THE government is planning to tone down the controversial equity law which forces foreign companies to cede a majority shareholding to local investors, a cabinet minister said Sunday.
Zimbabwe’s controversial 2007 indigenisation law states that foreign firms must hand a 51 percent shareholding to local partners.
The law spooked investors and was a source of conflict between President Robert Mugabe’s allies, with some maintaining a hard-line stance while others opposed the measures.
“We are reviewing and tightening the indigenisation and empowerment policy by being pragmatic without being dogmatic about it,” he told the state-owned Sunday Mail.
“(Foreign) investors will be allowed to recover their initial capital investment, an appropriate return on investment and operational costs before the sharing of production outputs or profits,” Moyo said.
Moyo however, insisted that this did not mean government was ditching a policy blamed by critics who say it was hurting prospects of attracting much-needed investment.
“It would be sheer folly for anybody to imagine that we would abandon or ditch a policy or programme that was overwhelmingly endorsed by the electorate in unprecedented numbers as recent as 31 July 2013,” he said.
“We are reviewing and tightening the indigenisation and empowerment policy by being pragmatic without being dogmatic about it. There has been some confusion and misunderstanding over the modalities for achieving (the 51 percent threshold.
“Consequently, we pointed out that, going forward there is a need to review, tighten and strengthen both the law and policy so that among other things, we clarify the fact that the indigenous Zimbabweans cannot be expected or required to buy back their God-given natural or economic resources.”
Under the law, foreign owners of Zimbabwean mines were given an ultimatum to surrender more than 50 percent of their shares and find local partners or risk nationalisation.
Mugabe said the law, which followed controversial land reforms, was meant to reverse imbalances which resulted from colonialism.
But critics including opposition leader Morgan Tsvangirai said it would enrich Mugabe’s allies and scare away foreign investors.
After a brief respite during the coalition government, Zimbabwe’s economy, now firmly back in the hands of Robert Mugabe’s ZANU-PF, is once again teetering. Media reports have highlighted misuse of public funds, such as scandals over exorbitant salaries of top officials and money squandered on lavish presidential birthday parties. These episodes are symptomatic of the corruption and rapaciousness that have eaten away at a once promising economy.
But the cost of birthday cakes and SUVs pale in comparison to the economic damage by ZANU-PF’s misrule. The economy really starting tanking in 2000, the year that Mugabe lost a referendum to change the constitution, started throwing away private property rights, and began in earnest to attack the opposition. Just as the rest of Africa started booming, Zimbabwe’s economy was contracting.
It’s impossible to know how Zimbabwe would have performed if the government had instead pursued more sensible policies. One reasonable comparison might be to consider what would have happened if Zimbabwe had instead performed like one of its similar neighbors. Zambia is probably the closest match. The two countries share a long border and both economies are based largely on agriculture, mining, and light industry. The two countries also have a similar institutional history (during much of British colonial rule they were Northern and Southern Rhodesia). Yes, there are important differences between the two countries, but using Zambia as a benchmark also seems reasonable because it’s no outlier: its recent growth rate is close to the regional average and it’s a middling performer on governance (e.g., its World Bank CPIA score is just above the regional median).
So, where would Zimbabwe’s economy be if, since 2000, it had grown at Zambia’s growth rate (5.3%) instead of its actual rate (-2.6%)?
Instead of plunging by roughly half, Zimbabwe’s real GDP would have doubled. GDP per person would have been more than $1100, instead of less than $500.
And the implied cumulative loss of economic value over these twelve years: $96 billion.