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The next big asset grab
Mail & Guardian (SA)
June 04, 2007

http://www.mg.co.za/articlePage.aspx?articleid=310337&area=/insight/insight__africa/

Zimbabwe's remaining foreign investors, who have chosen to ride out the world's fastest economic decline, could see their patience rewarded with the seizure of at least half their assets if radicals in President Robert Mugabe's government have their way.

Empowerment Minister Paul Mangwana is set to push a new law through Parliament whose "various measures will accelerate the implementation of the indigenisation and empowerment agenda, promoting further indigenisation of the economy and empowerment of people and achieving at least 51% indigenous shareholding in the economy".

Mangwana said his reforms would affect businesses ranging "from banking to manufacturing".

At the core of the Zimbabwean government's latest threat is a belief that foreign-held companies are unduly driving up prices, deliberately feeding the country's record 3 700% inflation rate to incite the poor against his government.

Government officials say the draft law would provide for a "national indigenisation and empowerment charter, to fight against over-pricing."

There has been keen discussion within the Zimbabwean government on empowerment legislation since December, when Mugabe urged rapid enactment of a law that would "see the means of production in the hands of our people".

Radicals in Mugabe's government are pressing for such sweeping reforms, but moderates, key among them Reserve Bank governor Gideon Gono, are urging caution.

Gono has already criticised the government's inability to sell shares in its own loss-making companies, many of which are stuffed with Zanu-PF loyalists and are blamed for gaping state budget deficits. Gono has identified six state enterprises that, he says, would earn the country $3-billion if they were sold to foreign investors.

In the absence of any available details about the proposals, comparisons are being made with Zimbabwe's seizure of commercial farms, and proposals for a new law increasing local mine ownership.

Land seizures ruined Zimbabwe's once robust agriculture, leaving the country scouring the region for grain. And a lack of clarity on the Mines and Minerals Act, which will determine government and local ownership of foreign owned mines, left planned new foreign investment on ice.

In his independence speech in April, Mugabe appeared to admit to the damage his land policies had brought, stressing a more measured approach to the entry of locals into mining.

Mugabe has soothed fears among mining companies by making concessions. Under one such deal, platinum producer Zimplats — owned by South Africa's Implats— received empowerment credits in exchange for a third of its unused mining areas.

Threats of a government takeover of private companies are not new. In 2004 Transport Minister Christopher Mushohwe frayed nerves when he told an industry convention that government would seize companies that were "working against government". He later said no such policy was planned.

And earlier this year, Industry and Trade Minster Obert Mpofu threatened to shut down and seize private companies that had closed for a two-day national strike.

Business has learned to discount such threats as a ploy to keep big business in check, according to one official of the Confederation of Zimbabwe Industries.

But how much foreign investment really does remain in Zimbabwe?

"Nearly all the big commercial farms are already locally owned," says economist John Robertson. "But a number of the manufacturing operations are still owned by foreigners, some of them large multinationals."

Barclays owns 68% of the country's second-largest bank, while the local operation of Standard Chartered is the largest lender in Zimbabwe.

However, it is understood from government officials that the government's implementation of the law is likely to focus more on companies that produce consumer goods than on banks.

Global firms Nestlé, the Heinz group and Unilever manufacture many of the country's basic products. Tiger Brands owns 41% of National Foods, Zimbabwe's biggest producer of flour and the staple maize meal.

Many international observers feel that the decision about whether or not to stay in Zimbabwe should be easy, given hyperinflation and erratic policy. But there are many foreign investors in the country clinging to assets and waiting for a recovery.

Although new foreign investment in the Zimbabwe Stock Exchange (ZSE) has fallen sharply, many of its 82 counters boast significant foreign interests. Analysts say that at a value of $2,5-billion, the ZSE is undervalued and bulging with bargains for foreigners.

And despite uncertainty over legislation, foreign interest in resources remains firm.

But investing in Zimbabwe requires a great deal of patience, and nerves of steel. Heinz, the United States domestic goods giant, has confirmed that it is now "exploring opportunities" relating to the sale of its 51% share in Olivine, its Zimbabwe business.

Heinz's decision to sell comes after a disagreement with government over the pricing of its products.

Olivine is Zimbabwe's biggest maker of basic supplies such as cooking oil and soap, which puts it straight in the firing line. Executives at companies that produce basic goods are routinely arrested and harassed, and accused of increasing prices to heat up anti-government sentiment.

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