Indigenisation barriers

Indigenisation launched but barriers to investment kept

Zimbabwe Independent – by John Robertson

March 11, 2016

We all know that the Indigenisation and Economic Empowerment Act was launched because the colonial regime had built barriers to hold back the indigenous population before 1980. And we all know that the government was quick to remove all these barriers the moment it took office in independent Zimbabwe, didn’t? Well, no actually, it did not.

Zimbabwe Economics Society Column, John Robertson

While building the economic structure around the proclamation that Zimbabwe was to be a Marxist-Leninist economy, government chose to make the barriers even higher, as state control of everything is the prime objective. While the leadership gave themselves exemptions from the rules when it suited them to do so, they made sure that the rest of the population would continue to struggle to get into business.

All the controls the Rhodesian government had adopted were kept firmly in place and tightened up. They included project approvals, the need to obtain import licences and foreign exchange allocations, exchange controls, some price controls and strict company registration procedures. From 1980, these were made more difficult by rent controls, much tighter price controls, interest rate controls, dividend taxes, sharply elevated minimum wages and a wage freeze for managers and executives.

A hidden cost for business licence applicants was usually the most decisive of all, which was the need to obtain an endorsement from a senior member of the ruling party. This process usually involved the offer of free shares or a substantial bribe to the party member and possibly to each official who could influence whether or not an application should even be allowed to progress through the system.

All these demands made the business of starting a business extremely difficult, so difficult that 36 years after Independence the politicians can still make the claim that the dominant businesses in the country are still those started by non-indigenous people. If the barriers really had been removed in 1980, since then the 99% who now make up the indigenous population could have started so many wholly indigenous companies that the number created by the tiny colonial minority would have become totally irrelevant.

In other words, indigenisation should have happened automatically. It could have happened automatically and it almost certainly would have if the politicians had made the decision to establish straightforward registration procedures that applied equally to every applicant and left their prospects of success dependent only on their business skills. When the ability to cope with market forces determines who will succeed in business, the quality of the businesspeople who do succeed is considerably higher than it is for those who depend on political patronage.

From that, the argument can be very easily constructed that efforts to force the changes of ownership of the equity of existing companies, and to force non-paying business partners onto the people wishing to start new companies, amounts to nothing more than an attempt to diminish the powers and influence of non-indigenous investors.

But indigenous investors should wake up to the fact that their own powers and influence have already been severely curtailed by the existing collection of endorsements, application procedures, restrictions, licences, permits, levies and re-registration fees that they have to meet if they want to get into business or stay in business. If the treatment they have been receiving for years remains no better than the harsh reception now being given to non-indigenous investors, the needed self-perpetuating indigenisation process will never start.

The empowerment component of the promises made in the Indigenisation and Economic Empowerment Act is perhaps the most cruel of all the effects of government’s determination to gain control over everything.

Before the Marxist-Leninist announcement, about one Zimbabwean in every seven had a formal sector job. Today, the formal sector employs about one person in every 20, and more than half of those enjoy protected jobs working for government. Several hundred thousand jobs have disappeared since the Indigenisation Statutory Instruments were published in March 2010 and these jobs were in the more important productive sectors.

As having a steady job is about the most empowering thing that the majority of us will ever experience, the loss of so many jobs shows that absolutely no real empowerment is materialising from the policy. Instead, we have been witnessing massive and crippling disempowerment. A possibly much bigger number to worry about is the number of jobs that have been prevented from coming into existence. More than 300 000 young Zimbabweans present themselves to the labour market every year, but very few find proper paid employment in formal companies that can offer training and a respectable career path.

The accumulated total of the balance over the past five years, at almost 300 000 a year, is 1,5 million. For these young adults, the investors, local as well as foreign, who might have started the employment-creating businesses, have faced so many severe discouragements that they have not shown up. Many of the local entrepreneurs have settled for the limited prospects in the informal sector, but many have emigrated, taking their good ideas with them. Young people looking for work now constitute Zimbabwe’s most valuable export, but this reflects desperation. Empowerment features not at all.

Defenders of the indigenisation requirements always point out that a great many other countries also require foreign investors to have local partners. However, the difference in every other country is that the local partners pay for their shares up front. They do not demand that a hand-over of a controlling interest should take place at a later date, on which date, even then, payment should not be expected.

Zimbabwe’s conditions are growing more unsatisfactory by the day, but government policies are targeting the wrong people. The people who need empowering and encouraging conditions are the investors, and they would be worth encouraging as it is they who could create productive capacity, employment, export revenues, tax revenues and the ability to become and remain competitive in a very challenging world. It is they who could make us less dependent on imports and it is they who could, in time, build enough stamina back into the economy to make us capable of supporting our own currency.

Zimbabwe’s laws are more than adequate to ensure that investors behave and become good corporate citizens. It is time to drastically revise the idea that our interests are best served by authorities that want to control absolutely everything just for the sake of being totally in control. On this course, the little that has survived the damage can no longer meet the country’s needs, but these businesses offer all the proof we need that government controls are of far less importance than the commitment of sound investors.

Robertson is a renowned economics consultant and past president of the Zimbabwe Economics Society (ZES).

These New Perspectives articles are co-ordinated by Lovemore Kadenge, president of the ZES.

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