Monday, July 22, 2013

(NEWZIMBAWE) Election battle: JUICE versus Indigenisation
09/07/2013 00:00:00
by Garikai Chengu

THE upcoming general election will be a defining moment for Zimbabwe. The two main political parties have two completely different economic visions for the nation’s future. For a moment, let us observe, without political judgment or party bias, our country’s options for its future.

One party is promoting Jobs, Upliftment, Capital Investment, and Environment, which is termed the JUICE plan. JUICE aims to increase foreign investment, so as to reinforce domestic production and create new jobs. The other party wants to democratize the economy and ensure that indigenous Zimbabweans own the nation’s land, mineral resources, and corporations.

Our parents’ generation aspired to become lawyers, doctors, teachers, and engineers – persons of standing in society. The political party advocating JUICE would seek to broaden opportunities for people to access these jobs.

On the other hand, the party pushing for Indigenisation, believes that Zimbabweans must ensure that they have access to these jobs and that their children inherit an even greater future.

Under Indigenisation, Zimbabweans will be educated and empowered to not only hold these higher paying jobs but also to aspire to run law firms, set up medical practices, create engineering firms, and build centres of scholastic excellence.

In short, Zimbabweans will become the owners and entrepreneurs, rather than CEOs and employees.

The pro-JUICE party argues that Zimbabwe needs to attract foreign investment by selling its capital assets to foreigners, in order to “balance its payments.”

Such an approach can be compared to a previously wealthy family selling off its antique furniture and silverware in order to maintain its lavish lifestyle. The problem with this approach is that when a country sells off its capital assets, this negatively affects the nation’s finances in the future, as “rents and dividends” increasingly hemorrhage out of the country.

The pro-Indigenisation party wants these rents and dividends to remain in the country and flow directly to communities and employees. By transferring share ownership from foreigners to locals, Indigenisation will stimulate domestic demand, thereby boosting economic growth and reducing unemployment.

Simply because for every share that is in foreign hands, the nation hemorrhages disproportionate amounts of rent, dividends and profits to bank accounts in far-away lands.

On the other hand, local shareholders are more likely to save their rent in a local bank, spend their dividends on domestic goods, and invest their profits in local businesses.

Over the next Presidential term, the Indigenisation policy is estimated to create a value of $7.3 billion from the Indigenisation of 1,138 companies, across fourteen key sectors of the economy.

The Indigenisation Programme will transfer over $2 billion from foreign companies to local communities in the mining sector alone. Community Empowerment Trusts will use these funds for building schools, equipping clinics, and paving roads.

Just recently, government announced that Indigenisation is going to pour $100 million into Zvishavane from the Mimosa platinum mine's Community Trust.

One could ask proponents of the JUICE plan how many hundreds of years it would take the profit-driven foreign investors to invest $100 million into this local community for non-profit, development projects?

As Indigenisation shifts through the gears in 2013 and beyond, hundreds of millions of dollars will flow into the nation's Sovereign Wealth Fund (SWF) from the Indigenisation of banking, manufacturing, telecoms, retail, tourism and other areas.

A SWF is a state-owned investment fund, composed of financial assets, such as stocks, bonds and property, which will benefit the country's local economy and citizens.
Zimbabwe's Sovereign Wealth Fund has the potential to become one of Africa's largest.

The government has already made the mandate of the financial technocrats that will run the Wealth Fund very clear: invest in jobs here at home and make profitable investments abroad. In fact, indigenization is primed to create an estimated 2.2 million new jobs.

However, the ace up the indigenisation programme’s sleeve, and the reason why it is a stronger hand than JUICE, is neither the community trust, nor the Sovereign Wealth Fund.

The trump card is the National Indigenisation Fund’s plans to stimulate small business growth by promoting entrepreneurship, especially amongst women, youth, the underprivileged, disabled and orphans.

In today’s global, knowledge-based economy, entrepreneurs play a vital role in creating a new currency: ideas. Zimbabwe’s best way to be globally competitive and create jobs is not foreign investment or lower prices but new ideas.

According to a recent report by the U.N.'s trade body "Foreign Direct Investment in Africa: Performance and Potential", the single biggest driver of job creation on the continent has been local African entrepreneurs, not foreign direct investment. In fact, a small number of innovative Zimbabwean start-up companies account for a disproportionately large number of new job creation.

So why then does JUICE’s investment and jobs plan shun the real engine for job growth, only to put foreign investors in the economy's driving seat?

Local ownership through Indigenisation creates jobs, boosts entrepreneurship, and ensures that Zimbabweans have the lion’s share of an ever-growing economic pie.

Reliance on foreign investment artificially fattens that pie. Zimbabweans may benefit from the odd piece of the pie, here and there, by way of employment; but eventually, the foreign owners of that pie will repatriate rent, dividends and profits, leaving Zimbabweans back to square one. Foreigners would own Zimbabwe’s wealth, yet again.

In a matter of weeks, Zimbabweans will go to the polls to choose which economic vision they believe best serves the nation.
Garikai Chengu is a Fellow of Harvard University's Du Bois Institute for African Research. Garikai can be contacted at chengu@fas.harvard.edu

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