Zimbabwe’s indigenisation compliance deadline not in sync with IMF
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Zimbabwe’s indigenisation legislation needs to be clarified, or it could further hamper the country’s economic recovery as a government-imposed deadline approaches, according to economists, experts and activists RFI has spoken to. The Zimbabwe government is not clear on whether foreign companies will be able to opt out and pay a fine and there has been some confusion over exactly which economic sectors the law applies to. Other initiatives, such as white farmer compensation for seized farms, is key for creditors, said the IMF.
“The 51 percent is not a blanket requirement,” said Domenico Fanizza, the International Monetary Fund’s Zimbabwe chief told RFI, referring to an obligation to sell a majority of shares in foreign companies to a Zimbabwean. “The requirement is only for natural resources, exploitation of natural resources. For the rest, there are other ways to comply,” he added.
On Wednesday, Indigenisation and Youth Empowerment Minister Patrick Zhuwao gave a 1 April deadline for foreign-owned businesses to comply or face being banned.
“Businesses have continued to disregard Zimbabwe’s indigenisation laws as if daring our president and his government to do something about their contemptuous behaviour,” said Zhuwao. “It’s either you comply or you close shop.”
Government officials had promised to introduce measures to allow companies to either comply with the requirements of the indigenisation law or to pay a levy during consultations in Harare earlier this month, Fanizza told RFI.
“The amount of the levy has not yet been set. And this will be a very important area in which clarity, in particular, transparency in implementation will be paramount,” said Fanizza, adding that government officials acknowledged that the system has not worked in the past.
“We have got assurances that it will be a low, reasonable levy,” he added.
Foreign investors have shied away from the southern African country, ruled by 92-year-old President Robert Mugabe and his ZANU-PF party for the past 36 years, as financial mismanagement and political infighting have discouraged investment from multinational companies.
In an effort to attract foreign direct investment back to Zimbabwe, Finance Minister Patrick Chinamasa has accelerated efforts to court the IMF by putting forth options to lower public sector wages, a measure that would help reduce government expenditure.
In their meetings earlier this month, Fanizza said that Zimbabwe had kept the wage bill below budgetary projections. “On top of that, they have agreed with us on a medium–term program on reducing the wage bill to around 50 percent of total spending,” he added.
Economic policy and indigenisation law at cross purposes
Efforts to help the country out of its financial crisis are being thwarted by Zhuwao’s announcement to ban foreign businesses, according to Dewa Mavhinga, Zimbabwe senior researcher for Human Rights Watch in Johannesburg.
“The finance ministry is genuinely trying to put in place reforms to open up space for foreign investment and to reassure the international community that Zimbabwe has turned another page,” said Mavhinga.
“But now you have Zhuwao, minister of indigenisation, who is taking a ZANU-PF hardliner tone,” said Mavhinga, “but which is informed by narrow interests of politicians around him who are not looking at the bigger picture of where Zimbabwe needs to go.”
Lack of clarity and consensus regarding the indigenisation law, first introduced in Zimbabwe in 2008, is not a new issue. When Zimbabwe was actively looking for investors in 2013, Saviour Kasukuwere, the then-indigenisation minister, made similar statements to Zhuwao.
“At that time Kasukuwere was saber rattling so much that it was disturbing the critical traction and trajectory of engagement with the IMF, so Mugabe took a strategic decision to silence him by moving him out of the ministry,” said Rejoice Ngwenya, head of COMALISO, a Harare-based public policy think-tank.
Ngwenya said that he does not believe Mugabe was prepared for Zhuwao’s decisive move, even if the indigenisation minister is the president’s nephew. “This is a young man who is desperate for attention,” said Ngwena. “So for the time being I will say that the man is just an empty trumpet making the loudest noise.”
Compensation for seized farms key for creditors
The scheme to impose annual rents on black farmers who were given white farms seized by the government over the past 15 years has become an important issue for creditors, according to the IMF’s Fanizza.
“Now that authorities have a taken step in the right direction, they have established a fund for compensation, they have started to the process of mapping funds and evaluating the funds, which was needed in order to make the compensation,” he said, adding that it is too early to discuss how this fund will be implemented.
The plan would be to collect annual rent from the black farmers who were given the seized farms, an idea that cannot work, especially during a major drought, said Christopher Mugaga, head of research at Econometer Global Capital Company.
“Conditions are very difficult for most farmers,” said Mugaga, “as more than 85 percent of the farmers are operating at a loss. It’s not a bankable, practical model to try and recompense the white farmers.”
The Valuation Consortium, a Harare-based group that has calculated the status of land within the farming area is meeting with government officials to discuss the compensation plan on 31 March. While the consortium declined to speak to RFI, a person close to the evaluation estimates that receiving an amount near the actual valuation of the seized farms will be difficult.
“The projected revenue from land tax is, at absolute maximum, $26 million a year,” said the source in Harare, asking not to be identified.
“The interest alone on the exit cases is more than that $26 million,” he said, adding that “finance from any compensation would have to come from different sources.”
Zimbabwe is in arrears with the IMF for $120 million, an issue that will come up at the Fund’s annual meeting on 4 May. The country has weathered the IMF staff-monitored program, and Fanizza said it was important to build consensus about re-engagement plans. “Creditors will give support hopefully in that direction,” he said.
What remains to be seen is whether politics will trump the current economic crunch.
“The bigger picture and challenges that Zimbabwe is currently facing is that Zimbabwe is on auto-pilot-- no leadership which is coherent and clear, because everyone is looking to see who succeeds Mugabe. So that is the main problem, the elephant in the room, if you like,” said Mavhinga.