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Mugabe takes aim from the last ditch
Michael Wines, New York Times
June 26, 2007

http://www.thetimes.co.za/Business/Money/Article.aspx?id=505342

Forced empowerment is an attempt to hang on to power, writes Michael Wines. Additional reporting by Julie Bain

Zimbabwe's government has proposed legislation that would require virtually all publicly traded companies to cede controlling interests to "indigenous" citizens. This raises the possibility of a sizeable redistribution of the country's remaining wealth at a time when its economy is collapsing. The draft legislation, published on Monday, orders a 51% stake in the companies to be transferred to Zimbabweans who were "disadvantaged by unfair discrimination on the grounds of race" before April 1980, when the nation won liberation from white minority rule. The government calls it a plan for black empowerment, while critics label it a bid to shore up crumbling political support for President Robert Mugabe. Given that Mugabe's party dominates parliament, the measure will almost certainly pass. The legislation would establish a government fund to help ordinary citizens buy stock in public companies, and would allow the government to reject any corporate mergers, acquisitions, investments and other transactions in which so-called indigenous Zimbabweans did not hold a 51% stake.

It was unclear, however, how Zimbabwe's bankrupt government, beset by hyperinflation and a currency crisis, would finance the transfers. Mugabe's critics say the proposal is a scheme to loot the remainder of Zimbabwe's economy for the benefit of political insiders and backers of the president. To them, the legislation evokes the spectre of Mugabe's seizure of thousands of white-owned farms early this decade, mostly without compensation, in what was then called a redistribution of land to poor blacks. Instead, many of the best farms were awarded to leading figures in Mugabe's government and his ruling party, Zanu PF. Rather than confiscating stakes in companies, however, the legislation envisions a more gradual, potentially compensated transfer of ownership. At the same time, the government has begun an effort to rein in hyperinflation, officially 4500%, but described by private economists as approaching 20000%. A cabinet-level task force on price controls ordered factories and sellers to cut the prices of certain basic goods and services by as much as 50% - to levels that existed roughly one week ago.

The Minister of Industry and International Trade, Obert Mpofu, said that increased prices were unjustified and were "a political ploy engineered by our detractors to effect an illegal regime change against the ruling party". Shopkeepers throughout the country ignored the decree, according to several Zimbabweans interviewed on Tuesday. "No one is even thinking about freezing prices," said one member of the ruling party, who did not want to be named because of fear of retribution. That person and others suggested that the price decree and the ownership legislation reflected an increasingly frantic effort by Zimbabwe's rulers to contain the damage from an economy that has moved in recent weeks from steep decline to outright free-fall. Inflation is now so steep that Zimbabwe's currency is virtually worthless. The plummeting Zimbabwe dollar, now trading on the black market at about 130000 to one US dollar, collapsed last week to as low as 400000 before recovering. The drop was almost certainly the result of Zimbabwe's reserve bank flooding the black market with freshly printed bills as it sought to buy scarce foreign currency to pay its own debts.

Prices change daily, if not hourly: one news report last week noted that golfers at a Harare country club were paying for their 19th-hole drinks before teeing off after discovering that prices were rising while they were on the course. The nation's industrial production, estimated to be running at only 30% of capacity, is grinding to a halt in many places. "The rapid rise in prices is a killer for all concerned," Iden Wetherell, an editor at the weekly Zimbabwe Independent, said. "What you're seeing now is people not bothering to go to work. It's not worth it when their incomes are consumed entirely by transport costs. Things are deteriorating exponentially." Mugabe's critics and a Harare economist said the "indigenisation" legislation would almost certainly make Zimbabwe's economic havoc even more severe by driving away the few foreigners still willing to invest in the country. The flight of foreign capital has been a crucial element in Zimbabwe's economic decline, and until the draft legislation was published, the government had been courting Chinese investors and other outsiders, albeit with little success.

Foreign firms with stakes in Zimbabwean businesses reacted cautiously to the proposal. "This is still a draft piece of legislation, which means it is open for general comment," said Ross Linstrom, a spokesman for Standard Bank Group of SA, which has a subsidiary in Zimbabwe. Impala Platinum, a South African mining giant with a large platinum mine in Zimbabwe, said through a spokesman that it had already ceded part of its Zimbabwe reserves to the government and believed that it was already in compliance with the law. David Brown, chief executive of Impala Platinum, said: "As a company we do not think this is a progressive step, nor does it create an atmosphere that encourages inward investment." Mark Wellesley-Wood, chief executive of Red Wing Mining, which is overseeing Metallon Gold Zimbabwe, said: " The draft is immensely complicated and there will be a lot of discussions as to how it will work. There is recognition for corporate and social and infrastructure investment. It is unclear how this will be dealt with, whether through offsets or credits." The legislation was "not a surprise" and was viewed by the company as "another aspect of doing business in Zimbabwe"

The government has said that the law would apply to all companies, including the foreign banks and mining firms that power much of what is left of the economy. However, legislation that would have transferred a 51% stake in mining firms has lain dormant in Zimbabwe's parliament for months, after mining firms protested that it could lead to chaos and steep drops in production. More recently, the government has indicated that it might nationalise some sectors, like coal and uranium mining, but that it would impose less stringent rules on other sectors. Some critics noted that one effect of the legislation would be to make a huge pool of corporate stock available for distribution. Some of Mugabe's allies have become fabulously rich during his 27 years in office, those critics say. Mugabe has frequently doled out patronage to ensure that his close allies remain close. Earlier this month, he handed out more than 1000 Chinese tractors and some 30 harvesters to members of the Zanu PF central committee, other senior officials and high-ranking army and air force officers. Should the proposal become law, one member of the ruling party predicted, corporate stakes would follow suit. "The situation is desperate here," that person said. "And so we are taking desperate measures."

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