Maravi

(TALKZIMBABWE) Indigenisation is both morally and economically justified

Indigenisation is both morally and economically justified
Garikai Chengu - Indigenisation is both morally and economically justified
Mon, 22 Feb 2010 19:44:00 +0000

THE brave men and women who fought and died for their country, did so not only for political independence, but also for full economic independence. The indigenisation of the Zimbabwean economy and empowerment of black Zimbabweans is both a morally and economically justified chapter in the continuing struggle for independence.

As all Zimbabweans are acutely aware, at independence in 1980 the democratic Government of Zimbabwe inherited an economy, which was extensively dominated by white Zimbabweans and multinational corporations. Black Zimbabweans were marginalised from mainstream economic activity, possessed limited skills and were mainly low-level workers in both the public and private sectors.

Three decades on from the raising of the inaugural Zimbabwean flag, the economy is still mired in the transitional problem of creating an equitable environment in which indigenous people can extend their control over productive activities across all sectors of the economy.

The Indigenisation and Economic Empowerment Act is not merely a moral initiative designed to redress the wrongs of the past. It serves as a pragmatic growth strategy that is designed to realise the nation's full economic potential.

In order to illustrate how the act will serve as a catalyst for economic growth, two popular misconceptions have to be rebuffed and a crucial aspect of the legislation, namely, the National Indigenisation and Economic Empowerment Fund, must be understood.

The first misconception is the notion that international investors will be deterred by the 51 percent local ownership requirement.

For a start, one of the main reasons why many international investors are sitting on the fence and merely looking at Zimbabwe with their arms folded is that they were uncertain as to how the indigenisation legislation, passed in 2007, would be implemented. Now that investors know where the government stands on the issue, they will be able to confidently make investment decisions; therefore, Foreign Direct Investment (FDI) will increase as a result.

The legislation informs potential international investors that they are more than welcome to invest in the country and that within five years they are expected to meet the nation's indigenous ownership standards. Should they fail to adhere to these standards after five years they may be afforded an extension, but ultimately they must respect the wishes of the Zimbabwean people and conform with the law of the land.

Secondly, there are a litany of very successful and wealthy investors that own far less than 50 percent of the corporations they invest in.

Zimbabwe's attractiveness to such investors lies in the large profit margins that accrue from the nations abundant natural resource endowment, resilient and diversified economy, and highly skilled workforce. The legislation will not change any of this.

The second misconception is that strictly regulating foreign ownership and Foreign Direct Investment is economically disadvantageous for Zimbabwe. The truth of the matter is that FDI is inherently positive for the economy; however, if levels of FDI are too high, they are extremely detrimental for the economy.

Striking a fair balance between the differing interests of foreign investors and those of Zimbabweans is of the utmost importance.

Foreign investors are attracted to Zimbabwe for three main reasons: First, they appreciate that the return on capital in their own nation is not adequate; second, they seek to reduce the cost of production by combining their capital with Zimbabwe's low cost labour; and third, they seek to use Zimbabwe's abundant natural resources near their origin.

Zimbabwe, on the other hand, seeks to: first, develop its infrastructure and services so as to facilitate industrialisation and development; second, produce goods for export; and third, perpetuate technological advancement within industrial production and services.

These two sets of interests need not be incompatible and can be harmonised; however, it is crucial that any FDI satisfies both sets of interests. For this to happen foreign ownership must be limited in accordance with the ilegislation.

Primarily because giving total rights and freedom to foreign investors, and allowing very high levels of foreign ownership, would lead to several problems within the economy: firstly, high levels of foreign capital "crowds out" local capital and will result in the disappearance of many local enterprises; secondly, profits and dividends repatriated by foreign investors would worsen the nation's Balance of Payments position; Thirdly, high levels of foreign ownership across the economy would accentuate social imbalances, thereby creating social instability, which would in-turn offset economic prospects.

The indigenisation legislation will circumvent these problems by protecting local enterprises, reducing foreign exchange outflows and democratising the economy, respectively.

Thus, support for foreign equity restrictions is not out of any bias against foreign investment per se; rather, it is a realisation of the importance of the need for carefully regulating the entry, terms of equity and operations of Foreign Direct Investments.

The final aspect of the legislation that will provide the economy with a much needed boost is the proposed National Indigenisation and Economic Empowerment Fund.

If one is to ask any Zimbabwean entrepreneur, small, medium or large business owner what their biggest challenge is, invariably they will be answered with one word: financing.

The Fund is designed to counter this challenge by providing financing to indigenous Zimbabweans for share acquisitions, employee share ownership schemes as well as for business start-ups, rehabilitation and expansion.

Provided that the funds are proportionally allocated to all sectors of the economy and spread evenly across all provinces, they will provide the economy with a much needed push towards broad-based and equitable wealth creation.

Given the nature and extent of the current racially skewed wealth patterns across most of the economy, the Indigenisation and Economic Empowerment Act could be justified on moral grounds alone; however, in light of the catalytic economic benefits that will accrue from the Act, it is time for Zimbabweans from all walks of life to fully contribute to its implementation.
__________
*Garikai Chengu is a scholar at Harvard University's Faculty of Arts and Sciences. He can be contacted at chengu@fas.harvard.edu. The views expressed herein are solely those of the author.

Labels: INDIGENIZATION AND EMPOWERMENT ACT (ZIMBABWE)

posted by MrK @ 2:44 AM