Mugabe's new threat to SA firms

HARARE - News that President Robert Mugabe will continue for a seventh term has left investors white in the face — not exactly a useful colour in Zimbabwe right now.

Mugabe will target the remaining 1 138 white and foreign-owned companies left in the country, as well as local banks with foreign interests, to hand over 51 percent of their businesses to the Zanu PF government.

Zanu PF this week ran full-page advertisements in local papers saying its crushing, more than two-thirds, election win was an endorsement of its “indigenisation” plans that will see all foreign-owned companies forced to give up 51 percent of their equity to black Zimbabweans.

“Over the next five years, Zimbabwe is going to witness a unique wealth transfer model that will see ordinary people take charge of the economy,” the adverts read.

Savior Kasukwere, one of Mugabe’s ministers, revealed that the country planned to seize 51 percent of foreign-owned mines — worth an estimated $7 billion — without any compensation.

The Zanu PF government warned that mines that refused to surrender more than half of their assets would lose their licences.

This is likely to scare some big South African companies with assets in Zimbabwe that now stand to be partly expropriated, including Aquarius Platinum, Standard Bank, Old Mutual, cement company PPC and SABMiller which owns Delta, the country’s largest beverage supplier.

Dzika Danha of Renaissance Capital in Harare said the country’s black empowerment policy, or “indigenisation”, had been part of Zimbabwean policy for three months before the election.

However, Danha said that investors had hoped, before the election, that the policy would be dropped in a bid to increase foreign direct investment (FDI) into the country — regardless of which party came out on top.

FDI in Zimbabwe has dropped 76 percent compared with the same point last year.

The country has managed to attract only $33 million in FDI in 2013, despite its wealth of resources.

This is unfortunate as Zimbabwe managed to attract more FDI during the previous five years, growing from $52 million in 2008 to $400 million last year.

Danha pointed out that Mugabe’s plan to take 51 percent of mines without compensation would go against the country’s laws.

“Currently, we are working on the willing-seller, willing-buyer principle, which means the new Zanu PF government would have to change the laws,” he said.

This would not be a difficult task as Zanu PF won the election by 61 percent, giving it enough control to alter the country’s brand-new Constitution that came into effect in April.

Zimplats, which is 87 percent owned by South Africa’s Impala Platinum, was previously offered $900 million for a 51 percent stake in its mines — but Mugabe’s newest plans would see them get not a cent.

Implats refused to comment.

The Zimbabwean Stock Exchange has taken quite a beating in the past week as those who can, try to run.

Last Monday, the first trading day after the announcement that Mugabe would continue his reign of 33 years, the market fell 11 percent.

The next day it fell a further two percent, and then more than one percent a day up until Friday.

This represented the largest stock market drop since 2009, when the market came to a halt, and the country had to switch to the US dollar.

The equities market lost nearly $1 billion in one week following the controversial re-election of President Robert Mugabe.

The southern African country’s bourse — which had a market capitalisation of $5,96 billion before 89-year-old Mugabe’s election victory — plunged a combined 15,68 percent to close the week at $5 billion.

Economic experts say the continued bearish run on the Zimbabwe Stock Exchange (ZSE) is due to cautious trading by foreign investors who fear that Zanu PF’s boosted majority could embolden it to pursue even more radical economic nationalism of the kind that led to violent seizures of white-owned farms after 2000.

This comes as Zimbabwe suffered a decade-long economic depression when annual inflation by November 2008 reached the second highest in history, at 79,6 sextillion percent and worsened by the  Zanu PF government after it  tried to fill the enormous budget deficit gap by printing money, resulting in hyper-inflation.

Government tax revenue rapidly shrank, as a result of hundreds of retail and commercial businesses that were dependent upon the farming sector failing to maximum their capacity utilisation.

Supermarkets experienced empty shelves which were an eyesore with people queuing for everything, including cash, fuel, bread, cooking oil and other basic necessities.

Violent land seizures which began as early as 1999 resulted in a cascading set of economic failures, despite the agricultural sector commanding only 15 percent of the economy.

After dollarisation in early January 2009, inflation immediately fell to -2,3 percent by the end of the month and stabilised thereafter to between two to three percent.

The land seizures symbolised an overall breakdown in the rule of law.

Foreign investors fled and spooked tourists changed travel plans, creating even more downward economic spiral.

By 2005, the loss of the country’s wealth from the land seizures alone stood at $5,3 billion, calculated to be more than all the foreign aid Zimbabwe had received since its independence in 1980.

The country still remains a net importer of South African products with a trade deficit for the four months to April widening to $1,6 billion, after Zimbabwe imported goods worth $2,62 billion against exports of $1,02 billion.

The burgeoning trade gap has affected the recapitalisation of the manufacturing sector, whose capacity utilisation, according to the Confederation of Zimbabwe Industries has declined to 44 percent and requires an estimated $2 billion to operate at full capacity.

Christopher Mugaga, an independent economist, said 2013 is bound to see Zimbabwe’s economic prospects wane as political risk will be a major negative factor after Zanu PF’s disputed win.

He pointed out that Zanu PF “will remain intransigent to the demands of attracting foreign direct investments (FDI) as long as the so-called sanctions are still in place.”

Mugaga said the baseline scenario of Zanu PF still holding onto power and consolidating its stay, will see the country’s gross domestic product (GDP) progressing at less than 1,2 percent.

“The last days of 2013 are expected to be characterised by a protracted political calendar which will impose a negative threat to the prospects of Zimbabwe’s economy,” said Mugaga.

“A weaker business environment will ensue, which will see the absence of growth-oriented reforms,” he said, adding that the “slow pace of growth in Zimbabwe’s mining sector will worsen” and see capacity utilisation diminish.

This comes as outgoing Finance minister Tendai Biti revised downwards Zimbabwe’s 2013 economic growth target to 3,4 percent from five percent.

Biti said developments in the first half of the year “indicate evidence of stagnation, particularly through under-performance in the key sectors of agriculture and mining.”

Last year, the Treasury chief revised downwards the economic growth targets twice from an initial projection of 9, 6 percent to 5,6 percent and then to 4,3 percent.

Mugaga added that Zanu PF’s indigenisation policy, compelling foreign firms to cede at least 51 percent shareholding to black locals, “promoted expropriating wealth ahead of creating it” and will continue posing a threat to already dilapidated infrastructure.”

“No rational international investor is willing to cede 51 percent of their business when most countries in Africa are opening doors to foreign investors with relaxed trading policies knowing well that international capital flows are so limited of late,” he said. — With Sunday Times

Comments (4)

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Bester - 13 August 2013

"No rational international investor is willing to cede 51 percent of their business" -- My take on this is that we as Africans need to look at this issue from a different lense. There is no mining business without two igredients which are 1. the mineral to be mined, 2. capital to extract the mineral. therefore we shouldn't view capital only as business and consider the underlying mineral to be mined as useless, that will be very wrong. Rather a mining business is a partnership between the mineral owner and the capital owner in a more equitable manner. if that model is understood Africa will benefit better. Looking at the value of mineral wealth Zimbabwe has, i think its proper to own 51% of the partnership and he who brings capital owns the rest which i still think will be a good deal.

pop - 15 August 2013

See he is starting already by destroying the white owned businesses. Also where is all the "wealth" coming from that is going to be shared? He is scaring all the investors away as well as the present large companies and mines that contribute to the economy. We will all end up sharing nothing whilst we starve. As mentioned "No rational international investor is willing to cede 51 percent of their business" Think on that one

Peter Macklyn - 15 August 2013

According to my little economics studies this is definitely not economic viable. What the people of Zimbabwe are not realizing is that is going to make them more poor and without jobs. Unemployment will raise and this will sent use back to 2008 if not worse.

T'she - 18 August 2013

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