measly $3.8 billion. Mugabe has forgone the new jobs, increased revenue, etc. to press foreign investors to take on his hardliner friends as partners.

Zimbabwe’s 2008 indigenisation law was passed to placate Zanu PF hardliners who were left out of the looting in Marange but because no foreign investor is willing to take on these parasitic hardliners as partners the whole nation is now being held hostage to this law. Millions are being denied employment opportunities FDI would bring because the investors are refusing to take Zanu PF hardliners as local partners!

No doubt Mugabe, in his own good time, will have to revisit the indigenisation law as a result of increased pressure from his hardliners who have not been spared the hardship of the worsening economic situations with a view of making further concession to attract more FDI.

Even if Mugabe finally conceded to having the obnoxious indigenisation law scrapped no foreign investor would be daft enough to trust him to keep his word especially after all the hype that accompanied the passing of this law and all the palaver, dodging and weaving resisting it scrapping.

The only way Zimbabwe is going to convince the sceptic world that the indigenisation law an act of madness by a madman and not the way Zimbabweans would ever want to do business is for the nation to implement the democratic reforms necessary for free, fair and credible elections. In the elections the good people of Zimbabwe will demonstrate their disapproval of Mugabe and all he stands for by rejecting him and his party with a resounding electoral defeat.

The indigenisation law is now a mile stone round Mugabe’s neck, he is disparate for FDI to revive the economy by will not get any as long as he remains in office. It does not have to be a mile stone round the nation’s neck too; we only need to vote him out and he and his mile-stone can sink alone. 


Zimbabwe Light said...

It is bad enough that Zimbabwe has lagged behind other nations in terms of reduced FDI and development ever since Mugabe started his violent seizures of white owned farms, which is the forerunner of the indigenisation law. It is tragic that Zimbabweans have said very little about this for all these years. It is heart-breaking that this situation is being allowed to continue for even one more day!

It is going to take a generation, at least, to catch up with Mozambique on the ground we lost the-se six years alone. Some people have never had a formal job for ten years or more. The longer it is going to take to recover the greater the number of people who will NEVER EVER have a formal job. They are condemned to kiya-kiya all their lives!

What will it take to finally spur this nation into action?

Zimbabwe Light said...

Zanu PF imploding is, per se, a good thing for the country but like all such events our failure to prepare for it could be a costly mistake for the nation.