An Opinion: Is Zimbabwe’s indigenisation law another disaster waiting to happen?
10th March 2010
Whilst the rest of the African continent seems to be promulgating laws and taking measures in order to attract much-needed foreign investment to their countries, Robert Mugabe has opted for a different route – a new law which came into force at the beginning of this month requires companies run by non-indigenous people to sell a majority stake in their businesses to indigenous people. Indeed, foreign companies with a minimum capital of US $500,000 are required to cede 51% shareholding to locals within five years. ‘Indigenous Zimbabweans’ are described as anyone who was racially discriminated against before independence in 1980. Defaulters face up to five years imprisonment. Foreign investors already present in the country are clearly worried. Potential investors are now likely to rethink investing in Zimbabwe. So why would a country which one might think would be in dire need of foreign investment, enact a law which clearly deters such investment?
President Robert Mugabe has said that the indigenisation law, like the land reform programme, was meant to correct historical imbalances in the ownership of Zimbabwe’s resources. Indeed, it can hardly be denied that empowering the Zimbabwean population is a noble motive. The fear is, however, that Mugabe’s government is going about this the wrong way. There are also fears, voiced by Morgan Tsvangirai’s Movement for Democratic Change, that President Mugabe’s ZANU-PF party is merely looking to benefit ‘the well-connected elites’. The Zimbabwean Congress of Trade Unions has similarly voiced its concerns that whilst in principle the law was good, this law will merely replace the minority whites with new minority blacks.
Zimbabwe’s fragile economy was just beginning to recover from the economic crisis, which had seen hyperinflation, mass unemployment and increased poverty. There are now fears that Zimbabwe’s path to economic recovery has just received a strong blow. It is not difficult to see why. The effects of this law were immediately clear - when the law came into effect at the beginning of March, trade on Zimbabwe’s Stock Exchange plummeted from an average of $2million daily to $500,000. Some of the foreign-owned companies present in the country, amongst which Zimplats, Angloplats and Rio Zimbabwe, have decided to freeze new investment for the time being.
The law and its effects are already being compared to the land reform programme, which saw thousands of white farmers lose their land and assets beginning in the year 2000. Again, one can perhaps argue that the aim, being that of taking land from rich commercial white farmers and redistributing it to the poor Zimbabweans without land, was a noble one. However, who were the main beneficiaries of this land reform programme? As is feared will happen again, it was Mugabe’s cronies and the rich élite, and not the poor Zimbabwean peasants, who benefited most. Furthermore, following the land reform programme, farming, which had once been the backbone of Zimbabwe’s economy, went into decline, and led to an increasing reliance on imports. There are now fears that this scenario will repeat itself with the new indigenisation law.
It has since emerged that the regulations are being revised by government, as they had been published prematurely, before the final approval of the Cabinet. Yet, if they, or largely unchanged regulations, remain in force, it is likely that foreign investors will think twice about investing in a venture where they only have a minimum shareholding. Indeed, whilst perhaps a noble motive in principle, it is rather likely that this law will scare off foreign investors at a time when Zimbabwe so desperately needs it.