Zhuwao goes for broke on indigenisation
YOUTH, Indigenisation and Economic Empowerment Minister, Patrick Zhuwao (pictured), says he has finalised plans to implement the contentious indigenisation and economic empowerment policy, with proposals for hefty penalties against defaulting firms.
The new measures are expected to be gazetted before Christmas and are likely to apply in retrospect, he said.
Cabinet recently tasked Zhuwao, who was appointed to run the portfolio four months ago, to clarify the implementation of the populist policy, which has largely contributed to the destabilisation of the country’s economy and divided President Robert Mugabe’s ruling ZANU-PF party and government.
The Financial Gazette’s Companies & Markets (C&M) can reveal that although many hoped there was going to be flexibility in the new framework for implementing the policy in other areas outside the resources sector, a situation that would promote investments, Zhuwao, in a shocking move, insisted he would vigorously push for a 51/49 percent shareholding in favour of black Zimbabweans for both the resources and non-resources sectors.
The only exception, he said, would be the technology sector, where partners are free to make their own decisions on shareholding structures.
Foreign-owned companies had been given ultimatums to comply with the law before the end of this year or risk nationalisation.
All foreign-owned companies operating in the country but yet to comply with the indigenisation law would be slapped with hefty penalties in 2016, as government seeks to raise at least US$100 million, which Zhuwao said would be used to create 2,265 million jobs by 2018.
“I have been recently tasked by Cabinet to clarify the framework for implementing the indigenisation and empowerment policies before Christmas,” Zhuwao told C&M on the sidelines of a recent Zimbabwe National Chamber of Commerce Business Review Conference.
“When it comes to natural resources, the Act is very clear, setting 51 percent indigenous shareholding. All mergers, restructurings, unbundling of businesses, demergers, relinquishment of a controlling interest shall comply with the 51 percent indigenous ownership requirement.”
The same applies to sectors apart from the resources sectors, he said.
“(But) when it comes to technology, you cannot apply the same principle. You can go for 50/50 or you can agree on a ratio which is sustainable and equitable.
“Let me tell you this: As Minister of Indigenisation and Economic Empowerment, I have a product to sell. I have a mandate that I need to renew in the next two and a half years (when the country holds its next elections). So don’t tell me to understand business. Deal with your ease of doing business, your foreign direct investment (FDIs), it makes better business sense to you. To me, this does not solve my problem as the National Economic Empowerment Strategy (NEES) seeks to create 2,265 million jobs that we require by 2018,” Zhuwao told business executives and owners.
“Remember that I am a politician and my stock of trade is votes. I have to make vote-sense as well. Creating these jobs is in the ZANU-PF manifesto, which I understand because I contributed in the writing of this document. In fact, it costs US$678 405,53 to create one job in Africa from FDI, according to a research done by a reputable accounting firm Ernst & Young.
“I tell you, there is a high level of non-compliance and I want to thank the Minister of Finance and Economic Development, Patrick Chinamasa, who has availed US$10 million under Localised Economic Empowerment Facility (LEAF). This facility will be accessed by youth who borrowed and paid back the previous loans. But we are going to enhance this fund to at least US$100 million by end of next year.
“Our strategy recognises the constrained fiscal space. Therefore, the US$100 million to create jobs is not going to be funded by Treasury but is going to be raised from companies refusing to comply (with the Indigenisation Act).”
Zhuwao’s move is said by analysts to be counterproductive.
“It’s not the best engine to create jobs,” said Camille Nuamah, the World Bank country director. “The private sector should be an engine to create jobs.”
Zhuwao’s approach follows that of Saviour Kasukuwere, who presided over the Youth, Indigenisation and Economic Development portfolio between 2009 and 2013.
Kasukuwere vigorously pushed for a one-size-fits-all approach, a move which damaged the economy as it scared away existing and potential investors.
Once removed from the indigenisation ministry, government softened its stance after engaging with industry representatives, who expressed concern about the difficulty in courting foreign investment owing to indigenisation concerns.
Zhuwao’s move is in sharp contrast to the pronouncements by Vice President, Emmerson Mnangagwa, Chinamasa and Industry and Commerce Minister, Mike Bimha, who have been desperate to lure offshore capital required to revive the country’s disintegrating economy.
The three and many others have been calling for the relaxation of the controversial policy, saying Zimbabwe was desperate for FDI, which they said required policy certainty and consistency.
They said the country faced perception challenges related to indigenisation. These had not helped the country’s bid to mobilise offshore money in order to pull the country’s economy from the brink of collapse.
The indigenisation policy, which gained traction following the promulgation of the Indigenisation and Economic Empowerment Act in 2008, has been widely blamed for the country’s failure to attract foreign direct investment, amid sagging economic fortunes.
President Mugabe instructed line ministries to directly handle all acquisitions and transactions linked to their portfolios to circumvent the onerous requirements of the indigenisation law, Bimha once explained.
Consequently, his Cabinet sanctioned transactions by foreign investors that are far in excess of the 51/49 percent thresholds set by the Act.
For example, Blue Ribbon Industries has been taken-over by Tanzanian firm, Bakhresa Group, which is to inject US$40 million into the business in exchange for a 100 percent shareholding.
The deal was handled by Bimha with Cabinet’s approval, despite the law clearly proscribing such ownership thresholds by foreign companies.
Other recent transactions confirming the paradigm shift in government’s earlier position was the 63,25 percent takeover of Astra Holdings by Tokyo-listed paint manufacturing giant, Kansai Plascon.
Zhuwao has also proposed a punitive 10 percent empowerment levy on companies as part of efforts to fund the indigenisation programme, a situation which would burden already struggling companies in the prevailing operating environment.
This, however, is subject to approval by the Minister of Finance and Economic Development.
“I have proposed a levy of 10 percent of gross revenue. I know its high, and it’s intended to be high. However, companies can enjoy up to 19 percent tax rebate under the Indigenisation Legislation Compliance Rebates. Section 17 allows for levies at 10 percent of gross revenue, and this will be collected by ZIMRA and converted to Treasury Bills,” said Zhuwao.
Apart from this, Zhuwao is also vigorously pushing for the procurement of goods from indigenous Zimbabweans, saying there was no implementation of the provisions.
He said detailed measures on the issue would be announced soon.
“At least 50 percent of the goods procured by all private and public businesses should be procured from indigenous Zimbabweans,” Zhuwao noted, adding: “Companies are not implementing this. Therefore, I will announce some measures soon.”
He said his Ministry and the National Indigenisation and Economic Empowerment Board would be working closely with the State Procurement Board to ensure that the law is enforced and that the entrepreneurs producing goods and services are empowered to ensure the growth of indigenous businesses, the betterment of livelihoods and the growth of the Zimbabwean economy.
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