Africa Economy: Tension, uncertainty build up as Zimbabwe presses ahead indigenization

A face-off looms in Zimbabwe as the government pressed ahead a controversial foreign ownership law and foreign-owned companies take a wait-and-see attitude on whether to cede majority share-holding to the locals.

A cabinet minister in charge of the implementation threatened to close shops of all non-compliant foreign companies. The enforcement process would begin on April 1, according to Youth, Indigenization and Economic Empowerment Minister Patrick Zhuwao.

In fact, as far as Zhuwao is concerned, the non-compliant companies have been operating illegally since they should have complied with the law by end of February 2015.

The Zimabwean government, led by revolution hero Robert Mugabe, promulgated the Indigenization and Economic Empowerment Act in 2007 and three years later issued a statutory instrument, giving foreign-owned firms five years to comply.

Businesses in almost every sector of the economy with assets over 500,000 U.S. dollars will need to cede a controlling interest, usually 51 percent of the shares, to local black Zimbabweans. Foreign investors can be exempted or allowed to cede a lesser interest of 51 percent if they apply for considerations. The foreign companies in the country's vital agriculture and mining sectors were the first targets but overall the compliance was slow in the past five years.

In an apparent climb-down by the government, Zhuwao in January this year announced new indigenization regulations that allow foreign-owned companies to part with fewer shares than the 51 percent previously demanded.

The new rules allow line ministries to play a critical role in the process with the Zimbabwe Investment Authority (ZIA) handling all investment applications.

Zhuwao also imposed the March 31 deadline on the same day he announced the relaxation of the regulations.

ZIA is receiving all applications in line with the government's thrust to accelerate the Ease of Doing Business as well as to operationalize the One Stop Investment Centre in line with the Rapid Results Approach Framework.

The authority's chief executive Richard Mbaiwa said recently that about 35 companies had submitted their indigenization proposals since January.

It is not clear how many foreign companies meeting the minimum threshold are operating in Zimbabwe, but National Indigenization and Economic Empowerment Board (NIEEB) chief executive officer Wilson Gwatiringa said in early 2014 that about 800 companies had applied for compliance certification by then.

In 2013, the government threatened unspecified action against 19 companies for failing to comply with the law, but no action was subsequently taken against them.

The Zimbabwe Congress of Trade Unions and the Zimbabwe National Liberation War Veterans Association have expressed reservations over the government intention.

"War veterans want a country that is open to business, that is attractive to investment from anyone and there is no need for us to slam doors in the faces of those who want to bring in new money," said war veterans leader Chris Mutsvangwa to a local daily paper.

Zhuwao denied that the government intended to nationalize the companies, adding that closed non-compliant companies would remain in the hands of their owners but would not be allowed to operate until they regularized their operations.

Economist and chief executive officer of the Zimbabwe National Chamber of Commerce Chris Mugaga told a local television program that it would not be prudent to close companies.

"The economy is so fragile right now that closing companies should never be an option," he said.

Spokesperson for a small opposition party in Parliament Kurauone Chihwayi said the government's move may chase away "foreign investors instead of embracing them, at a time the country is in desperate need for foreign direct investment in order to get it back to its feet."

Zimbabwe's economy slipped to its slowest growth rate in six years in 2015. The dividend of adopting the U.S. dollar as circulation currency and political stability has waned. The country faces a serious shortage of foreign investment.

Zimbabwe attracted just 600 million U.S. dollars FDI last year, ranking low among its rich and emerging neighbors such as South Africa, Botswana, Zambia, and Mozambique.

The IMF has urged the government to clarify the indigenization laws so as to improve the investment climate and make it more favourable to the private sector.

Previously, government ministers and officials have issued divergent views on indigenization, to the extent that Zhuwao and Finance Minister Patrick Chinamasa had a public spat on the matter end of 2015. Chinamasa and his allies in the government had hinted that the government might craft out varied implementation modules for businesses in different sectors of the economy.

But the proposal was suppressed and the fraction led by Zhuwao seems to favor a one-fits-all implementation.

"Companies were given five years by the Statutory Instrument. Over and above the five years they were also given one year and 31 days, so really how many years do they want to be able to abide by the law?" Zhuwao said. Endit