In February 2010, Zimbabwe published indigenisation regulations aimed at ensuring a higher level of participation of 'indigenous' Zimbabweans in the country’s economy. One of the risks of these regulations is that they threaten to undermine confidence in the Government’s willingness to implement policies that will facilitate private sector development. As a result, these regulations have the potential to derail the partial economic stabilisation that the country has achieved in recent months.

Within context

The story of Zimbabwe’s economic demise is well known, as are the social challenges that have resulted from the country’s years of hyperinflation and destruction of wealth and savings. Further, political repression in the country has also been widespread, accompanied by large numbers of people leaving the country in search of better opportunities elsewhere.

However, following the inauguration of a unity Government in early 2009, Zimbabwe has embarked on the implementation of a Short Term Economic Recovery Programme (STERP) that has seen a certain amount of progress in getting the country’s economy back on track, with notable improvements including the evaporation of hyperinflation.(2)

Nevertheless, the legacy of Zimbabwe’s years of poor economic policy is likely to remain visible for years to come, and business conditions remain precarious. Certainly, a full recovery will depend on the ability of the country’s Government to enable private sector development. However, such development will be grossly hindered by regulations such as those proposed for purposes of indigenisation.

The content of the regulations

The so-called Indigenisation and Economic Empowerment (General) Regulations require that all businesses with an asset value equal to or above US$ 500,000 located in Zimbabwe should formulate plans that will lead to 51% of the shares in the firm being transferred to “indigenous” Zimbabwean shareholders within five years from the date of operation of the regulations. The enabling act for these regulations, the Indigenisation and Economic Empowerment Act, defines an indigenous Zimbabwean as any person who, before 18 April 1980 – the date of Zimbabwean independence – “was disadvantaged by unfair discrimination on the grounds of his or her race, and any descendant of such person.” This effectively rules out ownership by white Zimbabweans or foreign firms.(3)

The regulations required affected companies to submit an overview of their current shareholders, and a plan for implementing indigenisation, within 45 days from when the regulations came into effect on 1 March 2010. This deadline was later extended slightly.(4)

The Minister of Youth, Development, Indigenisation and Empowerment will then use these overviews to clarify if certain sectors qualify for lower minimum indigenisation quotas. This clarification must be published by the Minister, in a notice, by 28 February 2011.(5) Currently, however, the regulations make no differentiation between types of businesses or different sectors. Some of the major business interests that will be included are British banks, such as Standard Chartered and Barclays, as well as large mining companies.(6) Already, the regulations are affecting investment decisions by such companies. For example, Zimplats, which is majority owned by South Africa’s Impala Platinum, has delayed a decision regarding a major investment project in Zimbabwe, pending the finalisation of compliance issues relating to the matter of indigenisation.(7)

The notice that the Minister is required to issue by end-February 2011 will also specify the weighting that will be given to various activities that could reduce the indigenisation quota, such as social development initiatives.(8)

The regulations also have implications for merger and acquisition activities that require restructuring of companies, as well as for the approval or new domestic or foreign investments. Any businesses emerging from such processes will be required to adhere to the minimum threshold of 51% indigenous ownership.(9)

Dissent within Government

These controversial regulations have not been unchallenged within Government. In fact, there has been much dissent within Government over the regulations, to the extent that the Prime Minister and the President have given blatantly contradictory statements over the future of the indigenisation legislation. This is not overly surprising, since the Prime Minister, Morgan Tsvangirai, who heads up the Movement for Democratic Change (MDC), champions an investor-friendly platform, and these regulations can be seen as being openly unfriendly to investors. Tsvangirai has indicated that the legislation is to be shelved. 

President Robert Mugabe, on other hand, whose ZANU-PF party is in an uneasy power-sharing Government with the MDC, has indicated that the regulations are proceeding, and that Government is merely reflecting on how to improve the law.(10) Mugabe’s position is also not surprising, considering the open disregard he has shown for the interests of investors in the past.

The concerns

This confusion is contributing to a wide range of investor concerns regarding the regulations, and actions stemming from such concerns could have severe implications for the country’s economy.

Firstly, there are questions over compensation.  Even if companies were willing to part with a 51% share in their business, which seems unlikely, the regulations are unclear as to whether companies will be appropriately compensated for this share. Further, even if the intention is that companies will be compensated, questions exist over the extent to which “indigenous” Zimbabweans have access to the funds necessary to facilitate such compensation.(11)

Secondly, there are concerns about the beneficiaries of such regulations. Despite indications by the Minister that indigenisation is intended to fight poverty among the majority of the people, and the inclusion in the regulations of reference to employee share ownership schemes, the regulations do not seem overly focused on achieving broad-based indigenisation. Rather, it seems possible that the regulations will simply benefit a small group of elites. One commentary has described the regulations as an effort to “indigenise the elite rather than empower the poor.”(12) Such concerns are reinforced by clauses in the regulations that require the Minister to maintain a database of people who are potential beneficiaries, and allow the Minister broad discretion in determining who should be included on such a list.(13)

In fact, it has been suggested by some that the regulations may have been crafted as a tool for use by ZANU-PF to garner support ahead of the country’s next elections, and as a weapon against individuals perceived to be supporting the MDC. Another theory is that ZANU-PF intends to fight the elections on a platform of sanctions and indigenisation, and that this requires a bad economy, which is why ZANU-PF is persisting with the indigenisation regulations, despite early signs that they will have a detrimental effect on the economy.(14)

While such theories may seem somewhat far-fetched, it remains true that many have likened the indigenisation regulations to the expropriation of land that took place in Zimbabwe from around 2000, and certainly the so-called “land reform” programme was utilised as part of ZANU-PF’s electioneering in previous campaigns.

If the indigenisation regulations were genuinely aimed at alleviating poverty and extending the reach of the benefits of economic activity, they would perhaps have adopted a bottom-up rather than a trickle-down approach. The International Relations and Security Network explains that, “the causality nexus between ownership and empowerment has been reversed: instead of empowering the local population in order to achieve economic growth and higher control over the domestic economy, the law starts from the end and imposes local ownership through state intervention, hoping that this will scale down to economic empowerment for the disadvantaged population and communities”. It goes on to suggest that instead of hoping for a trickle-down effect, an effective indigenisation policy should aim to create wealth from below, in particular in the marginalised areas of the society, such as local rural communities and the giant informal sector which provides jobs to 80% of Zimbabweans.(15)

Possibility of review?

In the wake of the release of the indigenisation regulations, investor sentiment in Zimbabwe has deteriorated markedly, owing to renewed uncertainty over the Government’s commitment to private sector development. Some companies have indicated a willingness to participate in indigenisation efforts, but not in the form prescribed by the legislation. It seems likely that much new investment, as well as recapitalisation by existing firms, will be delayed until further clarity is available on the regulations. While many firms are looking towards the potential for sector-specific reductions in the overall 51% target, it seems unlikely that the regulations will be scrapped altogether.(16) Perhaps, however, there is scope for the regulations to be re-worked into a form that is more investor friendly.

In nearby South Africa, black economic-empowerment legislation has been crafted with a broad-based foundation, and the ownership transfer requirements are 26% within ten years, with clear understanding around matters of compensation. Furthermore, companies can earn offset points to reduce this target.  Many companies are seeking workable solutions within this context and, while the South African legislation has also been criticised, it seems far more manageable than what Zimbabwe has proposed.

NOTES:

(1) Shona Kohler is an External Consultant for Consultancy Africa Intelligence ( This e-mail address is being protected from spambots. You need JavaScript enabled to view it )
(2) Babb Y, ‘Wiping the slate clean’, Standard Bank, Zimbabwe: Annual Economic Outlook, 29 March 2010, p. 1.
(3) Matyszak D, ‘Everything you ever wanted to know (and then some) about Zimbabwe’s indigenisation and economic empowerment legislation but (quite rightly) were too afraid to ask’, Research Advocacy Unit, 19 March 2010.
(4) ‘Zimbabwe’s ‘elite’ indigenisation misses mark’, International Relations and Security Network, 31 May 2010.
(5) Babb Y, ‘Wiping the slate clean’, Standard Bank, Zimbabwe: Annual Economic Outlook, 29 March 2010, p. 2.
(6) ‘Zimbabwe’s ‘elite’ indigenisation misses mark’, ISN ETH Zurich, 31 May 2010.
(7) Moyo J, ‘Recovery rattled’, Mail & Guardian, 5 March 2010.
(8) Babb Y, ‘Wiping the slate clean’, Standard Bank, Zimbabwe: Annual Economic Outlook, 29 March 2010, p. 2.
(9) Ibid.
(10) ‘Zimbabwe President Mugabe denies company law U-turn’, BBC News, 15 April 2010.
(11) Matyszak D, ‘Everything you ever wanted to know (and then some) about Zimbabwe’s indigenisation and economic empowerment legislation but (quite rightly) were too afraid to ask’, Research Advocacy Unit, 19 March 2010.
(12) ‘Zimbabwe’s ‘elite’ indigenisation misses mark’, International Relations and Security Network, 31 May 2010.
(13) Matyszak D, ‘Everything you ever wanted to know (and then some) about Zimbabwe’s indigenisation and economic empowerment legislation but (quite rightly) were too afraid to ask’, Research Advocacy Unit, 19 March 2010.
(14) Harding A, ‘Zimbabwe at 30: Indigenisation battle’, BBC News, 16 April 2010.
(15) ‘Zimbabwe’s ‘elite’ indigenisation misses mark’, International Relations and Security Network, 31 May 2010.
(16) Babb Y, ‘Wiping the slate clean’, Standard Bank, Zimbabwe: Annual Economic Outlook, 29 March 2010, p. 3.