MDC says PSM is a damp squib

The Movement for Democratic Change has described the Production Sharing Model (PSM) announced by the government this week as a damp squib because investors do not base their decisions on explanatory notes. All they want is a clear policy and legal framework.

MDC acting secretary-general Tapiwa Mashakada who is also the party’s Shadow Minister for Industry and Commerce said PSM and the Joint Empowerment Investment Model were borrowed from the Middle East and were mere posturing by the Zimbabwe African National Union-Patriotic Front.

“The MDC categorically dismisses the purported policy shift as a case of too little too late. We see this move as mere posturing by the corrupt ZANU-PF government. The MDC does not believe that the ZANU- PF government is capable or politically willing to improve the investment climate in Zimbabwe,” Mashakada said.

He said PSM was worse than the current 51 percent requirement because it implied 100 percent indigenisation.

“Instead of easing the Indigenisation and Economic Empowerment policy, government is actually further tightening the screws,” he said. “If the 51 percent threshold was a foot brake to investment, the PSM is actually a hand brake. It is the last nail in the coffin of FDI in that it doesn’t inspire confidence whatsoever.”

Full statement:

Wednesday, 28 May 2014

Statement by the Alternative Minister for Industry and Commerce, Dr Tapiwa Mashakada on Indigenisation

Harvest House, Harare

Thursday, 29 May, 2014

Zimbabwe’s investment climate deteriorated drastically with the decline in the economy over the last decade. The World Bank Doing Business Reports have repeatedly ranked Zimbabwe number 158 out of 183 countries. Mauritius is ranked number 1 in Africa when it comes to the ease of doing business. In terms of the Global Competitiveness Index, Zimbabwe has been repeatedly rated poorly on number 133 out of 134 countries by the World Economic Forum during the last five years.

The poor perception and image of the country has also affected investment inflows over the past decade. The United Nations Conference on Trade and Development (UNCTAD) World Investment Report Statistics on Investment inflows into the sub region repeatedly show that Zimbabwe received the least Foreign Direct Investment (FDI) inflows over the last five years.

Zimbabwe is in the throes of a devastating economic crisis authored by the stolen election of July 31 2013. Ever since that stolen election, the economy has been on a free fall with the government having no clue as to how to intervene to stop the bleeding.

It is very clear that rigging an election is not synonymous with rigging an economy. The so-called ZimAsset is a political statement and not a comprehensive economic blueprint. The greatest mischief arresting the economy is deflation which has been triggered by the liquidity crunch and a broke government.

Industry has not been spared. Since the 31st July 2013 elections, we have witnessed more and more companies closing down as a result of lack of credit lines and competition from imports.

It goes without saying that central to the economic crisis is the question of lack of capital. Zimbabwe needs Foreign Direct Investment (FDI) in order to stimulate growth. However, the brake to FDI has been the Indigenisation and Economic Empowerment Policy, in particular, the 51% threshold.

Investors have been concerned by the lack of clarity and inconsistencies regarding the interpretation and implementation of the Indigenisation policy.

For the last five years, investors have adopted a wait and see attitude. Even new projects that were approved by the Zimbabwe Investment Authority (ZIA) in the mining, agriculture, manufacturing, tourism and infrastructure sectors have largely not been consummated because of the indigenisation policy.

The other problem is that indigenisation has been rolled out as a one size fits all policy prescription with serious overtones of nationalization.

We in the MDC, had long warned that by pursuing a rigid indigenisation drive, government was scaring away investors and putting a fore closure on prospects for new capital inflows into the country.

Recently, government has started to backtrack on its indigenisation policy. This has vindicated the MDC which has all along been calling for policy review. Any government that takes its people seriously should never craft policies that not only scare away investors but encourages the closure of industries as the so-called indigenisation policy has done.

Now, government has come out clear on its intentions to review the Indigenisation and Economic Empowerment policy by adopting the so-called Production Sharing Model (PSM) and the Joint Empowerment Investment Model (JEIM). These models are borrowed from the Middle East.

The MDC categorically dismisses the purported policy shift as a case of too little too late. We see this move as mere posturing by the corrupt Zanu PF government. The MDC does not believe that the Zanu PF government is capable or politically willing to improve the investment climate in Zimbabwe. The question which remains to be answered is whether or not the 51% threshold is still in force or not?

The Zanu PF government cannot provide a clear answer to that question.

The other vexing question is: What does the PSM mean? Our interpretation is that the PSM actually implies a 100% indigenisation threshold, which is even worse than the current 51%. So instead of easing the Indigenisation and economic Empowerment policy, government is actually further tightening the screws.

If the 51% threshold was a foot brake to investment, the PSM is actually a hand brake. It is the last nail in the coffin of FDI in that it doesn’t inspire confidence whatsoever.

What Zimbabwe needs are investor-friendly policies that make it easy for investors to set up shop and contribute to the development of the country. Investors want to control their businesses and the proposed PSM does not allow that to happen. Furthermore, government is attempting to clarify the implementation of Indigenization and not amending the law itself.

When investors are making decisions, they do not base their decisions on explanatory notes; all they want to see is a clear policy and legal framework. Therefore, the proposed PSM is a dump squib. The MDC alternative Cabinet calls for a holistic policy and legal review of all laws that prohibit investment, making sure that they are aligned to the new Constitution.

The government still has to address such issues as corruption that has become a cancer that drives away investors. Serious anti-corruption measures need to be put in place and implemented to avoid the leakages of investment as experienced over the past years.

The people of Zimbabwe are eagerly waiting for jobs and economic development which can only happen once there is a truly legitimate government with the mandate of the people. The jury is still out as to when government will introduce serious political and economic reforms that will put the economy back on the rail, promote FDI and job creation.

Clearly the ZimAsset is dead in the water because it cannot attract FDI. In order to boost economic recovery and the long term growth potential of the country, Zimbabwe needs to attract a significant amount of FDI, rebuild its image and establish itself as a viable and attractive destination for investment.

Key to achieving this goal is ensuring that the country overhauls its institutional and legal frameworks so as to position itself as a noble and attractive investment destination. All current efforts by the Zanu PF government to hoodwink investors will come to naught until the government seriously addresses the perceptions and realities around the sovereign risk of the country and the security of investments.

Thank you

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