Position paper; Indigenisation of the Zimbabwe economy
Zimbabwe is a small landlocked country formerly a British colony. It is endowed with a vast array of natural resources ranging from precious minerals to huge tracts of arable land coupled with the good farming climate. In addition the country has been blessed with hard working, intelligent and literate population making it possible for large international companies to set up operations here where quite frankly they have made profits. Anglo-American company has interests ranging from farming to mining, Unilever, Nestlé are just some of the big international corporations operating in Zimbabwe. Naturally over the last few years as they became better educated Zimbabweans have been complaining about the level of foreign ownership of most mines and indeed big companies. The ownership and management had remained in the hands of foreigners for a number of years after independence though there has been a shift on the management front where the majority of these multinational corporations now employ indigenous persons to positions of Chief executive officers, MDs and directorships in these organisations. However the pressure groups have been formed to lobby the government to force a redress of this apparent misnomer and consequently the government has come on board by announcing its proposed win-win scenario. The government position commits to foreign company ceding as much as 51% of their shareholding to locals for a fee or no fee at all and this is what has caused so much controversy because many argue this to be counter- productive especially in light of the fact that we are emerging from recession. The debate has in most cases degenerated into mudslinging contests between the two distinct camps to emerge from this controversy.
B. Debate- Is forcing to companies to cede 51% or more the right approach
While there has been little debate on the need to indigenise, there is however controversy on the proposed 51% takeover. Supporters believe it’s the best approach in the circumstance and its long overdue while on the other hand opponents believe it will ruinous to the country’s drive to attract foreign-direct investment and prefer a more gradual change in ownership to this hurried one.
C. Supporters -ceding 51% controlling
stake to blacks
Supporters of this policy believe that this is the best course of action because they feel these foreign companies are still reluctant to incorporate black people into the mainstream economy by employing what they term racist tactics to exclude blacks from participating in the economy.- Secondly by virtue of being the indigenous people, they are entitled to more than 51% shareholding because the resources these foreign companies are exploiting already belong to the local people.
- Others believe that these foreign companies carry out subversive activities on behalf of foreign government to effect what they term regime change. For instance Barclays and Standard Chartered have been accused of being used by foreign powers to instigate some kind of chaos in the country.
- Supporters of this believe that this will put to paid the negative stereotype of black person, his perceived inability to match the talents and aptitudes of whites.
D. Our position-Ceding 51% stake to blacks
While proponents of this empowerment drive in its current form often try to turn this into a black vs. white argument that has not done anything to camoflaouge the glaring problems associated with this approach in light of what has become the legacy of the land reform process and the spirited attempts to overlook fundamental questions on how the whole process is going to be financed. The land reform was carried out in almost a similar fashion where the sudden ‘desire’ to empower the landless black majority overrode all genuine questions about the farming ability of blacks and the funding for the reforms. Authorities thought that by giving land to black peasant farmers was enough to ensure the continuity in farming activities ignoring the obvious lack of expertise in commercial farming by these new farmers and the capital needed to sustain this kind of farming. No one will accuse the authorities of suffering from delusions of grandeur because the emergence of the MDC as a political force made the land reform the only viable option at the time. However the ramifications of the land reform continue to be felt to this day thus underlying of folly of attempting to empower people while ignoring the possible economic side effects of this.
There is a particularly absurd assertion that the yet be extracted minerals in the case of mines are already the sovereign property of the state therefore there can be no talk of the government or blacks being asked to pay for the 51%shares and that is according at least one senior government official. That’s ludicrous because by acquiring the mining claims the rights over the minerals underneath pass on to the claim owner and that is consistent with international as well as local laws. It’s quite baffling that some think this to be a reason at all because the knowledge that you have minerals is practically worlds apart with the actual extraction of those minerals. In fact world history will attest that being endowed with natural resources does not equate with economic prosperity as the example of these 2 countries will prove, DRC and Japan. Democratic Republic of Congo is a vast country endowed with rich deposits of the most sought after minerals such as diamonds, gold, uranium, copper to mention just a few and in addition to having a very good climate. However the DRC is not well known for being a major producer of diamonds or an agriculture hub, no. it has been plagued with unending conflicts between its various tribes for years and this continues even to this day and indeed some have remarked these resources could be the source of this country’s misfortunes and that it would be better off without these. There is generally no law and order in that country in addition to the volatile relations between the tribes. Now according to the CIA World fact book the DRC has a GDP of $12 billion with per capita income at just over $300 and these are estimates for 2010. Japan on the other hand is a tiny island nation especially when compared to the size of DRC yet Japan is recognised as the world’s second richest country with the a GDP $5.07trillion with per capita of about $34200 and again these are the estimates of 2010. In terms of resources endowed to it the DRC would easily be the richest country in the world while Japan will rank very low yet the opposite because Japan generally a pacifist country places greater emphasises on improving knowledge, technology and research & development. That is why a tiny country like Japan has created such a disproportionately large economy in relation to its country’s size while people in the DRC sit on what potentially could be diamond or gold mines because they do have the capital to extract the minerals and most importantly they do not have the required expertise to do this. This example only serves to highlight the enormous gap between blacks and their white counterparts the owners of these foreign companies and it is this gap that the government has to take into serious consideration before carrying out the empowerment drive.
In a volte-face the government actually wants to force this yet only a few months ago agreed to sell more 54% of its shareholding in Ziscosteel which has been making losses for years. This raises more questions than answers because it would seem companies like Zimplats are being targeted because they are profitable. While backers of this in government might want to appear benevolent by this, the truth is that greed appears to be the major motivator because the usual suspects are already waiting with glee to pounce once the order is given. And just like land reform only the elite, the politically connected will benefit while the general person will not. To this multiple farm owners have not been punished and it is this same cabal that now wants to enrich itself this time with companies of foreigners.
The other argument that blacks are incapable of running successfully companies. Unfortunately the people entrusted with running companies left behind by foreigners have in most cases failed resulting in these actually closing down. Again this is caused by the lack of passion for the business, lacking right mentality to run a business something mostly acquired when you’ve had the experience to start and run your own business successfully and this is of course in addition to lack of knowledge of the particular business. Fortunately we have had the blacks who have done justice to the cause of indigenisation, the likes Strive Masiyiwa, blacks that opened banks that shook established banks, Dairiboard formerly state owned now a well-known dairy products producer owned and run by blacks.
Conclusion
It is clear from what we have just discussed that the current proposal to take control of foreign owned companies smacks of greed and racism because there has not any sound economic reason for this except these purely sentimental reasons. Forcibly going ahead with the present status of the empowerment act only helps to worsen the country’s risk profile thus scaring the much needed foreign direct investment and there is a strong possibility that companies will actually disinvest
THE ECONOMY RECOVERING FASTER
The start of the coalition government came with the promise of sea change in economic policy and of course more democracy and respect of human rights. Now two and half years later it appears the economy is now clearly on the mend and in some aspects the rate of recovery is even confounding economic experts and the responsible government officials as it is surpassing the estimates. Granted we often get our fair share of negative media attention and in light of that it is very difficult for anyone to project a very optimistic outlook for the economy notwithstanding the fact that we have not received the critical funding assistance from the institutions like the IMF and World Bank. In this article we examine the evidence that seem to suggest that the economy seems to be recovering at an explosive pace and with no real foreign direct investment coming our way the only logical explanation would be the increased capacity by businesses operating prior to the formation of this government. In fact after examining this little evidence available it would be easy to understand why business organisations and representatives are against the idea of elections a process which has far reaching consequences on their operations and thus prefer a postponement of polls to a later date. The first piece of evidence comes from the Zimbabwe revenue authority (ZIMRA) which recently announced its first quarter performance as far as revenue collection is concerned. Overall collections surpassed the target by some 11%reaching nearly US$620 million against a target of US$555million and breaking these down further provides what could be confirmation of much faster recovery, faster than predictions made by the IMF and the government. Companies’ taxes which could be used a measure of determining the rate of recovery provides the most compelling proof; against a target of US$25 million total remittances by companies amounted to $60million a positive variance of 72%. It is important to note that this increase is a reflection that many businesses have now returned to profitability a departure from the early days of the coalition government and the dollarization of the economy where results of most public companies showed losses. In turn the return to profitability can be attributed to the increased capacity utilisation and indeed the chairman’s report accompanying the Zimra results acknowledged that. Another piece of evidence obtainable from these results is the increase of individual tax collections which increased by 27%and from these two possible reasons could be proffered, firstly, employers increased salaries of employees significantly and that inevitably led to them contributing more to pay as you earn collections. Alternatively the increasing capacity utilisation meant these companies had to hire more workers meaning more people returned to formal employment. Whatever the main reason behind the increase the bottom line is that both reasons represent positive change in fortunes of the worker the biggest the victim of the economic crisis of the past decade and certainly the future looks upbeat though this optimism is repeatedly tempered by the talk of early elections. Another indicator is the rising production levels in the agricultural which had plummeted due to a number of factors which included the controversial implementation of the land reform, the hyper-inflation environments and the volatile currency which eventually collapsed. Now since the dollarization and the present government the production of tobacco for instance, has been growing particularly now as farmers get paid in American dollars and their expertise with crop has since been improving since the reforms. In 2009 tobacco output was 58 million kilograms and it increased to 123 million last year and now the recent the treasury bulletin has now projected that it will reach 200 million just 10 million shy of its record high it reached in 2001,that is an increase of over 300% in just under 3 years. Another industry that has been providing evidence of faster growth is the mining industry especially now that the world economy is finally out of recession the mineral prices have hit record highs and this time mining companies have really benefited because there are no more surrender requirements or the harsh exchange control regulations that existed during previous the government. According to Frost and Sullivan a consultancy firm, mining output is expected to grow by 47% and it bases its prediction on the better operating environment brought about by the formation of the coalition government. Many are predicting a double digit growth in mining output and again this further supports the assertion that the economy is growing much faster than most people think or believe. Lastly the company results being released by publicly owned companies again show the same trend with the blue chip companies like Delta and Econet posting quite impressive results. Delta Corporation which is the most capitalised stock or the most valued company on the stock exchange with its value surging towards a US$1 billion posted quite solid results. Its revenues grew by 45% while its assets have grown by more than 100% since the inception of this current government. Econet which on the other hand has a market capitalisation half that of Delta posted an impressive a 36% increase in revenues while assets grew by 62% and this again happened under the environment brought about by this government. The chairman’s report accompanying these results underline the importance of the present economic environment and both reports seem to convey an optimistic but cautious outlook. Now we can fairly say that what is happening with these two giants represents the general trend for the rest of the stock exchange listed companies as some of the results have shown meaning the pace of recovery is much faster. There is a strong chance that foreign direct investment which is the missing link in the country’s recovery so far will flow into the economy if political parties sought out the uncertainties surrounding elections and the indigenisation program. There is no doubt investors want to come forward but they are often put off by the constantly changing positions on these two issues hence it is imperative that a common position is adopted that will allay investor fears and help to make for an even faster economic recovery.
Terence Zimwara is an economic consultant contact him 0733406743 or tem2ra@yahoo.com temra-temra.blogspot.com
Intellectual property rights violation the new nemesis to globalisation
Intellectual property rights are granted to an individual or an organisation for developing or producing a unique product that improves the way of life or that revolutionise the we conduct our business. This is for acknowledging the person or organisation behind this may have expended financial resources, intellectual expertise or that a naturally acquired gift may have been used to arrive to such a unique product whatever it is. Intellectual property rights give the owners the exclusive rights over the production or distribution of the patented product and that a third party may reproduce only with the express consent of the owners of those rights. This has been the accepted norm throughout the world and for that reason we have the Bill Gates of this world, Google, Nokia, Toyota, persons or organisations committed to giving the world ever improving and better gadgets, vehicles or services. With the freeing of world trade, the globalisation was never intended to be the bane for intellectual property rights but it was actually supposed to work the other way, which is to encourage more naturally gifted people or innovative organisations to produce more and better. For everything good that has been said about globalisation, it seems that the growing problems relating to counterfeiting and intellectual property rights infringements are even making bigger case against globalisation of world trade and the chief culprit in these acts is undoubtedly China. Counterfeiting or infringement on property rights is the act of illegally awarding oneself someone else rights’ without consent for the sole purpose of making huge profits with little or no regard for any of the consequences and it is not an exaggeration to say that counterfeiting seems to have been perfected in China. Virtually everything and every well-known brand has become a victim of counterfeiting cartels and factories operating in China which itself has a huge market for these as well as ready export markets. Popular clothing brands like Gucci, Nike, and Calvin Klein have been victims, while software giant Microsoft is thought to be losing as much as $10 billion each year to software piracy. Every year billions of dollars’ worth of fake Nokia Phones, fake plasma Samsung TVs and even fake popular vehicles like Mercedes Benz are on sale in China. There are two main problems that are associated with such products, firstly the quality which in most cases is sub-standard because the materials used in the making of such illicit products is of poor quality and maybe of hazardous substances since the production process occurs mostly out of sight. So in other words the product will fail to meet the minimum quality standard expected of such a reputable product and as a result the original company that owns the brands that are being counterfeited will see its goodwill being battered by these fakes that bear its trade marks. Secondly the counterfeiting cartels produce their merchandise without having to worry about such costs as research and development costs, taxes and their labour costs are quite low especially given that they base these operations in China where the cheap labour is actually credited for China’s amazing economic growth. Ultimately it means their production costs are markedly cheaper and in light of the fact that a counterfeiting outfit is basically a get rich quickly scheme though on a much grander scale, the price of their final product is just miniscule to that of the original product. As a result the entire world has now been flooded with these cheap counterfeit products which are increasingly difficult to detect initially as they closely resemble the originals and the biggest losers have been the owners of these brands who cannot recover costs incurred in developing (R&D) and marketing the product. While from the point of view of consumers this is actually seen as a boon as they get to acquire their favourite products cheaply although they do complain eventually about the quality the bottom line however is that they take the bait hook, line and sinker. However for businesses counterfeiting has had a very draining effect on their operations and the knock on effects from this apparently even affect the very consumers who appear happy now. Firstly most of these organisations incur losses because their product will fail to meet the expected revenue threshold, a threshold that is in theory sufficient for the business to recover resources used in researching and marketing their product. Such losses will often result in the business concerned scaling back on R&D operations thus denying consumers of future innovations or improved products while workers may be laid off to minimise costs and certainly these consequences are far worse results than the pleasure of buying the ‘latest’ Nokia at half the price now. While there is a growing global lobby against counterfeiting particularly in China where it is estimated that 80% of counterfeit products come out of China, the problem though seems to be out of the Chinese leaders ‘control and there is no strong deterrence to rein in on counterfeiters. Developing countries like Zimbabwe have not been spared from this vice because even the few products that we pride ourselves have been victims of this globalised piracy. Bata Shoe Company has been known to produce quality and highly durable shoes for school children in particular but the market is presently flooded with cheap but fake Toughees, a famous Bata brand. At one time Schweppes had to issue a statement to warn the public about a fake Mazoe that was or is still in the market, there is a fake Nugget, a fake Mukonitroniks adaptor. These counterfeit cartels as we can clearly see prey on famous products anywhere in the world and produce these cheaply thereby prejudicing the brand owners millions of dollars. To date some of these local companies are facing problems directly associated with counterfeiting and that is why business organisations, consumers rights groups, workers unions and even the government need to work together to combat counterfeiting thus preserving jobs and the small research and development that we have going on here. Joining global anti-piracy groups will also help to reduce markets for these products because each member country will actively work to block of entry of these products into its borders.
Terence Zimwara
Economic consultant, contact him on tem2ra@yahoo.com or temra-temra.blogspot.com
