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(NEWZIMBABWE) Gono pushes indigenisation re-think

COMMENT - Look who's bought and paid for. Operation Shumba in full effect.

Gono pushes indigenisation re-think
01/08/2011 00:00:00
by Gideon Gono, RBZ Governor

Below is the statement presented by RBZ governor, Gideon Gono on the country's indigenisation programme. The statement was a supplement to his July 2011 Monetary Policy Review. Gono suggests an alternative approach which, he argues, would benefit more of the country's majority poor.

THE issue of indigenization and economic empowerment has attracted a lot of national debate and interest, and with it also, some misconceptions and misrepresentations of the views of some individuals, groups and institutions, on the subject.

In this Supplement to the July 2011 Monetary Policy Statement, the Governor clarifies the Reserve Bank of Zimbabwe’s position and advice to Government, on our modest views on the implementation of the Indigenization and Economic Empowerment Act (Chapter 14:33).

It has been suggested that the Reserve Bank of Zimbabwe, in particular this Governor, is against the indigenization and economic empowerment legislation.

This of course is absolutely nonsensical. To begin with, the Governor is not a Member of Parliament, and, therefore, has no jurisdiction or powers to reverse legislation formulated, debated and passed by the country’s August House.

What we have spoken against before, and we still do today and tomorrow, is that any attempt to hide behind the indigenization law or any law for that matter, in order to commit or justify acts of economic banditry, expropriation and or unfair practices that suggest that we are not a law abiding citizenry or any attempts to parcel out pieces of the economic cake and opportunities created by this noble piece of legislation to a few connected cliques of people whilst the majority of intended beneficiaries remain with nothing, as happened in the past with respect to other Government empowerment schemes, is totally unacceptable.
Failed farmers

This law must not be used to multiply pockets of inefficiency, in as far as utilization of national resources and opportunities of the country is concerned.

For example, where an individual has benefited from the historic Land Reform Programme, and was allocated a farm(s) which they are not making full use of, those people, in our view, should not be allowed to go and multiply that failure into other sectors such as mining, manufacturing and many others, unless that beneficiary is starting his or her own entity afresh!

There ought to be a deliberate bias towards or in favour of those who have not benefited from other Government programmes before, so that a broad-based empowerment
model can be achieved.

It would be wrong to continue to concentrate new and scarce resources and opportunities on a few individuals, some of whom are even struggling to utilize what they already have to the economy’s advantage.

This economy is littered with cases of productive farms lying idle, farms which have been turned into grasslands instead of maizelands, soyalands and so forth, yet we need to be utilizing the available resources, including and especially the land, to advance our national economic fortunes, as the land is the basis of our sustenance.

Our view is that it is time we became tough with economic non-performers in whatever field they are, and the Indigenization and Empowerment law provides a great opportunity to screen out opportunists and those without a track record of producing for the country. We need to embrace the ideology of hard working, productivity, law abiding citizenry, fairness, accountability and transparency.

The implementation of the economic empowerment strategy should be done in a manner that immediately reduce poverty for the majority of the people, and enhance societal welfare. The program should ensure the equitable redistribution of wealth across broad spectrum of societal groups notably, women, youth, chiefs and the physically handicapped.

Whatever indigenization and empowerment model we adopt must fulfill certain aspirations of the population, hence the need for it to be broad-based, touching the grassroots people, the youths, women, elderly and vulnerable, including special need groups such as the disabled, chiefs, headmen down to the village heads and communities in between.

The model must also respond to, and tackle, each of the eight (8) United Nations (UN) Millennium Development Goals (MDGs), namely the eradication of extreme poverty, support towards the achievement of universal primary education, promotion of gender equality and empowerment of women (and the youths), reduction of child mortality, improvement in maternal health, combating of HIV/AIDS, malaria and other diseases, ensuring and assisting environmental sustainability and assist in the development of global partnerships for development.

The Economic empowerment model places greater prominence on wealth creation (that is growing the cake) and value addition through broad-based participation of the indigenous people, as opposed to a narrow view of merely redistributing the country’s already existing and shrinking stock of wealth.
Supply Model

Recognizing the fact that that only a few can fit or benefit from the equity-ownership model being pushed under the Indigenization and Empowerment Act, the Central Bank is advocating for a Supply and Distribution Indigenization and Empowerment (SaDIE) Model, which is premised on the participation of a broad spectrum of the population, through the supply and distribution chain of the whole country’s economic cake, as opposed to primarily focusing on equity holdings.

Under this framework, Government can ensure that indigenous people supply inputs and services into the country’s production processes. This strategy effectively empowers indigenous people to control downstream industries through the supplying of raw materials, services and other inputs.

The model also envisages a gradual approach to attainment of the company ownership thresholds by indigenous Zimbabweans, in a manner that ensures sustainable empowerment, inflows of much-needed foreign capital and minimal disruption to economic activity.

Under the empowerment-led indigenization initiatives, companies will, thus, be required to source a specified proportion of their inputs, raw materials and spares from indigenous entities.

The supply of raw materials and other critical inputs immediately empowers Zimbabweans by smoothening the ownership of the means of production and mainstreaming previously disadvantaged indigenous people into active participation in economy building.

The model, thus ensures that indigenous people realize immediate benefits through receipts from guaranteed supply of goods and services to companies, as opposed to waiting for annual dividend payments, which are contingent upon the companies making profits and declaring such dividends to shareholders.
Sectoral approach

To this end, a sectoral approach should be implemented, with particular attention being paid to the sensitivities that characterize firms in different sectors such as the financial,
mining, manufacturing and agriculture.

Indigenization and empowerment of the economically disadvantaged should not be confined to the acquisition of equity by local people, but must be extended to cover
control of downstream industries.
Account should be taken of each sector’s contribution to GDP.

The empowerment strategy should also take account of the fact that, in terms of ownership, the following sectors, which contribute 64 percent of GDP are already significantly under the control of either Government or private sector indigenous people.

Some of the merits of a sector-based empowerment program are as follows:
- They are more focused to deliver, taking into account the peculiarities of each sector;
- Time frames and targets are easier to set and monitor; and
- Thresholds are also much easier to set and monitor.
Addressing needs

Empowerment of indigenous people should improve their basic welfare and reduce poverty in line with the internationally recognized millennium development goals (MDGs).

The country’s ownership and empowerment struggles must, therefore, be anchored on these absolute necessities which put differently, relate to the famous Maslow’s Hierarchy of Needs (MHoN).

The supply of raw materials and inputs by indigenous people immediately addresses their basic, low-level physiological needs notably food, shelter and clothing.

Higher-level needs such as self-actualization are long term in nature and do not immediately impact on the livelihoods of the generality of the population.

Equity ownership resides in the realm of both “esteem and self-actualization needs”, the smallest of the five (5) components in the MHoN Pyramid, while the other three bottom segments constitute the crying needs of the majority of Zimbabweans. These segments, especially the bottom two, are the concern of the UN Millennium Development Goals.

Self actualization needs, such as the acquisition of equity and majority shareholding in companies, have minimal short-term benefits to the indigenous people and, should
therefore, be the medium to long-term national goals under the indigenization framework.

Equity or shareholder benefits also only when dividends are declared, which is normally annually, bi-annually or even at longer intervals, thus depriving indigenous people of muchneeded immediate and basic requirements. The situation is worse in an environment like ours, where most companies are making losses or insignificant profit levels.

Under the SaDIEs model, the Bank advocates for the descaling of the equity-type demands model, which will benefit only a few as the MHoN model shows, and proposes the upscaling an input supply, distribution and service provision model, which has the practical potential of ensuring regular income flows for the majority of our people, while
generating popular and local stakeholder involvement.

This approach can also be fine-tuned to address the quotasystem requirements for youths, women and special groups, and is also auditable, and transparent with a quick turnaround in terms of visible benefits that address basic needs of individuals and communities in which the economic cake is being generated such as mines.
Dignity and Welfare

The SaDIAE Model empowers indigenous people in a way that gives them dignity, improves their basic welfare and reduces poverty in line with the Millennium Development Goals (MDGs) while extending beneficial mileage to the majority of the people.

Higher–level needs such as self-actualization and esteem needs are also very important as long as it is understood that they are long-term in nature and do not immediately impact on the livelihoods of the generality of the population.

Rather than concentrate on equity-type approach on a large and non-discriminatory scale, the SaDIAE approach begins at, or with, the start of the economic cake itself, by requiring that at least 75 percent of industrial procurements are reserved for indigenous people or indigenous owned companies.

Current non-indigenous supply/distribution/marketing contracts can be negotiated over to indigenous people, without affecting or compromising price competitiveness to the company, quality specifications, delivery efficiencies and all other existing criteria required by the companies, parastatals, local authorities, Government Departments and Ministries.

Where there are short-comings in terms of the skills of indigenous people, mentorship programs and smartpartnerships arrangements could be put in place, in transparent ways which are auditable by Zimra or Exchequer/and which mentorship programs should observe the need for participation by locals, women, youths and special groups, while avoiding cases of duplicating beneficiaries.
Imported inputs to the industries also ought to be indigenized and appropriate steps taken by the companies concerned to mentor/hand-hold newcomers to the game.

Banks are more likely to lend to a group of people or individuals who are accredited suppliers of say, Zimplats, with the understanding that they will get paid by Stop-Order directly from the beneficiary company.

This allows them to securitize that relationship, thereby obviating the need for primary security from the individual or group of individuals who do not have any collateral to give in the first place.

The beauty with this approach is that even loss making companies necessarily have to consume raw materials inputs and other services monthly or periodically, thus contributing towards the day-to-day empowerment of the indigenous people, a factor that eliminates the need, under the predominance of equity-type empowerment model, to receive dividends only once a year or so.
Sectoral opportunities

Lucrative empowerment opportunities are abound in the key sectors of the Zimbabwean economy notably, manufacturing, mining, construction, tourism, retail, distribution, transport, telecommunications, financial and the public sectors.

Based on the 2011 potential GDP of US$8,627 million, immense empowerment opportunities, amounting to over US$2 billion, can be exploited by the indigenous people
through securing contracts to supply of inputs and services to the country’s industries.
Manufacturing

Indigenous people can be empowered to the tune of US$878.9 million per annum, through supply of inputs and services to the manufacturing sector. Manufacturing sector contributes about 18% to GDP and is the second largest sector after agriculture in terms of contribution to GDP. The sector is well diversified and possesses strong linkages with other productive sectors of the economy.

The sector is made up of various sub-sectors such as foodstuffs, tobacco and beverages, clothing and textiles, wood and furniture, paper printing and publishing, chemical and petroleum products. The major cost drivers in the sector are electricity, labour, raw materials, inputs and maintenance.

A deliberate policy can be put in place to support indigenous people in the procurement of raw materials and inputs to the manufacturing industry.

Under this policy, companies will be required to ensure that at least 75% of their raw materials and certain goods and services are supplied by locals. This measure should be accompanied by procurement guidelines to ensure that indigenous-owned firms meet acceptable minimum quality standards required by the different sub-sectors. To be continued ...

Labels: GIDEON GONO, INDIGENIZATION AND EMPOWERMENT ACT (ZIMBABWE), SAVIOUR KASUKUWERE

posted by MrK @ 1:13 PM