Zimbabwe's new empowerment law that compels foreign-owned companies to give-up a 51% stake in their businesses to black Zimbabweans was greeted with shock by investors when first announced.
The law officially took effect on 1 March but was allegedly published prematurely without the cabinet legal committee's input or approval. According to some newspaper reports the government is now revising the regulations.
TradeInvest Africa asked Luke Zunga from the Zimbabwe Diaspora Development Chamber about the effect that the empowerment law will have on business and investment in the country.
Give us a brief overview of Zimbabwe's new empowerment regulations.
Events in Zimbabwe must not be taken in isolation but in overall context, starting with the constitutional referendum in 1999. Prior to the constitutional effort the electorate was predictable at 60% rural and 40% urban. President Mugabe had maintained a brutal system which controlled the rural 60% of the electorate. Over the years the electorate pattern re-aligned to 50% rural, 40% urban and 10% farms. The 10% farm constituency, on private land which Mugabe had no control over, shifted the balance of power, reflected in the results of the referendum released on 28 January 2000. The farm invasions were to dislodge this farm electorate.
Press freedom was restricted to block reporting on the violence on the white farmers and the farm workers' plight. The electoral laws were also changed to block farm workers who fled into urban areas from registering as voters in the 2002 presidential elections. Operation Restore Order in 2005, where the government forcibly cleared slum areas, was to drive the ex-farm workers and the poor voters into rural areas where the system of electoral control is still fully established. The laws on party and non-governmental organisation (NGO) funding were tightened to stop the opposition Movement for Democratic Change (MDC) or NGOs receiving foreign funding. All this was an effort to hold on to power by President Mugabe and his group.
Multiple farm ownership by the Zanu-PF heavyweights (some have seven farms) is to stop the re-creation of the farm workers constituency because a new breed of labourers could be employed by people the ruling party do not trust. Yet pockets of possible resistance could still come from organised business and the remaining few farmers. Taking over a 51% stake in foreign companies would dilute their influence. So it is political control, guised as helping the blacks.
The Indigenisation and Economic Empowerment Act was passed in March 2008. The recent pronouncements are sector regulations governing commercial enterprises. The first such regulations had been for the mining sector in 2009. The new indigenisation regulations stipulates that companies give up 51% of their shareholdings to black people. As part of the Diaspora, I condemn such ill-considered laws. In a country where production is now about 40% of the original 1999 capacity, the government is killing the chicken that lays the eggs.
The law assumes that every business used race to start and grow. It assumes black people only failed because of race, even after 30 years of self rule. It punishes the offspring of colonial rulers and innocent entrepreneurs who come into the country solely for business. It assumes that everything is easy as long the operator is white. It assumes there is no other way of developing black business. After taking over the land, now businesses, what’s next? What confidence can a business person draw from such uncertainty?
How will the new regulations affect foreign investment in the
country?
The law will choke development in that few people, if any, will put in time and money to start and grow a business where they know control and ownership will be forced away. The investment climate in Zimbabwe will become one of the worse in the world. According to UNDP research, Zimbabwe needs 12 years of uninterrupted growth of 5% per annum to regain its 1999 position. In this environment, I think government will get less taxes, money it needs to support a top-heavy inclusive government and the restless civil servants.
How will foreign-owned companies already operating in Zimbabwe react to the new law?
Foreign companies will halt new investments while waiting for clarity. Some will close their businesses or transfer their operations elsewhere. Few will abide under pressure.
The motive behind the law is obviously not that far-fetched as a country like South Africa has
its own black economic empowerment policy. Is there a better alternative to the empowerment law as it currently stands?
The motive for Zimbabwe may not be black economic empowerment at all and these programmes are not the same as those in South Africa. The BBBEE Act in South Africa has sector agreements negotiated by industry and recommend entry percentages that do not translate into ceding control of a business. The Zimbabwe situation was not negotiated and will have different and drastic consequences.
There are other programmes which we had suggested to government, programmes which give opportunity to blacks to enter business and compete. The government, however, did not listen. The diaspora would like to revive the programmes we recommended to government.
Luke Zunga can be contacted at info@zddc.org
