Zimbabwe’s controversial shareholding law

Once again there is a political tug of war being fought within Zimbabwe’s volatile coalition government.

This time it’s over a piece of legislation that will require successful businesses to sell a majority of their shares to ‘indigenous’ (black) Zimbabweans. Those who don’t comply face up to 5 years in jail.

Some call it blatant racism. Others say it will frighten off much-needed foreign investment. But there is also the argument that it would economically empower Zimbabweans who would otherwise have no chance, bringing financial stability to the country.

Hardly surprisingly, the Indigenisation and Economic Empowerment Bill is the brain child of President Robert Mugabe and his Zanu-PF party.

In general terms, the objective of the Bill is to ensure that indigenous Zimbabweans own 51% of the shares of any public company and any other business worth over US$500,000 within 5 years.

The law came into force on March 1 and relevant companies were given 45 days to report how they planned to do this.

But just before their time was up, the bill hit a bump in the road, leaving would-be foreign investors and businessmen holding their breath.

What exactly is going on is unclear. It seems that Prime Minister Morgan Tsvangirai – leader of the opposition MDC party – is calling for the law to be shelved and cabinet has pronounced it ‘null and void.’

However, the Zanu-PF Minister in charge, Saviour Kasukuwere, quashed these rumours and insisted there would merely be further consultation before the bill is put into action. Some media reports say the date of compliance has just been pushed back to May 15.

It’s the usual in-fighting expected of this mismatched government. So what are the arguments for and against the proposed law?

Given Zimbabwe’s track record, it’s hard not to be sceptical. Ten years ago, Mugabe’s land reform program was touted as essential to the process of reconstructing the government and economy after years of British rule.

In reality it was a catastrophic seizure of land from mainly white farmers by people loyal to Zanu-PF – irrespective of their farming knowledge and experience. The agriculture industry went from prosperous to pitiful.

Many see this new law as an extension of the land reform policy. They believe it will benefit anyone who will help Mugabe stay in power. The idea being that rather than improving equality, the indigenous elite will get richer and the poor will stay poor (as in neighbouring South Africa).

However, there is evidence that this may not be the case. Shares cannot be given away to Zanu-PF buddies but must be bought at market value. There will be no “grabbing”, promises Mr Kasukuwere.

And to ensure not just the elite benefit, companies can implement schemes where the workers end up owning shares, allowing them to benefit from the company’s success and profits.

Finally, the government said they are prepared to give companies more time to comply if they can show that transferring ownership too soon would jeopardise company profits and the country as a whole.

Despite attempts at a more moderate approach, the bill has been described as inherently racist.

An indigenous Zimbabwean is defined as “any person who before 18 April 1980 was disadvantaged by unfair discrimination on the grounds of his or her race, and any descendant of such person.”

This effectively rules out ownership by white Zimbabweans or foreign firms.

Mugabe, widely known for his anti-white sentiments, claims the law merely recognises their right to ownership and will keep more of Zimbabwe’s profits in the country and in the hands of the poor.

Interestingly, there are Zimbabweans, both black and white, who agree some kind of policy to more fairly balance business ownership needs to be implemented. But it just has to be done right.

Mugabe insists the law will go ahead, despite its unclear status. A parliamentary committee will be set up to consider the new rules.

But even if it is toned down or scrapped altogether, the investment damage may have already been done.

The climate in Zimbabwe is full of uncertainty, intimidation and sabotage. The country’s stock market saw falls of up to 10% in April, with mining shares losing 20%.

Despite the country’s mineral riches, most big mining companies have stalled future investment. The tourism and manufacturing industries have raised concerns.

Among the foreign firms that would be hit are Barclay’s Bank, Nestle and Impala Platinum Holdings. All generate millions of dollars and create thousands of jobs.

After years of struggle, Zimbabwe’s economy is only just starting to see signs of growth. This law could provide some benefits, but hopefully it isn’t a steel-capped boot that crushes the sprouting shoot.

By Charlotte Whale

Photo – Zimbabwe President Robert Mugabe