Monday, February 15, 2010

From John Robertson - - Indigenisation & Economic Empowerment Regulations

Should the world bother about Zimbabwe’s future? New evidence now points to the possibility that it shouldn’t trouble itself about the country’s future, because Zimbabwe’s government, still being run by the party that failed to win the last election, has decided that the country should not have one.
Having rejected concerns that investment would be discouraged by laws designed to force non-indigenous investors to give up controlling interests in local companies that they formed, or helped to create, this government has now published the regulations that are intended to force the changes of ownership the politicians want to see take place.
According to the Indigenisation and Economic Empowerment Act, an indigenous Zimbabwean is “any person who, before the 18th of April 1980, 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”.
The main provisions of the Indigenisation & Economic Empowerment Regulations are that:
Every existing business with an asset value of US$ 500 000 or more, whether foreign or domestic, has to submit, by the 15th April, 2010, completed official forms describing the business and showing its plan for ensuring that, within five years, indigenous Zimbabweans will own at least 51% of the shares.
Failure to submit the forms, after a further 30 days’ reminder, will render the owner of the business, or every director, guilty of an offence and liable to a fine and/or imprisonment for up to five years.
Plans to restructure or unbundle businesses, plans to merge or demerge businesses and investment proposals that require an investment license must be submitted for approval before being carried out. Any failure to comply will render the owner of the business, or every director, guilty of an offence and liable to a fine and/or imprisonment for up to five years.
Companies requiring supplies of goods and services will be obliged to procure these from companies controlled by indigenous Zimbabweans that can offer terms that are no less favourable. Non-compliance will make those responsible guilty of an offence and liable to a fine and / or imprisonment for up to five years;
Empowerment assessment ratings are to be supplied by each company once a year to the Minister within 21 days of being advised of the requirement and failure to comply will render the owner of the business, or every director, guilty of an offence and liable to a fine and/or imprisonment for up to five years.
The Minister may appoint his own Valuator if the valuation figures submitted are suspect. Persons guilty of claiming they are shareholders, but are found to only nominees of actual non-indigenous shareholders, or guilty of submitting information found to be false, will be guilty of committing an offence and liable to a fine and/or imprisonment up to five years.
Sectors that are to be reserved for indigenous Zimbabwean investors include the growing of food and cash crops, the provision of buses, taxies and car-hire services, retail and wholesale trade, barber shops, hairdressing and beauty salons, employment agencies, estate agencies, valet services, grain milling, bakeries, tobacco grading, processing and packing, advertising agencies, milk processing and the provision of local arts and crafts as well as the marketing and distribution of these items.
Business owners wishing to identify suitable indigenous partners will be invited to register their names in a database to be established by the Minister, and the names of indigenous people who wish to become business partners will also be recorded in the Minister’s database.
In trying to assemble useful thoughts on the whole package, I am having great difficulty setting aside the destructive short-sightedness of the proposals.
Some people might believe that the methodical nature of the process, together with the threats of severe penalties for anything other than complete compliance, must automatically lead to that Economic Empowerment that so many have found to be so elusive.
But it won’t. Government’s principal achievement, if all this happens, will be the disempowerment of the country’s most important productive sector investors. They do presently wield influence in the market place and this is mainly because of their success in producing products that the markets are prepared to buy. In creating acceptable goods or commodities, they also generate jobs, export revenues, domestic revenues and tax revenues.
To government, however, all this clearly adds up to rather too much influence. By forcing them to relinquish their majority shareholdings, their power can be reduced, simply because the government’s influence over the new owners of 51% of the shares can quickly be used to change the composition of the boards of directors of every important company.
The idea is destructive for the two main reasons that existing investors will lose interest in their companies, so most of these enterprises will soon start going downhill, and that new investors will be persuaded to take their technologies and their money to almost anywhere other than Zimbabwe.
And the idea is short-sighted because economic growth rates will be slowed, the population will be deprived of the needed improvements and the best Zimbabwean skills will seek their fortunes elsewhere. On top of that, access to credit to carry our infrastructural reconstruction will not be extended while the country so clearly shows the whole world that it is once again deliberately sabotaging its own ability to service debt.
Zimbabwe has so little money that it desperately needs foreign investment. Why has government chosen to turn the country into the least attractive investment destination on Earth? It can only be to recover its political authority, but while that might make a few hundred people feel temporarily smug and content, the other twelve million Zimbabweans will be waking up to what this has cost them and who is really to blame.

1 comment:

  1. this is an exceptional article,I was very unaware of the wide reaching effects of the so called empowerment act-and we all know who shall benefit from it...it is very shocking as to how this government keeps returning to policies which are doomed to fail..Very excellent piece of writing

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