Kasukuwere announces indigenisation regulations

Youth and Empowerment Minister Saviour Kasukuwere announced indigenisation regulations which said any business with an asset value of US$500 000 must submit its indigenisation implementation plan to his ministry within 45 days from 1 March 2010.

The regulations listed 14 industries “reserved against foreign investment”. These included:

• agriculture,
• transportation,
• retail and wholesale trade,
• grain milling,
• advertising,
• bakeries,
• tobacco processing,
• and milk processing.

A business was not required to submit an indigenisation plan if it could show that it did “development work,” added value to raw materials for export, brought new technology or skills to Zimbabwe, or would “achieve any other socially and economically desirable objective”.

According to the United States embassy one businessman had said that the regulations were a political by Kasukuwere to curry favour with President Robert Mugabe.

Prime Minister Morgan Tsvangirai said the regulations were “null and void” because they were not approved by the cabinet.

Full cable:

Viewing cable 10HARARE116, Zimbabwe Sets Racial Quota for Business Ownership

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VZCZCXRO2277

OO RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN

DE RUEHSB #0116/01 0431052

ZNR UUUUU ZZH

O R 121051Z FEB 10

FM AMEMBASSY HARARE

TO RUEHC/SECSTATE WASHDC IMMEDIATE 0050

INFO SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE

UNCLAS SECTION 01 OF 02 HARARE 000116

SENSITIVE

SIPDIS

AF/S FOR B. WALCH

E.O. 12958: N/A

TAGS: ECON EFIN EINV PGOV PREL ZI

SUBJECT: Zimbabwe Sets Racial Quota for Business Ownership

¶1. (SBU) SUMMARY: A Government of Zimbabwe (GOZ) minister from

President Mugabe’s ZANU-PF party has issued regulations meant to

force “indigenization” of businesses. The new rules, published on

February 5, say that any business worth US$500,000 or more must

explain how it will “cede a controlling interest” to “indigenous

Zimbabweans.” The regulations are to take effect on March 1.

Existing businesses will have 45 days to submit their

indigenization plans. Failure to comply will be punishable by a

fine or up to five years’ imprisonment. While the regulations

remove some of the uncertainties created by the thus-far unenforced

Indigenization and Economic Empowerment Act of 2007, they also

raise new questions. Prime Minister Tsvangirai and his Movement

for Democratic Change (MDC) oppose the regulations. This latest

indigenization scare is bound to put another dent in Zimbabwe’s

battered reputation and give investors another reason to stay away.

END SUMMARY.

¶2. (U) Statutory Instrument 21 of 2010, dated January 29 but

released on February 9 by Minister of Youth Development,

Indigenisation, and Empowerment Saviour Kasukuwere, says that every

business in Zimbabwe with an “asset value” of at least US$500,000

must submit an “indigenization implementation plan” to his

Ministry.   The deadline for existing businesses is 45 days after

the regulations take effect on March 1. New businesses will have

60 days to submit a plan. The goal of each plan must be to

transfer within five years a controlling interest in the business

to indigenous Zimbabweans, who are defined in the Act to be any

person “disadvantaged by unfair discrimination on the grounds of

his or her race” before April 18, 1980, or the descendant of such a

person. A business need not submit an indigenization plan if it

can show that it does “development work,” adds value to raw

materials for export, brings new technology or skills to Zimbabwe,

or will “achieve any other socially and economically desirable

objective.”

¶3. (U) The regulations list 14 industries “reserved against foreign

investment.” These include agriculture, transportation, retail and

wholesale trade, grain milling, advertising, bakeries, tobacco

processing, and milk processing. Given that the underlying

legislation explicitly provide for minority foreign ownership of

businesses, the regulations appear to have the effect of excluding

all foreign investment in the 14 designated industries. There are

also other ambiguities in the regulations. It is not clear whether

“asset value” is net or gross. And the regulations do nothing to

clarify the definition of an indigenous Zimbabwean, which does not

obviously include all black Zimbabweans or necessarily exclude

everyone who might be considered white or of some other race.

Another disturbing source of uncertainty is how the Minister may

choose to interpret the broad exemptions in the regulations. Nor

do the regulations spell out what might become of businesses that

do not meet the five-year indigenization deadline.

¶4. (SBU) So far there have been few public reactions from the

business community. One mining company has advised shareholders

that it is “studying” the regulations and noted that they provide

for future issuance of lower indigenization quotas for specific

industries. The Chamber of Mines, the mining companies’ main

lobbying group, has long been engaged in discussions with the GOZ

on indigenization rules. Private reactions range from alarm to

resignation. One prominent businessman sees the issuance of the

regulations as a political ploy by Kasukuwere to curry favor with

Mugabe. In his view, the regulations do not have broad support

within ZANU-PF and are likely to be withdrawn or modified. But he

acknowledged that news of the regulations could have a devastating

effect outside the country on potential investors. Other business

contacts have expressed doubts about the capacity of the GOZ to

implement the regulations. If there is a high degree of compliance

with the reporting requirement, Kasukuwere’s ministry could

collapse under an avalanche of paper. But that could also have the

effect of making enforcement all the more arbitrary.

¶5. (U) Press reports say Tsvangirai has called the regulations

“null and void” because they were not approved by the cabinet. His

MDC party released a statement on February 11 calling the statutory

instrument “provocative” and “a deliberate attempt to undermine the

country and its people.” The MDC called on the GOZ to withdraw the

regulations.

HARARE 00000116 002 OF 002

¶6. (SBU) COMMENT: With ZANU-PF’s popular support draining away,

release of the indigenization regulations now could be a move to

curry favor with the electorate. But sooner or later, the

indigenization law will give way to Stein’s Law: “If something

cannot go on forever, it will stop.” Until then, intermittent

indigenization scares will help keep Zimbabwe a high-risk zone for

lenders and investors, choking off the financing needed to rebuild

a battered economy. Zimbabwe’s macroeconomic recovery is already

starting to look like a dead-cat bounce: the economy is better now

mainly because it could not have gotten worse. Investors and

lenders were already staying away in droves before Kasukuwere made

his move. Even if the just-issued indigenization rules disappear

or are watered down before March 1, Zimbabwe’s battered reputation

will carry a new and lasting dent. If the rules stay in place,

prospects for meaningful economic growth this year will dim

significantly. END COMMENT.

RAY

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