Zimbabwe’s ‘Elite’ Indigenisation Misses Mark

After the disastrous effects of the ‘fast-track’ land reform launched 10 years ago, Zimbabwe’s economic crisis risks further aggravation over a controversial ‘Indigenisation and Economic Empowerment Act,’ which requires all large businesses, including banks and mining industries, to sell 51 percent of their shares to ‘indigenous Zimbabweans.’

The bill was initially passed in 2008 when President Robert Mugabe’s Zanu PF party held a majority in parliament. It was put into effect in the beginning of 2010, despite opposition from Prime Minister Morgan Tsvangirai and his Movement of Democratic Change (MDC), which has shared power with Mugabe since the contested 2008 elections.

Indigenisation Minister Saviour Kasukuwere gave foreign-controlled companies an initial deadline of 15 April, now extended to 30 June, to submit a detailed plan of how they intend to comply with the new rules.  

The law identifies as ‘indigenous’ any person who before 18 April 1980 - the date of Zimbabwean independence - “was disadvantaged by unfair discrimination on the grounds of his or her race, and any descendant of such person.”

Minister Kasukuwere stated that main goal of the reform was to tackle the “Zimbabwean anomaly” in which “communities hosting mineral resources have been condemned to be impoverished bystanders as those resources are exploited by outsiders for their own benefit.

“This law takes a stand in defence of these marginalised communities, who must now be organised around community trusts for purposes of empowerment,” he said.

That said, the disadvantaged people of Zimbabwe will not benefit from the new law, simply because only the elite will able to invest in shares. What was designed by Mugabe, therefore, looks like an attempt to indigenise the elite, rather than to empower the poor.

Increasing isolation

“In its current structure, the Indigenisation Act brings absolutely no benefit to ordinary Zimbabweans, and it damages all sectors of the economy,” the chairperson of an influential advocacy organization based in Harare told ISN Security Watch on condition of anonymity.

Analysts agree that the law could have catastrophic consequences, scaring away international businesses operating in the country as well as potential investors. In fact, the law makes no differentiation between types of businesses nor it is adapted to the different sectors of the economy. It targets all activities with assets of more than $500,000, which includes British banks such as Standard Chartered and Barclays as well as large US and European mining companies.

Regional businesses are likely to be hit as well. For example, the platinum mining company Zimplat, which has a majority of South African owners, announced recently its suspension of a major investment project for the construction of an underground mine and a dam because of the indigenisation law. The project would likely have generated over 1,000 new jobs.

“Project commencement is dependant on finalisation of compliance issues regarding the Indigenisation and Economic Empowerment Act and the accompanying regulations that were recently gazetted,” the company said in a statement.

The Zimbabwean stock exchange has also been affected. After the economic collapse of the past decade, which has decreased the value of the market in 2010 to less than one-third of the value in 1998, the first positive signs of growth emerged only last year. However, since the implementation of the indigenisation law, the situation has turned negative again, with a loss of over 21 percent in April alone.

Stock exchange chief executive Emmanuel Munyukwi told Reuters that the activity of foreign investors has diminished considerably: “Last year our market was being driven by foreigners, upwards of 40 percent were foreigners and net buyers. But from the end of January with the gazetting of the indigenisation regulations, there has been a lot of uncertainty and foreigners have put a hold on their transactions.”

Indigenisation by other means

Mugabe-style indigenisation is based on the politics of disincentive for foreign ownership and investment rather than the promotion of entrepreneurship and local development.

The Harare activist told ISN Security Watch that “because of its poor design, the Indigenisation Act will end up having the same consequences as the land reform.”

He identifies two necessary improvements: “First, the government should study thoroughly the economic situation in the country and identify the specific resources and sectors which can promote empowerment at the local level.” He argued that after 10 years of recession, the economy of Zimbabwe needs an assessment of its potentials and a clear long-term strategy for economic development.

 “Second, instead of strengthening the elite, the government should try to reinforce the role of communities in economic development and in the ownership of resources […] An indigenisation act cannot define itself as such if it bypasses local communities,” he said.

As many ideology-driven economic policies, Mugabe’s indigenisation act makes the mistake of imposing by law a situation that can only be achieved through sustained growth and a long process of economic empowerment.

The causality nexus between ownership and empowerment has been reversed: Instead of empowering the local population in order to achieve economic growth and higher control over the domestic economy, the law starts from the end and imposes local ownership through state intervention, hoping that this will scale down to economic empowerment for the disadvantaged population and communities.

But instead of hoping for a trickle-down effect, an effective indigenisation policy should undertake a bottom-up approach with the aim to create wealth from below, in particular in the marginalized areas of the society, such as local rural communities and the giant informal sector operating in the country.

The informal sector is composed of all those workers and entrepreneurs who operate outside the reach of state institutions; it is estimated to provide jobs to 80 percent of Zimbabweans, also to university graduates who cannot find employment in the declining formal economy.

This huge part of the domestic private sector does not have any legal recognition and therefore it is excluded from institutions such as banks, judicial courts and welfare institutions. In this way, it is denied opportunities to grow and innovate and left without social protection and insurance against risks.

Arguably, this is the area that contains at the same time the highest marginalization and poverty as well as the biggest potential for long-term economic development in the country. If Mugabe’s indigenisation efforts really aimed at empowering the poor then this part of society, not the Zimbabwean elite, would be the right starting point.