HARARE - A year after reiterating that the banking sector would not be exempted from expropriation under the controversial indigenisation policy, the ruling Zanu PF’s policy-setting panel made a 180-degree turn on Wednesday, laying the groundwork for balancing the empowerment drive with the need to attract foreign investment to boost the economy.
In staying the planned seizure of majority stakes in foreign-owned banks in a surprise late Wednesday-night move, the ruling party stopped short of a full shift in indigenisation policy, a move apparently aimed at holding Zimbabwe’s stuttering main economy steady.
The politburo also signalled to panicked markets that it stood ready to act more rationally, perhaps as early as immediately, when financial markets expect the main policy to be amended to cast the new position in stone.
“What came out was that concerning the mining sector and exploitation of natural resources, the 51-49 percent ownership ratio remains unchanged,” Zanu PF spokesman Rugare Gumbo told reporters after the politburo meeting.
“Concerning the manufacturing, financial and other sectors of the economy, it was resolved that those have to be negotiated by the parties involved.”
Under the now discarded law, foreign banks were obliged to cede a 51 percent stake to locals, and the law targeted Barclays, Standard Chartered‚ Stanbic, Ecobank and MBCA, partly owned by Nedbank.
The foreign-owned banks in Zimbabwe hold deposits of $1,3 billion compared with $3 billion at locally-owned lenders.
The politburo’s move was expected to address the immediate problem that has been rattling the local financial markets in the past months — the free flow of cash.
Concerns about the policy had left many lenders and investors suspicious and wary of pumping money into the Zimbabwean economy, a hazard highlighted by retired Reserve Bank governor Gideon Gono early last year, warning that the rush to indigenise the banking sector was more driven by emotions and uninformed perspective than necessity.
The politburo seems to be reading from Gono’s script now, six months after he stepped down from the central bank and after a needless heated confrontation with then Indigenisation minister Savior Kasukuwere that ended badly.
For Gono, it is now a case of heroism or respects after “death”, so to speak.
The Zanu PF government’s climb-down gives Gono, if not the last laugh, then a rare moment of Schadenfreude at the expense of those who fiercely and brutally opposed him such as Kasukuwere and Information minister Jonathan Moyo.
President Robert Mugabe has in the past acknowledged that Gono made tremendous contribution to Zanu PF and Zimbabwe during its trying times; and government was now moving in the direction the retired governor was advocating.
Francis Nhema, the Indigenisation and Economic Empowerment minister, told a policy dialogue forum organised by Ibbo Mandaza’s Southern African Political Economic Series (SAPES) Trust on Thursday evening that the new policy will not affect banks. Contacted for comment yesterday, Gono, now a full time farmer, referred the Daily News on Sunday to a statement he issued three weeks ago.
“It’s a misnomer and inappropriate to call this positive shift in government thinking a victory for or defeat of anyone,” Gono said.
“When different minds vigorously debate something and initially differ but eventually sing from the same hymn and page, the victory belongs to the people who will ultimately benefit from a clearer policy position and not individuals.
“The debates were never about personalities but of ideas, and for me, there are more areas which we need to attend to in unison of mind for the benefit of the economy and one of them is how to resolve the country’s liquidity challenge.
“It can be resolved easily if we put our heads together. We have experienced worse challenges before and conquered.”
Gono’s real political adversary, Kasukuwere may be the biggest loser.
Gono is on the road to vindication, but decided to play modest.
He said he is penning his end of RBZ term book.
Speculation was a favourite pastime for market watchers trying to divine the Zanu PF politburo’s motivation, with a range of theories circulating.
Part of the speculation was that the ruling party was staggered by the rate of capital flight and its increasing inability to pay salaries and was forced into the major policy climb-down. Gumbo’s statement made no such reference.
The message to the financial community seems to be, it is safe to invest in the banking and manufacturing sector, and the government will be supporting the investor make a profit.
But in a face-saving move, the 51 percent threshold will still apply in the mining sector, which has suffered heavily from this policy, with companies such as Rio Zimbabwe plunging 27 percent this year and the mining sector sliding by almost 70 percent since the enactment of the Indigenisation and Economic Empowerment Act in 2008.
Economists had warned of downside risks to growth presented by the threat to the banking sector and noted that tighter financial conditions and increased uncertainty had the potential to restrain economic growth going forward.
In an unusual statement issued after a marathon politburo meeting that ended at 11pm, the politburo said it had convened “purely an extra-ordinary meeting to discuss economic issues and indigenisation” and that the ruling party — voted on an empowerment platform — was re-aligning indigenisation laws “to boost investor confidence.”
It is hoped Zanu PF’s new action would help restore confidence in markets overwrought by a sense of fear and panic that, what began as a programme to empower locals was beginning to unravel the economy.
The liquidity turmoil spawned by the indigenisation policy has slowed the Zimbabwean economy, and the country was entering a phase of recession underlined by deflation.
Judging from market reaction early on Wednesday, Zanu PF, or rather Gono’s policy prescription, could be succeeding in pacifying rather than spooking anxious investors braced for the looming financial disaster.
The Zanu PF government was stuck in the uncomfortable position of trying to prevent an indigenisation-inspired crunch from derailing economic growth, while avoiding the appearance that it was making a major volte-face.
Exactly 12 months ago to this day, Gono told a news conference: “There will be no unstructured, unplanned, un-agreed or a forced kind of bank seizure or euphoric indigenisation of the financial sector outside the parameters we have recommended and the criteria to be jointly agreed and approved by the RBZ and ministry of Finance in terms of current statutes.”
That was after Finance minister Patrick Chinamasa had told reporters that foreign banks will be obliged to cede a 51 percent stake to locals.
“All the banks are British-owned, that is why they are refusing to give credit to our people,” Chinamasa said, justifying the reason to expropriate banks.
But Gono warned that the economy was fragile and significantly at the mercy of international capital, and any attempt to meddle with the financial sector risked flight of capital or deposits.
Given the politburo’s new stated position, Chinamasa has now been forced to swallow his words.
Months later, equity investors continued to shun Zimbabwe as a result of the policy, and Western governments want to see the amendments done to the main statute.
EU envoy Aldo Dell-Ariccia and US ambassador Bruce Wharton have both said Zimbabwe must amend the main Act to capture the changes, signalling the loss in trust in government pronouncements.
Gumbo said Nhema was directed to take the issue to a legal committee and come up with a legal position for the fine tuning of the policy.
In the process, we wasted lots of time, and analysts say the ruling party should not have thrown Gono’s caution to the wind.
The question now is what else did he advise on and was disregarded.
The country has suffered capital flight and yet advice proffered to avert this was disregarded.
Critics say someone must take responsibility for disregarding sound advice, and the responsible minister and his colleagues that directed verbal missiles at Gono must squarely shoulder the blame.
But Gono staunchly refuses to take credit.
Some market participants were screaming — literally, in the case of Gono — to shelve the threats on the financial services sector as markets tumbled and banks, hedge funds and companies scrambled for suddenly scarce cash.
While the Zanu PF government bought itself the luxury of waiting as investors took flight at the sabre-rattling against foreign banks, in a more dramatic move, the cornered regime is now doing everything to address the underlying problem.
It remains to be seen if markets will be calmed by this tactic or whether the policy shift is going to provide any relief to the overall economy.
The scare mongering tactics employed by Kasukuwere in threatening to seize controlling stakes in banks and even evicting foreign owners devastated the economy amid fears many banks would end up in the hands of Zanu PF cronies and loyalists who had little financial know-how.