Zim share ownership schemes a mixed bag

ZIMBABWE’s efforts at redistributing wealth through empowerment schemes have registered various levels of success over the past seven years, raising questions on whether or not it would be prudent for Government to revisit the management thereof to maximise returns to the communities.

Employee and Community Share Ownership Schemes (CSOS) are critical in ensuring that Zimbabweans benefit from economic activities under the Indigenisation and Economic Empowerment Act.

The schemes are envisioned in the Indigenisation and Economic Empowerment (General) Regulations of 2010.

But of the over 100 Employee Share Ownership Trusts (ESOT) approved by Government since 2010, probably less than half have been implemented, while only 21 of the 61 CSOS are operational.

Deputy Minister of Youth Development, Indigenisation and Empowerment Mathias Tongofa in 2015 said $134 million had been pledged to different CSOS by qualifying businesses, but only $38.3 million had been deposited into their bank accounts.

Of this amount, $14.7 million was channelled towards development projects, while the remaining $23 million remained banked.

The figures are paltry to say the least.

They barely support the notion that employees and local communities whose natural resources are being exploited must have a say through guaranteed shareholding.

But this is not to say the empowerment drive has been a total waste of time and resources.

Some firms have successfully launched them and made positive changes to the lives of beneficiaries. Zimplats is one such company. The platinum producer ceded 10 percent of its shareholding to Mhondoro-Ngezi-Chegutu-Zvimba Community Share Ownership Trust and pledged $10 million to help operationalise the trust.

The $10 million was largely invested on the money market and to date, the CSOT has realised more than $2 million return on investment, which has been used to fund community projects.

Earlier this month, the firm concluded the issuance of 10 percent stake, valued at $95 million to its Employee Share Ownership Trust.

Also worth noting is Gwanda CSOT, which received shares from Caledonia’s Blanket Mine, Gaths Mine and Pretoria Portland Cement (PPC) since its launch in 2012.

The firms pledged $6,8 million to the trust and reports show that by February last year, the CSOT had spent over $2,5 million on income and developmental projects.

Unki paid $10 million to the Tongogara Community Share Ownership Trust, with 24 wards receiving $25 000 each that was channelled towards socio-economic development projects.

The scheme achieved much in its first phase when it built a new school, which accommodates about 400 pupils, constructed a new dam, a mortuary and a shelter for expecting mothers at Zvamabande Rural Hospital

In Zvishavane, Mimosa paid $10 million to Zvishavane CSOT, which has been used mostly for building classroom blocks and renovating old structures.

However, the Zvishavane Trust was marred by fights after the National Indigenisation and Economic Empowerment Board (NIEEB) ordered the Trust to cede half of the $10 million given to it by Mimosa Mining Company to Mberengwa Community Share Ownership Trust since the mine’s operations are in both districts, which should benefit equally.

The Trust argued that Mimosa operations covered a bigger area in Zvishavane than in Mberengwa hence it was unfair to share the seed money equally.

Zvishavane Trust said they had made plans around the $10 million pledge and any changes would mean foregoing some projects.

This was because they had already used $4 million, which had initially been released by Mimosa, so they would only be left with $1 million after giving Mberengwa its share.

The Trust spent the money on projects and failed to invest some for future use. Such a scenario is worrisome. This is a problem most trusts have faced. They rushed to make renovations and build a few classroom blocks, among other projects, which is all good, but they did not project how they would continue such work once that money was exhausted.

Unlike the Mhondoro-Ngezi scheme, and a few others, most of trusts have actually run out of cash to fund projects.

The absence of proper investment plans left too many loopholes that exposed the funds to looting and mismanagement.

In some the money was sitting in bank accounts waiting for trust members to make withdrawals and use as they wished.

It wasn’t tied to any market, which would give good returns from that investment.

According to the Zimbabwe Environmental Law Association (ZELA), one of the main reasons CSOTs failed to live up to expectation was that they were not run along strict financial management, accounting, business ethics and principles.

“Once they were established, interested parties that included chiefs, head- men, youths, politicians, employees and administrators saw them as cash cows... in the melee that ensued, mechanisms to promote accountability and transparency were forgotten,” said ZELA in a 2016 report titled ‘The Legal and Economic framework for natural resource related statutory funds in Zimbabwe’.

This brings us to the Marange-Zimunya Community Share Ownership Trust, which stole the show for mismanagement and lack of accountability in CSOTs.

The Trust was mired in too much controversy.

Five diamond firms that were operating in the Marange area then reportedly pledged $10 million each to the CSOT but as it later turned out, no such pledges were ever made.

The trust only received $400 000 from the firms.

Not only was this paltry amount a mockery to the community of Marange, which was losing billions of dollars’ worth of diamonds extracted by these companies and getting nothing in return, but an insult to the thousands of families that had been displaced from their ancestral homes to pave way for the mining activities.

Looting and misappropriation of these paltry funds became salt on an open wound.

This is not the only example of a failed empowerment trust, there are many oth- ers such as the Hwange CSOT where communities did not receive anything because companies in that area had not been performing well.

Other companies were just plainly stubborn and refused to contribute towards these trusts.

Big mining companies such as Zimplats, Mimosa, Unki, Caledonia and PPC are among those that already have functional employee schemes alongside community share ownership schemes.

The difference with the administration of the ESOS is that the stock given to employees are held in the scheme’s trust until the employee retires or leaves the company, or find diversification opportunities, creating an opportunity for workers to amass long-term savings and benefits from their work.

There is no cash given to the Trust for projects, as was the case with the CSOTs but employees get to enjoy the benefits whenever the company declares a dividend.

Existing literature on ESOSs contends that there is a positive relationship between ESOSs, firm performance and employee performance.

Analysts say firms appear to increase production and profitability and improve employees’ dedication and sense of ownership insofar as they increase their financial risk if the companies do not perform well.