D-Day for foreign firms
GOVERNMENT threats to kick out foreign firms failing to comply with provisions of the indigenisation law will come under spotlight tomorrow, after expiry of a compliance deadline today.
The world would be keen to see if Zimbabwe will take tough action, following a week of populism, frustration and uncertainty.
The Indigenisation and Economic Empowerment Act, which came into force in 2008, compels foreign firms to dispose of at least 51 percent shareholding to native Zimbabweans.
Youth, Indigenisation and Economic Empowerment Minister, Patrick Zhuwao, says there has been “a high level of non compliance”.
It is against this background that government has been forced to implement the Act, which gives line ministries the power to cancel offending firms’ licences.
Zhuwao told the Financial Gazette recently that he has a mandate to fulfil, vowing that he would rather not “understand business” as “this does not solve my problem as the National Economic Empowerment Strategy seeks to create 2,265 million jobs that we require by 2018”.
In shutting down firms, Cabinet will be using Chapter 14:33 of the Act, which provides for the cancellation of non-compliant companies.
“On Tuesday 22 March 2016, Cabinet unanimously passed a resolution directing that from 1 April, 2016 all line ministries proceed to issue orders to licensing authorities to cancel licences of non-compliant business within their respective sectors of the economy,” Zhuwao said.
“Laws must be adhered to. We must never breed lawlessness as a nation,” he said. Ahead of today’s deadline, analysts warned that after ruining the economy following violent agrarian reforms in 2000, government was fully aware of the consequences of another hard line stance against business.
And should President Robert Mugabe’s administration dare pull the trigger again, current hardships would escalate as the few remaining firms would shut their doors.
In 2013, ZANU-PF said there were about 1 100 remaining foreign controlled firms in Zimbabwe.
“We should pursue a dialogue approach, rather than the punitive action,” said Kipson Gundani, chief economist at Buy Zimbabwe Trust.
“We must try to understand why they are not complying. What government is doing is against the reforms it is undertaking with the IMF (International Monetary Fund) and the World Bank. While government is unpredictable, I think they will not close companies. But the threats send negative signals around the world. It is better to close companies than keep threatening them because it causes a lot of anxiety,” Gundani told the Financial Gazette.
Closure threats have been disastrous for Zimbabwe.
Major investors have been skirting the country, which, in 2014 generated US$545 million in Foreign Direct Investment (FDI).
This is just a fraction of the US$4,9 billion that flowed into Mozambique, and US$5,7 billion into South Africa.
In 2014, Russia made emphatic and strategic moves into Zimbabwe’s platinum mining sector in the Great Dyke. The mostly secretive transactions, whose highlight was the US$3 billion Darwendale platinum deal, remain a pipe dream.
Last year, Nigerian billionaire, Aliko Dangote, arrived in Zimbabwe with red carpets rolled out for Africa’s richest man, who promised to splurge US$400 million in a number of sectors. Very little has been heard of the deals.
As Zimbabwe’s economy slips further into distress, even President Mugabe has suggested that the laws can be tweaked to encourage FDI.
On Monday, Buy Zimbabwe also issued a statement hitting out at the radical moves towards punishing the remaining foreign firms.
It said the economy was in “dire straits”, with companies operating at less than 50 percent of installed capacity.
The last thing the economy required were moves that would trigger a fresh round of capital flight, it warned.
“While the Act was ostensibly promulgated to empower Zimbabweans economically, by ensuring at least 51 percent of the shares of every public company and any other business shall be owned by indigenous people, the process has since degenerated into a farce amid indications of inconsistency and lack of genuine dialogue and engagement.
“The latest turnaround in flip flops on indigenisation are likely to further discourage investment in a country already hard hit by a debilitating liquidity squeeze, low capacity utilisation, company closures and job losses,” said Oswell Binha, business affairs committee chairman at Buy Zimbabwe.
Zhuwao says the task at hand was too big, noting that it was not about the economy, but politics.
“Don’t tell me to understand business. Deal with your ease of doing business, your foreign direct investment, it makes better business sense to you,” Zhuwao told industry recently.
The past six years have been frustrating for foreign firms that will face the most difficult test after today.
That is if government decides to take the bold steps to shut down non compliant foreign firms and send more Zimbabweans out of their jobs.
Forced mine closures in the Marange diamond fields in January threw close to 30 000 out of their jobs, joining 30 000 others who lost jobs last year following a controversial Supreme Court ruling on the right of employers to dismiss workers on notice.
On Tuesday, State media reported that 35 firms had raced to submit their empowerment plans ahead of today’s deadline.
Economists warned that government was capable of doing anything, but in the process shooting itself in the foot.
They warned that government must tread carefully since populism could hurt an already faltering economy battling to overcome a myriad of troubles, such the blistering El Nino phenomenon. But Zhuwao shockingly said Zimbabwe would do without FDI.
“No country was built by foreigners,” he said recently.
The question is; to whom is the populism directed?
The more firms he closes, the more jobs would be lost, and the more enemies ZANU-PF would create ahead of the crunch 2018 elections.
This is why Zimbabwe, like the rest of the World, has established the Zimbabwe Investment Authority, whose mandate is being undermined by populist statements.
Many have questioned how wanton company closures and threat of severe punishment would boost efforts to rebuild the economy.
“I think they can do it (close companies),” said Prosper Chitambara, chief economist at the Labour and Economic Development Research Institute of Zimbabwe.
“It is the same as what happened during land reforms. This has been government’s approach. But some line ministries may be lenient. I am not sure if this is the best option but they are likely to take over the companies. But parastatals have badly performed, and this will spell disaster,” he said.
Chitambara said the world over, governments were moving towards creating the best conditions for investment instead of interfering in business.
Another analyst said government would be cautious in its approach.
“Government will simply seek audience with non compliant companies and ask them to comply,” said Kingston Khanyile, chief executive officer at Mtilikwe Financial Services.
“Government will ask them why they are not complying and given them an extension,” he said.
Forcing firms to comply could be a fundraising exercise by the cash-strapped government, which hopes to raise US$100 million through levies.
But what guarantee is there, given government’s track record, that this revenue would be channelled into the right projects?
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