Eric Bloch Column: Deterrents to foreign investment
http://www.theindependent.co.zw/
Thursday, 15 December 2011 15:35
AFTER observing the extent to which government (or major components of
government) continue to pursues policies which can achieve naught but
self-advancement or enrichment, ongoing demolition of the economy with
concomitant poverty, and wide-ranging and diverse advice on the ills of
those policies, many inevitably ponder whether it is not the intent (for
whatsoever reasons) of the culpable politicians to decimate the economy.
Since 2007, at the instance of dogmatic factions of government, Zimbabwe has
been pursuing policies of indigenisation and empowerment. The principle is
commendable and — if the pronounced prevailing poverty is to be eradicated —
wholly necessary. However, the methodology pursued is counterproductive and
destructive, and is the overriding barrier to achieving the declared
objectives.
Almost ad nauseum, the fatalistic consequences of the manner whereby
indigenisation and empowerment are pursued have been highlighted by economic
commentators, investors, the business community, diplomats, and numerous
others. But all their advice as to the prejudices of the policies and as to
how the objectives could be effectively and beneficially attained is
consistently disregarded, or is ill-advisedly dismissed.
This was yet again strongly emphasised at last week’s Zanu PF conference.
Addressing the intent to implement the existing programme of indigenisation
and empowerment, President Robert Mugabe said that “we will not drive away
those companies that brought investment into the country, but we will not
allow them to be our masters”.
Clearly he has either not been informed or he has been misinformed as to the
realities. Since the enactment of the Indigenisation and Empowerment Act
and its underlying regulations, most investors have ceased enhancing their
investment despite the critical need for funding of most enterprises. Many
have closed down their businesses and numerous others have been downsized.
Admittedly, it was prevailing economic circumstances that dictated the need
for intensified investment into those businesses but the legislation was an
insurmountable deterrent to the investors to provide the enterprise recovery
funding required. Similarly, new investors were demotivated from effecting
investments into Zimbabwe.
In his address to the conference, the president continued:
“We are no longer prepared, that is, for these big companies to continue to
exercise their ownership over us. They must pass the ownership to us and we
insist on not less than 51%. The law is there. That is our law. Going
into existing companies is just one way of empowering our people. Mining is
an area where new companies can be established. Those mining engineering,
geologists and metallurgists that have been working for years, it doesn’t
matter you are the chief executive officer, you are still a worker.
“Now we are saying, constitute yourselves into companies; we would have the
task of helping you. I have been speaking to ministers (Saviour) Kasukuwere
and (Obert) Mpofu that the concentration is on the 51%. Just imagine, 49%
of our diamonds. Forty nine percent is still leaving the country. If we
have a truly indigenous company, nothing will leave the country. Sure, we
want partners, we want technology, but let the majority of our companies be
ours in toto”.
The conference failed to recognise that, in the same manner as it is opposed
to others being the “masters” of the business ventures, so too those others
are unwilling to be subordinates to others. This is especially so when it
is those investors who provide the bulk, if not all, of the investment
capital (for neither government’s designated state entities nor the majority
of the Zimbabwean population have the requisite resources to do so), and
when the non-indigenous investors also effect substantive technology
transfer and ready access to their established markets to the Zimbabwean
enterprises.
Save in those countries of state-ownership of economic enterprise, and a few
bigoted, under-developed countries (primarily in Africa), it is recognised
that the key providers of resources are entitled to have primary authority
of those resources and their utilisation. To demand to the contrary is
tantamount to demanding charity of the funding, technologies, and the
acquired and developed business expertise and acumen, without any authority
over the usage thereof. This would be as equally unacceptable to an
indigenous investor, who would resent and resist providing the substance of
the enterprise inputs only to be deprived of any material influence over the
usage thereof.
It is similarly ill-conceived to seek that the majority of the economic
ventures in the country should be wholly indigenous owned. Under-developed
and developing countries do not have the wherewithal to achieve considerable
development and growth without accessing the means for that development and
growth from external sources. (Of this, there are innumerable examples,
including the extent that the USA’s economy was enhanced by the investment
of capital from various Arab states, the economic transformation of India
over the last 30 years, the economic transformation of China, Malaysia,
Singapore, and many other countries).
Zimbabwe has a wealth of natural resources and tremendous economic
potential, but cannot constructively exploit those resources and potential
without capital, technology and ready access to markets, and hence needs to
have investment partners, not subordinates. To fulfill those needs,
investor security must be assured, including that the investor be confident
that investment funds will be productively utilised, that the investment
venture will operate effectively and with security of continuity, and that a
fair return on investment will be forthcoming. If that confidence is not
provided, the investor will seek alternative opportunities elsewhere.
It is also unfounded to allege that 49% of Zimbabwe’s diamond earnings are
leaving the country. From the revenues generated from diamond sales, all
the operational expenses of the diamond mines must be funded, and most of
those expenses are incurred in Zimbabwe, including wages, energy,
consumables, overhead and administrative costs, and royalties (which are
excessively high!) In addition, income tax is payable on realised profits
once the initial capital investment tax allowances have been absorbed,
witholding taxes are payable on dividends, various indirect taxes are
payable, as well as other imposts. All of those are funds remaining in
Zimbabwe, beneficiating the fiscus and hence the economy. That which
thereafter leaves the country is, at least, a fair return on investment to
the investor.
For so long as Zimbabwe continues to pursue indigenisation and empowerment
in its present form, instead of fairly and effectively, both Foreign Direct
Investment and domestic investment by non-indigenous will be minimal, and
the prevailing Zimbabwean economic lethargy and ills will endure.