Indigenisation ultimatum panic

Pressure on foreign firms to comply with Zimbabwe’s empowerment law is increasing, but forced compliance bodes ill, say observers

Foreign-owned companies with operations in Zimbabwe are complying with the nation’s 51% indigenisation law out of “panic” rather than acceptance of the law, say local economic observers.

The net effect of this, they add, is the blocking of any new foreign direct investments into the nation as investors are afraid of the high-risk posed by the Zimbabwe market.

Eric Bloch, a senior partner at H&E Bloch consultancy, said: “We have seen panic compliance because the pressure to meet the indigenisation law is increasing.

“But such forced compliance will not advance the economy as a whole. Indigenisation must be done in a constructive rather than a destructive way.”

A spate of foreign-owned companies, among them some linked to South Africa, have since last year been lining up to meet the empowerment law that transfers majority ownership to indigenous Zimbabweans.

The most recent casualty of the empowerment law is Zimplats, Impala Platinum’s Zimbabwe unit, which last week signed a $971 million (R8.6 billion) deal and agreed to transfer a controlling stake to the state.

Other foreign-owned entities in the mining sector that have ceded shares include Anglo America Platinum’s Mimosa mine, Unki mine, cement giant Pretoria Portland Cement and Caledonia’s Blanket mine.

Retired lieutenant general Mike Nyambuya, chairperson of the National Indigenisation Economic Empowerment Board, indicated that the nation’s indigenisation fund had now raised $1.56 billion as a result of the empowerment deals sealed with foreign-owned companies.

“The response from the foreign-owned companies has been overwhelming . . . In the next six months, the fund is expecting to get shares worth about $500 million from Lafarge, New Dawn, Murowa, Duration Gold, British America Tobacco and Old Mutual Zimbabwe,” he said.

Lawton Hikwa, a lecturer at the National University of Science and Technology, insisted the indigenisation programme would give disadvantaged Zimbabweans an opportunity to participate in the economy.

“The law is not against foreign-owned companies, but is premised on a partnership between locals and the foreigners. Every government would surely want its citizens to participate in its economic processes,” said Hikwa.

Indications suggested that South African sugar giant Tongaat Hulett is the latest company involved in behind-the-scenes negotiations over its Hippo Valley unit in an effort to meet the regulations.

Officials in the indigenisation and empowerment ministry alluded to the negotiations when they revealed that “something is going on and we are locked in talks”.

As it has been the trend with the other foreign-owned companies that have ceded majority shares, Tongaat Hulett was also given a 14-day ultimatum to either comply or face the consequences. The trend of issuing ultimatums against the companies kicked off with Zimplats in March last year, after it was given a two-week deadline by Saviour Kasukuwere, the indigenisation and empowerment minister, who accused the platinum giant of dragging its feet over compliance with the indigenisation law.

After succeeding with ultimatums, the takeovers gathered speed, while the Zimbabwe government was silent at each stage of compliance about compensation and paying fair value to take over the majority of shares.

Bloch indicated that the nation had missed an opportunity to dispel any negative perceptions around indigenisation by refusing to pay any compensation.

“There is no foreign investor who will be prepared to invest in Zimbabwe. Primarily, investors are not opposed to indigenisation, but want to choose their partners and don’t want to put in their resources and technology only for it to be taken away by the government,” he said.

“We are already seeing the unwillingness to participate in Zimbabwe. There has been a drop in investments being channelled into the country, as noted by the Zimbabwe Investment Authority (ZIA).”

According to the figures released by the ZIA, the nation’s investments were valued at $930 million last year, down from $6.6 billion in 2011.

Mining projects were valued at $688 million down from $3.6 billion in 2011, while tourism investments were down to $1 million from $1.5 billion.

Meanwhile, Witness Chinyama, an economic analyst from Kingdom Bank, said concerns over the looming elections could also be a factor in the fall in investment.

He said: “The talk of pending elections has led to a lot of potential investors developing a wait-and-see attitude as they feel they have no guarantee with regards to their investment in future.”

Zimbabwe is expected to hold elections in June that will end the three-year-old government of unity formed in February 2009 between President Robert Mugabe and Prime Minister Morgan Tsvangirai.

Ray Ndlovu