Zimbabwe’s president, Robert Mugabe, has announced his intention to fully enforce the highly controversial “Indigenization and Economic Empowerment Act” IEEA, which aims to force foreign owned businesses to transfer at least 51 percent of their shares to Black Zimbabweans. The law, which was initially passed in 2008, has generated a lot of discussion and confusion since its enactment, making it very difficult to implement. With Zimbabwe’s economy in shambles and its financial sector hanging delicately in the balance, it is easy to understand why the enlightened members of cabinet are expressing reservations on the content and implementation of the law. However, the president has defied members of his party and cabinet to stand behind the bill and issue an ultimatum to all affected businesses – comply or close shop.
Last week, the confusion that surrounded the policy was put to rest in a signed statement which Mugabe intends to be adopted as a “policy position.” He argued that the indigenisation programme is “motivated by losses sustained by Black Zimbabweans at the hands of the colonial power.” Mugabe stated that white people had treated Black Zimbabweans cruelly and callously during the war for independence, killing thousands of them.
“When we say to the outside world, we have a policy of indigenisation and empowerment and they react by saying you are driving away investment, we should not worry. We know what we have suffered and we know what we should not do to suffer again or to benefit those who made us suffer in this bloody way.”
It is well known that black history, over the centuries, has been characterised by discrimination and suffering both at home and abroad. This has understandably made it necessary for laws encouraging indigenisation and affirmative action to be widely favoured. Such laws are accepted because they appear to be the solution to the never ending problem of discrimination; however, reality proves that this acceptance might be misguided.
Indigenisation policies are not new. The “sentiment of nativism,” that is, the mentality that suggests that the children of the soil should till the soil, is one that is often attempted to be enforced. It is such an innate attribute that it is unusual to hear anyone speak against such policies especially when they will benefit from it. However, SaharaReporters pointed out dark side to the mentality when it reported:
“This policy of indigenisation is very common among African countries and is a very insidious product of xenophobia. It is the reason Nigerians complain about Ghana’s government policy targeting non-Ghanaian (mostly Nigerian) businesses. It is a vicious circle that reduces trade among African countries and ensures that poverty levels remain high for much of Africa and therefore feeds nativist mentality.”
Implementing indigenisation policies may seek to serve some good by giving citizens (un)fettered access to capital and the labour market, however, for a struggling economy such a Zimbabwe or any economy at all, it is bad idea.
Loss of foreign investment
The implementation of this policy will affect big international companies like Standard Chartered, Nestle and British American Tobacco and Zimbabwe is likely to lose a chunk of these foreign investments. Foreign investors have pointed to the IEEA, which is also referred to as the Black Empowerment Laws, as the biggest obstacle to investing in Zimbabwe and taking full advantage of its extensive platinum deposits. Economists have blamed the law for the country’s low foreign direct investment (FDI) and the opposition party, the MDC, have accused the government of playing “Russian roulette” with the country’s economic welfare by chasing away foreign investors.
Whether Mugabe likes it or not, foreign investment is vital to the development of any economy. Encouraging foreign investments will not only bring foreign capital to the country but also serve as a bargaining chip for allowing Zimbabwean businesses expand into other countries. With FDI in Africa expected to reach an estimated $80 billion this year, it would be foolhardy for Zimbabwe to cut off any chance of getting its share. Due to the country’s changing, unpredictable and unfriendly investment policies, there has already been a slump in foreign investment in the country.
Since the announcement, China, one of Zimbabwe’s major investors with over 100 enterprises in the country, has expressed displeasure with the policy:
“This policy is extremely unfair to foreign investors, and will cause losses for them. It also undermines the credibility of the Zimbabwean government and raises flags to foreign investors.”
Mismanagement and corruption
Mismanagement and corruption are vices which have stalled any form of political or economic growth in Zimbabwe and in Africa as a whole. When indigenisation policies are put in place, it is often noticed that corrupt government officials who take over the businesses eventually run them down. In cases where the businesses fall into the hands of the average citizen, there is always a problem of skill and capital that arises and hinders any productive growth.
It is easy to come up with many reasons why indigenisation policies will impede economic growth, however, there is only one argument necessary – it is fundamentally retrogressive.
Erwin Ofili stated:
“The reason indigenisation does not work is neither because all government policies are doomed to fail in Africa nor due to bad implementation. It is because indigenisation is a faulty and retrogressive policy. It is a policy that rewards people for doing no work and adding no value to the economy. Indigenisation would eventually fail even if it were possible to implement it without corrupt government officials and their cronies taking over the businesses.
Indigenisation policies do not appreciate or reward hard work. It does not encourage the healthy competition required to build a vibrant economy rooted in quality products and services. Instead of the people of Zimbabwe waiting for the government to give them ownership of foreign companies, the government could implement policies that make it compulsory for these companies to invest in local production and assist in the building of new industries and infrastructure, as Ethiopia has done. Legislation which protects local businesses from being taken over by foreign big businesses should be made enforceable so that there would be no fears of having an economy controlled by foreign powers.
It is interesting to note that the Empowerment Laws specifically serves to benefit Black Zimbabweans. In a world where discrimination is being fiercely attacked, it is manifestly unjust that a portion of Zimbabweans by birth, ancestry or naturalisation – albeit only 30,000 strong in a population of about 14 million – might not be allowed to benefit from a law that should also protect their interests simply because they are white. It is fuelling the same injustice it intends to curb.
Is history repeating itself?
In response to the growing discontent and displeasure in Zimbabwe’s poor districts, ZANU-PF, Mugabe’s political party have decided to accelerate the indigenisation program to mollify the masses by granting them economic upliftment. However, it only shows that Mugabe is a poor student of history.
In 2000, Mugabe introduced new land reform laws which took land away from white farmers and gave it to Black Zimbabweans. He was quoted as saying, “We say no to whites owning our lands and they should go.” This move led to the loss of about $12 billion and ultimately led to the collapse of the economy over the last decade. Zimbabwe, also known as the “breadbasket of the region,” had to rely on food imports and food aid to feed its growing population. Neighbouring country Zambia took in the white famers with their decades of experience and was able to boost its own agricultural output.
Despite Mugabe’s promise in 2013 to create 2.2 million jobs, the unemployment rate in Zimbabwe stands above 80 percent, forcing a lot of graduates into becoming street vendors. The currency is in shambles, irredeemably ruined by inflation.
Mugabe is perhaps Zimbabwe’s biggest problem. At 92-years-old and currently serving a seventh term, he has refused to appoint a successor. He has been accused of corruption, electoral fraud, totalitarianism, and running a “kitchen cabinet” with his wife, Grace. A campaign demanding his resignation – with protesters referring to him as “old and clueless” – was recently staged and it is hoped that in time, the continent of Africa will be able to rid itself of megalomaniac leaders and be on the way to true economic and social development.