Eric Bloch
15 December 2011
opinion
AFTER observing the extent to which government (or major components of government) continue to pursues policies which can achieve naught but self-advancement or enrichment, ongoing demolition of the economy with concomitant poverty, and wide-ranging and diverse advice on the ills of those policies, many inevitably ponder whether it is not the intent (for whatsoever reasons) of the culpable politicians to decimate the economy. Since 2007, at the instance of dogmatic factions of government, Zimbabwe has been pursuing policies of indigenisation and empowerment. The principle is commendable and — if the pronounced prevailing poverty is to be eradicated — wholly necessary. However, the methodology pursued is counterproductive and destructive, and is the overriding barrier to achieving the declared objectives.
Almost ad nauseum, the fatalistic consequences of the manner whereby indigenisation and empowerment are pursued have been highlighted by economic commentators, investors, the business community, diplomats, and numerous others. But all their advice as to the prejudices of the policies and as to how the objectives could be effectively and beneficially attained is consistently disregarded, or is ill-advisedly dismissed.
This was yet again strongly emphasised at last week’s Zanu PF conference. Addressing the intent to implement the existing programme of indigenisation and empowerment, President Robert Mugabe said that “we will not drive away those companies that brought investment into the country, but we will not allow them to be our masters”.
Clearly he has either not been informed or he has been misinformed as to the realities. Since the enactment of the Indigenisation and Empowerment Act and its underlying regulations, most investors have ceased enhancing their investment despite the critical need for funding of most enterprises. Many have closed down their businesses and numerous others have been downsized. Admittedly, it was prevailing economic circumstances that dictated the need for intensified investment into those businesses but the legislation was an insurmountable deterrent to the investors to provide the enterprise recovery funding required. Similarly, new investors were demotivated from effecting investments into Zimbabwe.
In his address to the conference, the president continued:
“We are no longer prepared, that is, for these big companies to continue to exercise their ownership over us. They must pass the ownership to us and we insist on not less than 51%. The law is there. That is our law. Going into existing companies is just one way of empowering our people. Mining is an area where new companies can be established. Those mining engineering, geologists and metallurgists that have been working for years, it doesn’t matter you are the chief executive officer, you are still a worker.
“Now we are saying, constitute yourselves into companies; we would have the task of helping you. I have been speaking to ministers (Saviour) Kasukuwere and (Obert) Mpofu that the concentration is on the 51%. Just imagine, 49% of our diamonds. Forty nine percent is still leaving the country. If we have a truly indigenous company, nothing will leave the country. Sure, we want partners, we want technology, but let the majority of our companies be ours in toto”.
The conference failed to recognise that, in the same manner as it is opposed to others being the “masters” of the business ventures, so too those others are unwilling to be subordinates to others. This is especially so when it is those investors who provide the bulk, if not all, of the investment capital (for neither government’s designated state entities nor the majority of the Zimbabwean population have the requisite resources to do so), and when the non-indigenous investors also effect substantive technology transfer and ready access to their established markets to the Zimbabwean enterprises.
Save in those countries of state-ownership of economic enterprise, and a few bigoted, under-developed countries (primarily in Africa), it is recognised that the key providers of resources are entitled to have primary authority of those resources and their utilisation. To demand to the contrary is tantamount to demanding charity of the funding, technologies, and the acquired and developed business expertise and acumen, without any authority over the usage thereof. This would be as equally unacceptable to an indigenous investor, who would resent and resist providing the substance of the enterprise inputs only to be deprived of any material influence over the usage thereof.
It is similarly ill-conceived to seek that the majority of the economic ventures in the country should be wholly indigenous owned. Under-developed and developing countries do not have the wherewithal to achieve considerable development and growth without accessing the means for that development and growth from external sources. (Of this, there are innumerable examples, including the extent that the USA’s economy was enhanced by the investment of capital from various Arab states, the economic transformation of India over the last 30 years, the economic transformation of China, Malaysia, Singapore, and many other countries).
Zimbabwe has a wealth of natural resources and tremendous economic potential, but cannot constructively exploit those resources and potential without capital, technology and ready access to markets, and hence needs to have investment partners, not subordinates. To fulfill those needs, investor security must be assured, including that the investor be confident that investment funds will be productively utilised, that the investment venture will operate effectively and with security of continuity, and that a fair return on investment will be forthcoming. If that confidence is not provided, the investor will seek alternative opportunities elsewhere.
It is also unfounded to allege that 49% of Zimbabwe’s diamond earnings are leaving the country. From the revenues generated from diamond sales, all the operational expenses of the diamond mines must be funded, and most of those expenses are incurred in Zimbabwe, including wages, energy, consumables, overhead and administrative costs, and royalties (which are excessively high!) In addition, income tax is payable on realised profits once the initial capital investment tax allowances have been absorbed, witholding taxes are payable on dividends, various indirect taxes are payable, as well as other imposts. All of those are funds remaining in Zimbabwe, beneficiating the fiscus and hence the economy. That which thereafter leaves the country is, at least, a fair return on investment to the investor.
For so long as Zimbabwe continues to pursue indigenisation and empowerment in its present form, instead of fairly and effectively, both Foreign Direct Investment and domestic investment by non-indigenous will be minimal, and the prevailing Zimbabwean economic lethargy and ills will endure.
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