Government introduces indigenisation bill

The government on 22 June 2007 gazetted the Indigenisation and Economic Empowerment bill which seeks to secure at least 51 percent of the shares in every public company for indigenous Zimbabweans.

The bill defines an indigenous Zimbabwean as any person who before 18 April 1980 was disadvantaged by unfair discrimination on the grounds of his or her race.

Ministerial approval will be required for mergers, restructurings and acquisitions to ensure a high level of control by indigenous Zimbabweans.

The Bill also requires government departments, parastatals, local authorities and companies to procure at least 51 percent of their goods and services from businesses controlled by indigenous Zimbabweans.

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Viewing cable 07HARARE598, INDIGENIZATION BILL – ANOTHER BLOW TO ZIMBABWE’S

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TAGS: PGOV ECON EINV ZI

SUBJECT: INDIGENIZATION BILL – ANOTHER BLOW TO ZIMBABWE’S

BELEAGURED ECONOMY

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Summary

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¶1. (SBU) Parliament is scheduled to begin considering the

Indigenization and Economic Empowerment Bill in late July.

The Bill’s official purpose is to seek to increase

participation of indigenous Zimbabweans in the economy; its

ultimate objective is for at least 51 percent of the shares

of every business to be owned by indigenous Zimbabweans. The

Bill, to the relief of many in the business community – both

black and white – does not contain any obligation by existing

private businesses to begin to indigenize. Nevertheless, in

light of the already dominant position of indigenous

Zimbabweans in business, it raises concerns about cronyism in

the eventual distribution of company shares and about the

resurgence of a &grab8 mentality. Ultimately the Bill will

discourage new investment and discourage those foreign

investors still on the ground, including U.S. companies, from

holding on longer as the pace of economic decline

accelerates. End Summary.

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Key Features

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¶2. (U) The Government Gazette published the long-anticipated

Indigenization and Economic Empowerment Bill on June 22. Key

features of the Bill, which Parliament is scheduled to

consider when it re-opens in late July, are:

– The Government shall endeavor to secure that at least 51

percent of the shares of every public company and any other

business shall be owned by indigenous Zimbabweans. In the

shorter term, the Minister of Indigenization and Empowerment

(N.B. at the moment, Paul Mangwana) will be empowered to

publish regulations prescribing acceptable, but temporary,

lesser percentages and thresholds.

– An indigenous Zimbabwean is defined as any person who

before April 18, 1980 – the date of Zimbabwe’s independence –

was disadvantaged by unfair discrimination on the grounds of

his or her race, any descendant of such a person, and any

company, association, syndicate or partnership in which such

persons hold the controlling interest or are the majority of

the members. (N.B. The definition may include Zimbabweans of

Indian descent; there are varied interpretations.)

– Ministerial approval will be required for mergers,

restructurings and acquisitions to ensure a high level of

control by indigenous Zimbabweans. (N.B. The Bill does not

contain any obligation by existing businesses to begin

indigenizing. It does, however, call for an “indigenization

and empowerment assessment rating” of every company.)

– The Bill requires Government departments, parastatals,

local authorities and companies to procure at least 51

percent of their goods and services from businesses

controlled by indigenous Zimbabweans.

– The Bill calls for establishment of an Indigenization and

Empowerment Board appointed by the Minister to advise on

strategy, and a Fund to be set up to finance the acquisition

of shares, management buy-ins and buy-outs, and

capacity-building for indigenous Zimbabweans. It will be

capitalized, among other sources, by the proceeds of levies

on companies and other businesses.

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Benefit to the Politically Connected

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¶3. (SBU) The USG-funded State University of New York (SUNY)

parliamentary support project considered the economic

implications of the Bill, noting that Zimbabwe’s business

sector was, in fact, already quite racially balanced. Most

Zimbabwean companies are owned and managed by indigenous

Zimbabweans. Reminiscent of fast-track land reform, it

concluded the ultimate beneficiaries of the initiative would

be the politically connected elite. MDC Secretary General

Tendai Biti echoed that conclusion in his commentary on the

Bill, entitled “Another platform to loot and plunder.” He

called it another avenue of patronage and rent-seeking “by

the big guns in ZANU-PF.”

—————————————–

“Grab Mentality” Will Spur Capital Flight

—————————————–

¶4. (SBU) The SUNY analysis described the Bill as part of the

GOZ’s “scramble” to divvy up a shrinking cake. Against a

backdrop of negative economic growth over nearly ten years,

it predicted that the Bill and the levies required to fund

its implementation would spur capital flight and hasten

economic decline. Addmore Chakurira of Imara Capital

suggested it would increase the perceived level of political

risk and thwart development of the country’s rich mineral

deposits, which required huge foreign investment.

¶5. (SBU) The SUNY paper also lamented the mindset that

assets must be taken from others in order for indigenous

Zimbabweans to develop. It called on the government to

create an entrepreneurial environment and allow business

people to choose their own partners freely. It also noted

that the “grab” mentality failed to cultivate business

skills. In a similar vein, Biti’s commentary decried the

GOZ’s apparent willingness to destroy the remaining pockets

of productivity rather than resuscitate the collapsed supply

side of the economy.

¶6. (SBU) Doug Verden, Acting CEO of the Chamber of Mines,

told econoff that too much power had been concentrated in the

hands of the Minister, leaving much important detail to be

clarified at the Minister’s discretion without Parliamentary

approval. Verden was also troubled by the lack of

information on levies to be charged, the failure to set a

timeframe for indigenization, and the overall vagueness of

the Bill.

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Potential Impact on U.S.-Owned Businesses

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¶7. (SBU) Aside from a few dozen distributors of U.S. goods

and some franchisees, only about a dozen large U.S.-owned

businesses remain in Zimbabwe. Unless they seek to merge,

unbundle or make acquisitions, the new Bill does not put them

in danger of forced indigenization. Nonetheless, executives

from the regional headquarters of several large companies

have called on us in the past year, uneasy about sustaining

loss-making ventures in Zimbabwe any longer, and seeking

advice about Zimbabwe’s future. For those companies, passage

of the Indigenization Bill and the recent faster pace of

decline could move them to pull the plug on their Zimbabwe

operation.

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Comment

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¶8. (SBU) Business in Zimbabwe is already predominantly

black-owned/managed. Rather than robbing from Zimbabwe’s

shrinking economic pie to redistribute for patronage,

pro-business economic policies would do far more to attract

investment, spur growth and ultimately increase black

shareholding and entrepreneurship than legislated

indigenization. An example of the GOZ’s typical short-term

thinking, however, especially as it heads into an election

year, the Bill will probably find populist appeal and sail

through the ruling-party dominated Parliament and become law

in a few months. Whether it is then rigorously implemented

or shelved is, in the short-term, less significant than its

passage, which alone will have struck another blow to the

economy. In the meantime, the business community’s attention

is riveted less on the Bill than on the GOZ’s heavy-handed

campaign (septel) to roll back prices, which could

immediately affect day-to-day existence as staples vanish

from shop shelves.

DELL

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