A YEAR ago, David Brown – the head of Impala Platinum – believed Zimbabwe’s indigenisation plans for foreign-owned mines “would not happen”. The policy, which required all companies with a share capital above US$500,000 to arrange for 51 percent of their shares or interests to be owned by indigenous Zimbabweans, was taken as a bit of a joke, a populist policy by the government to win votes ahead of the elections. It’s not so funny now.
In the words of former US president George Bush, Brown “mis-underestimated” the government’s blind determination. When Zimplats – the world’s second largest platinum producer – announced recently that it would transfer 51 percent of its shares “at an appropriate value”, there could have been no bigger scalp for Saviour Kasukuwere, the Minister of Youth Development, Indigenisation and Empowerment. After this, Brown announced his retirement from the platinum group.
Together with Mimosa mine, Zimplats accounts for over 40 % of the London-listed Impala’s global platinum reserves, a priced asset by any standard and a major victory for the government’s indigenisation crusade. The kind of victory that makes you believe you can pump your car tyres into a monster truck.
Buoyed by the Zimplats success, the minister has turned his attention to the banking sector and a possible showdown with Barclays and Standard Chartered – Zimbabwe’s oldest banks established over 100 years ago at the height of colonialism. If it were a stunt, it would be one of those suicidal junkets which the feint-hearted cannot stand to watch. You want to close your eyes and ask after – did he really do it? If successful, it would cheer the crowd, a slip-up would be terminal.
Banks are ‘special’
The prospect of indigenising the banking sector has ignited a war of words between Kasukuwere, who has found an unlikely ally in the Deputy Prime Minister Arthur Mutambara, and the central bank governor Gideon Gono who has also found an unlikely ally in the Minister of Finance Tendai Biti. The banking sector may yet be a stern test for the indigenisation policy, reflecting an ideological chasm between the ‘nationalists’ and the ‘free marketers’.
Legally, the Empowerment Act makes no sectoral distinction nor does it exempt the banking sector, but should it? Indigenising the banking sector, while possible, may not be as easy as the mining sector. Unfortunately for the minister, banks are special and their interconnectedness makes a systemic crisis contagious and very costly. A disruption at one bank could have a knock-on effect not only on the entire banking sector but the entire economy.
The importance of the financial sector and the need for stable banks cannot be underestimated. Banking is the business upon which all other businesses are based. Banks are at the core of the payment system in the country and play a primary role in the intermediation of savings and investments. Several empirical studies support the view that countries with efficient and strong financial and banking sectors experience higher rates of economic growth.
The RBZ Governor’s opposition to indigenising the banking sector seems to suggest a man who speaks with the benefit of experience following a spectacular failure of ownership changes after the 2003 banking crisis. Indigenisation would also reverse the core of the governor’s policies which have forced banks into seeking international partnerships to meet capital requirements which are seemingly disproportionate to the economy.
There is every possibility that a coercive change in bank ownership structure would again lead to a weakened banking sector. Indigenising banks in a highly illiquid sector seeking foreign capital seems quite irrational, particularly where the 51 percent is ceded “on credit”.
Whilst Zimplats looks like a done deal, the terms of the agreement suggests that the mining giant will “make available for sale” to the government a final 31% stake for cash “at an independently determined fair value”. The cash-strapped government which pays all its employees an average of $250 per month is yet to agree to this because the money isn’t there.
Lessons from other African countries
It appears there is an increasing trend towards indigenisation across Africa. This is premised on the idea that to achieve its economic potential within global capitalism, African governments will need to redress economic imbalances created by colonialism through economic policies such as indigenisation.
Several African countries have implemented indigenisation policies with less controversy or combativeness. There is the complicated and non-prescriptive BEE law in South Africa and the approach in Ghana which proposes that local participation in the oil and gas sector be increased to 80 percent by 2020.
Other indigenisation approaches include the sectoral approach in Angola, where locals must hold 51% of the share capital in mining and telecommunication companies and 30% in insurance enterprises. In Kenya, the law requires that at least 20% of company shareholding in the telecoms sector must be taken up by Kenyans and in insurance, whilst listed companies must reserve at least 25% to locals.
The different prescriptive, non-prescriptive and sectoral approaches to indigenisation across the region can be analysed to inform best practice. Whilst indigenisation is imperative and by all accounts unstoppable, we don’t always have to be combative where there are tested options.
A flexible alternative
Following challenges previously experienced with the Land Reform programme and the concerns raised by the private sector, a critical appraisal of the indigenisation policy and its effect on the economy will need to be undertaken. Regional and international best practices will need to be analysed. A consultative process between stakeholders will also be useful.
Technical assistance from international financial institutions will also be important to inform a robust and effective indigenisation policy. The impact of the policy on foreign direct investments would need analysing. Although Zimbabwe’s economy is growing again, foreign investors are needed to ensure sustained growth. The damage which can be caused by a combative policy cannot be underestimated.
An alternative for the banking sector may require a less rigid, sector-specific approach which factors in the intricacies of banks. Whilst Kasukuwere may yet be victorious in a showdown with the international banks, the risk may have a destabilising effect on an economy limping out of a decade-long crisis.
Dr Lance Mambondiani is an Investment Executive at Coronation Financial. He is also a Teaching Assistant in International Finance for Development and Financial Markets and Corporate Governance at the University of Manchester. The view expressed in this articles are personal and do not necessarily reflect the position of Coronation Financial