The problem with Zimbabwe empowerment policies

The natural resource curse continues to be prevalent across the world. It has resulted in wars and conflicts, human and economic rights violations, degradation of natural environments and a multiplicity of further undue and harmful consequences.

Yet, there has been no perfect approach to solve these issues and there is widespread contention regarding how resource rich countries can best handle their endowment whilst ensuring the general good of both their economy and citizens. Indigenisation has been heralded to be an answer. But is it?

After an economically tumultuous period between 1999 and 2008, which left Zimbabwe with a world record of unemployment rate (almost 90%) and inflation (231 000 000%), the country’s then cumbent president Robert Mugabe needed to ignite radical economic change.

At an election rally in 2008, Mugabe stated: “We are tired of being workers, workers, workers. We want to be owners, owners, owners!”

That same year, he implemented the Indigenisation and Economic Empowerment Act, ostensibly, in order to remedy the aforementioned resource curse and stimulate much needed development within Zimbabwe.

The Indigenisation and Economic Empowerment Act was to set a hopeful precedent. It heralded in a new era that, if the Act was successfully fulfilled, would incorporate the country’s marginalised citizens into the mainstream economy.

Mugabe further affirmed that the Act was a “focused response to the previous exclusion” of the Zimbabwean people “from mainstream economic activity by the settlers.”

The Act stipulated that non-indigenous-owned companies and individuals were to cede 51% of their equity or shareholding to indigenous Zimbabweans.

During the period of its implementation, statistics evidenced that 70% of Zimbabwe’s population had no part in the mainstream economy.

Thus, Mugabe was targeting the high density of foreign conglomerates with little patriotic involvement in the country and a monopoly in extracting its “God-given” natural resources.

The Act read in part: “The State shall, by this Act, or through regulations under this Act or any other law, secure ... at least fifty-one per centum of the shares of other ownership interest of every designated extractive business.”

The Act stipulated that the majority shareholding would be acquired by the Zimbabwean state and some of the shares go to the community through Community Shared Ownership Trusts (CSOTs) and another to the employees through Employee Shared Ownership Trusts (WSOTs).

In theory, the Act was meant to economically empower Zimbabweans, alleviate poverty and create local wealth through the inclusion of indigenous Zimbabweans in, largely, the extraction of abundant mineral deposits across the country.

Joint ventures, in general, are difficult enough to enact between partners that are relatively transparent and willing to find compromise.

In fact, Columbia University professor and attorney Jenik Radon has referred to joint ventures as comparable to a “modern-day marriage”.

As with any marriage, there is normally, a “courtship period”, whereby you get “to know each other’s goals, interests and ways of doing business” as “without such understanding, it is impossible to draft a workable pre-nuptial agreement (i.e, the joint venture agreement).”

However, what if you were forced into a union? You didn’t choose your partner, you weren’t there to agree to what was stipulated in the pre-nup; or, the person that you agreed to marry turns out to be nothing like the person you thought they were?

Inevitably, this would breed deeprooted tension, animosity and distrust between both yourself and your spouse.

In some ways, the latter is similar to the union between non-indigenous companies and the Zimbabwean state as a consequence of the Indigenisation Act.

The result being either divorce (i.e, a reduction in foreign direct investment (FDI), with companies fleeing Zimbabwe) or a demonstrable reluctance to abide by the stipulations within the Act.

Over the years, Zimbabwe has failed to attract meaningful foreign direct investment.

With claims of bringing in billions of dollars, Zimbabwe reported low of US$259 million in FDI in 2019.

The majority of diamond mining companies in Chiadzwa never fulfilled their pledge into the CSOTs.

Perhaps it would be important to compare similar acts implemented in other countries.

In Malaysia, foreign-owned companies are instructed to cede 30% of total commercial and industrial activities under its New Economic Policy (NEP).

Although the percentages differ to that in Zimbabwe, this alternative indigenisation policy has been implemented with the same sentiment of redistributive justice in mind.

Significantly, Malaysia’s policy, under which companies have to cede 30%, has a roll-out time of 20 years. ,However at inception of this controversial law, companies were supposed to fully indigenise within a time-frame of five years.

Notably, Zimbabwe’s Indigenisation Act can be perceived as a topdown approach to affirmative action due to the nature of its sovereign wealth fund and the CSOTs which inevitably cannot be directly accessed by its citizens.

In comparison, South Africa’s Black Economic Empowerment Programme (BEE) has taken a bottom-up approach to indigenisation.

The BEE highlights the importance of black enterprises, black citizens being in senior management positions, having black people with ownership of new enterprises and investing in community and broad-based enterprises among many others.

South Africa’s local approach may be a more effective solution than Zimbabwe’s nationalisationesque Indigenisation Act which, in the long-term, may propagate a cultural dependency on the Act as citizens may be less motivated to partake in bottom-up, localised development as, in theory, they are due a percentage of foreign companies’ shareholding.

Zimbabwe’s Indigenisation and Economic Empowerment Act could have been hugely beneficial for the country both socially and economically.

However, in practice, it just does not and has not worked.

In 2016, statistics showed that over 800 mining operations — small, medium and large — were active in Zimbabwe alone, not including other extractive operations.

How can the government with its 51% shareholding in these operations, manage its financial obligations to the CSOTs, WSOTs and sovereign wealth fund, while also ensuring that it adequately monitors these foreign companies in order to ensure they do not violate both human rights and the environment?

With the discernible reduction in FDI, how will Zimbabwe compete developmentally with neighbouring countries?

How will Zimbabwe regain the trust of foreign companies in order to remedy its FDI deficit?

The Indigenisation and Economic Empowerment Act has been amended five times since its implementation. It has reduced FDI and seen an increase in environmental and rights violations occur throughout the country.

From 2010, diamond mining companies displaced hundreds of indigenous Marange people as a consequence of their operations.

The companies refused to fully compensate the families, who were forcibly relocated and made to settle in a semi-urban set-up that doesn’t fit their previous lives.

This is one example among many others demonstrating that the very Act which promised so much in 2008, including empowerment and prosperity, has fallen short of expectations.

It brings into question the rationale of the whole idea of redistributing natural resource wealth through the Indigenization Act.

For its part, the Act sowed the seed of chaos and ungovernability of natural resources in Zimbabwe which will be discussed in the next instalment.