Is Zimbabwe’s new indigenization tax policy good for the economy?

Patrick Zhuwao, the Empowerment Minister of Zimbabwe has announced that the country could earn over $90 million dollars from the indigenization tax which will be imposed by 2016. The tax is seen as a strategy to enforce the country’s existing indigenization laws on foreign companies. Only foreign companies that are yet to indigenize will be taxed; however, the indigenized companies will receive a discount based on the level of compliance with the law.

In 2007, the Indigenization and Economic Empowerment Bill was passed through the parliament and was signed into law in 2008, by President Robert Mugabe. According to the indigenization law, about 51 percent of all existing foreign owned businesses in the country will be transferred to the locals. Mugabe, in his re-election speech in 2013, said that the law would ensure that the citizens became significant stakeholders in the country’s economy.

However, indigenization policies in Zimbabwe have caused nothing short of controversy. In 2003, commercial farms owned by white Africans were redistributed to native Zimbabweans, causing white farmers to leave the country. Due to the lack of new investment, there was a sharp decline in the agricultural sector which contributed to 200 million percent inflation in the economy. Although there were speculations that Zimbabwe would abandon this policy last year, this recent development suggests otherwise.

Due to the empowerment policy, several foreign companies have either closed their businesses down voluntarily or forcefully. In recent news, Telecel, the second largest telecommunications company was shut down by the government because Zimbabwe does not own up to 50 percent of the company.  This is causing a downward spiral for the economy.

However, President Mugabe indigenization policy is not as unreasonable as it seems. Before Zimbabwe’s independence in 1980, British settlers owned most of the land in the country. Thus, even after independence, the former colonialists laid claim on over 50 percent of fertile land in the country. This made farmable lands scarce for indigenous Zimbabweans. As agriculture is one Zimbabwe’s most critical sectors, in 1992, President Mugabe, redistributed land in the country to empower and enable indigenous farmers to reap from the land.

During an Independence Day speech in 2013, President Mugabe noted, “Our foreign policy continues to be anchored on the sacred desire to safeguard our hard-won independence, sovereignty and territorial integrity.  These principles, as well as those of peace, stability and economic prosperity, underpin our relations with countries within SADC and beyond”.

But, as noble as these intentions may be, there are several factors that might hinder the success of the policy. In a country where over 80 percent of its populace lives below $2 a day, it may be difficult to purchase the amount of shares that will make them major stakeholders in over 60 registered companies in the country. Also, the economic crisis that Zimbabwe is currently facing makes foreign investment essential. In 2014, the International Monetary Fund (IMF) predicted a 6.9 decline in Zimbabwe’s GDP growth.

With a 95 percent unemployment rate, Zimbabwe has the largest population of unemployed people in the world. Mass Public Opinion Institute carried out a survey on people’s perception on the indigenization policy and reported that over 70 percent disagree with it. Many were of the opinion that the only viable solution to unemployment in the country is foreign investment.

While Mugabe’s indigenization and empowerment policy has an ambitious goal, his administration’s difficulty in successfully implementing indigenization policies in the past underscores that for the policy to work, Mugabe will have to find a way to work with and not against, foreign investors to help rebuild the nearly collapsed economy.

The post Is Zimbabwe’s new indigenization tax policy good for the economy? appeared first on Ventures Africa.