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Zimbabwe backtracks on indigenisation as ZANU-PF succession battles heat up
Adrienne Klasa
After months of strong rhetoric, Zimbabwe appears to be softening its
stance on black ownership requirements for foreign-owned businesses
operating in the country. Statements by the country’s indigenisation
minister, finance minister and President Robert Mugabe himself over the
past week all claim that the administration will not be implementing
wholesale enforcement of its 51 percent indigenous ownership policy.
“We’re not taking 51 percent of anyone’s money,” Patrick Chinamasa,
the finance minister, announced at a press briefing in Harrare, the
capital, on 23 April. “There’s no one-size-fits-all.”
Confusion has reigned on the status of foreign-owned assets in Zimbabwe since parliament passed the indigenous ownership law in 2008. Zimbabwe has a history of expropriating white-owned farmland and factories in the name of black economic empowerment, with minimal effects on trickle down and negative impacts on the economy. Companies with assets valued at more than $500,000 were the law’s target, and some mining companies – including Impala Platinum Holdings Ltd. and Anglo Platinum Ltd. – have already complied.
“Statements suggesting that the government will soften its indigenisation policies are tantamount to an admission that the programme has been an unmitigated disaster for the national economy,” says Charles Laurie, head of Africa research at risk advisory Maplecroft.
Indeed, Zimbabwe is currently facing a financial and liquidity crisis that bears the hallmarks of the larger economic crisis that engulfed the country in 2008-2009, which has prompted the government to act to shore up investments.
“The main driver for talking about softening the indigenisation regulations is the failing economy,” Robert Besselin, principal Africa analyst at IHS Global Insight, explains. “Much of the investor inflow that Zimbabwe badly needs to stimulate its economy is being hampered by the indigenisation regulation, which is essentially scaring off foreign investors.”
The Zanu-PF ruling party have often used populist policies like indigenisation to shore up political support at the expense of the country’s economic interests. As recently as November 2013, long-time president Robert Mugabe’s government gave companies in protected sectors of the economy a 30-day ultimatum to relinquish their assets, or face arrest. Ratcheting up the pressure on indigenisation often corresponds with elections – which last took place in July 2013 – only to backtrack once the party’s political survival has been guaranteed.
And while the news that wholesale enforcement will not be happening immediately might allow businesses operating in Zimbabwe to breath a sigh of relief, there is no indication that the shift will be a permanent one.
“Investors should view pronouncements of investor-friendly policy shifts from Zanu-PF with deep scepticism, as the party could at any time forcefully re-engage the indigenisation framework,” Mr Laurie warns.
Zanu-PF is currently embroiled in an internal struggle over the party’s succession, pitting more radical nationalist factions within the party against moderates, as the era of 90-year-old President Mugabe’s leadership draws towards a close. How to approach indigenisation policy, as the flagship economic policy of the current administration, is a key battleground.
“This is really a political dialogue going on between key factions within the ruling Zanu-PF party and the political business elite in Zimbabwe,” says Mr Besselin. “Neither faction is on top at the moment, neither faction is emerging more powerful than the other.”
Despite once having a robust agricultural sector and a wealth of mining assets, Zimbabwe has been in an economic tailspin under the Mugabe administration. After years of hyperinflation, the country now faces a liquidity crisis – causing a 30 percent drop in consumer spending in February alone – as investors have fled. In response, the government adopted four more currencies as legal tender, bringing the total to nine – none of them its own.
For investors, this means that while this week’s statements are “indicative that there is likely to be some sort of smoothing off of these indigenisation regulations, nothing will be final until the political succession – in other words the post-Mugabe era – has commenced,” Mr Besselin continues.
As party elites seek to consolidate their assets from expropriation before the changing of the guard becomes a reality, long-term thinking on economic policy is not a priority.
“Mugabe’s advanced age points to a likely shift in power over the near future,” agrees Maplecroft’s Mr Laurie. However, with Zimbabwe’s political future in flux, “investors will need to balance enormous opportunities against the ruling party’s propensity to put its political interests ahead of economic stability.”
Confusion has reigned on the status of foreign-owned assets in Zimbabwe since parliament passed the indigenous ownership law in 2008. Zimbabwe has a history of expropriating white-owned farmland and factories in the name of black economic empowerment, with minimal effects on trickle down and negative impacts on the economy. Companies with assets valued at more than $500,000 were the law’s target, and some mining companies – including Impala Platinum Holdings Ltd. and Anglo Platinum Ltd. – have already complied.
“Statements suggesting that the government will soften its indigenisation policies are tantamount to an admission that the programme has been an unmitigated disaster for the national economy,” says Charles Laurie, head of Africa research at risk advisory Maplecroft.
Indeed, Zimbabwe is currently facing a financial and liquidity crisis that bears the hallmarks of the larger economic crisis that engulfed the country in 2008-2009, which has prompted the government to act to shore up investments.
“The main driver for talking about softening the indigenisation regulations is the failing economy,” Robert Besselin, principal Africa analyst at IHS Global Insight, explains. “Much of the investor inflow that Zimbabwe badly needs to stimulate its economy is being hampered by the indigenisation regulation, which is essentially scaring off foreign investors.”
The Zanu-PF ruling party have often used populist policies like indigenisation to shore up political support at the expense of the country’s economic interests. As recently as November 2013, long-time president Robert Mugabe’s government gave companies in protected sectors of the economy a 30-day ultimatum to relinquish their assets, or face arrest. Ratcheting up the pressure on indigenisation often corresponds with elections – which last took place in July 2013 – only to backtrack once the party’s political survival has been guaranteed.
And while the news that wholesale enforcement will not be happening immediately might allow businesses operating in Zimbabwe to breath a sigh of relief, there is no indication that the shift will be a permanent one.
“Investors should view pronouncements of investor-friendly policy shifts from Zanu-PF with deep scepticism, as the party could at any time forcefully re-engage the indigenisation framework,” Mr Laurie warns.
Zanu-PF is currently embroiled in an internal struggle over the party’s succession, pitting more radical nationalist factions within the party against moderates, as the era of 90-year-old President Mugabe’s leadership draws towards a close. How to approach indigenisation policy, as the flagship economic policy of the current administration, is a key battleground.
“This is really a political dialogue going on between key factions within the ruling Zanu-PF party and the political business elite in Zimbabwe,” says Mr Besselin. “Neither faction is on top at the moment, neither faction is emerging more powerful than the other.”
Despite once having a robust agricultural sector and a wealth of mining assets, Zimbabwe has been in an economic tailspin under the Mugabe administration. After years of hyperinflation, the country now faces a liquidity crisis – causing a 30 percent drop in consumer spending in February alone – as investors have fled. In response, the government adopted four more currencies as legal tender, bringing the total to nine – none of them its own.
For investors, this means that while this week’s statements are “indicative that there is likely to be some sort of smoothing off of these indigenisation regulations, nothing will be final until the political succession – in other words the post-Mugabe era – has commenced,” Mr Besselin continues.
As party elites seek to consolidate their assets from expropriation before the changing of the guard becomes a reality, long-term thinking on economic policy is not a priority.
“Mugabe’s advanced age points to a likely shift in power over the near future,” agrees Maplecroft’s Mr Laurie. However, with Zimbabwe’s political future in flux, “investors will need to balance enormous opportunities against the ruling party’s propensity to put its political interests ahead of economic stability.”
Good for the unity of Africa
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