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Zimbabwe's equity law is recipe for economic disaster: analysts
Agence France-Presse
March 11, 2008

http://afp.google.com/article/ALeqM5gf-cb5qlvdCdEYLGwnJf9v6dRHQQ

A new equity law passed by President Robert Mugabe to ensure the population gets a majority stake in public-owned firms will plunge Zimbabwe into deeper economic woes, analysts predicted on Monday.

Last week, Mugabe, who is facing elections this month, passed the indigenisation and economic empowerment act, which states that "indigenous Zimbabweans shall own at least 51 percent of the shares of every public company and other businesses".

"It will entail the destruction of the economy," Harare-based economist Godfrey Kanyenze told AFP.

"We should have learnt from the blunders of the land reforms where people who were not properly equipped rushed to grab farms.

"The result was a disaster in the agricultural sector and we are now importing maize from the countries where the former farmers have migrated to."

Eight years ago, the government launched land reforms which saw the state seize some 4,000 white-owned farms for redistribution to landless blacks, most of whom lacked the means and skills to farm.

Critics blame the seizures for the drop in agricultural production in the former regional breadbasket.

"But those in power never seem to learn," Kanyenze said. "They repeat the same mistakes over and over again, expecting different results. This is insanity."

Under the new legislation the government will only allow firms to restructure or merge if indigenous Zimbabweans hold 51 percent of shares.

New investment will not be approved unless a controlling stake is reserved for locals.

Best Doroh, an economist with Harare-based financial group ZB, said the new law would discourage investment.

"Those who are already on the ground may have prepared themselves for the eventual passing of the act, but foreign direct investment will be slower," he told AFP.

The Zimbabwe National Chamber of Commerce chief executive officer Cain Mpofu warned the law was ill-timed.

"The economy is in a tailspin, inflation is the highest in the world and world perception of property rights in Zimbabwe is at its lowest," Mpofu said in a paper submitted to parliament during debate on the law.

"The possibility of further capital flight from Zimbabwe is not far-fetched. The real crisis facing this country is not about indigenisation but about the crippling shortages facing the people."

Zimbabwe's economy has collapsed since 2000, with inflation officially over 100,000 percent and most people living below the poverty line, while industries are operating at a fraction of their capacity or have shut down.

Mugabe, who will stand for a sixth term on March 29, says the indigenisation drive will deliver economic independence to the majority of Zimbabweans who were discriminated against by colonial laws.

But central bank chief Gideon Gono has already warned the law may be abused by individuals with government contacts.

"We call upon the government to ensure that the empowerment drive is not derailed by a few well-connected individuals ... to amass wealth for themselves in a starkly greedy and irresponsible manner while the majority remain with nothing as happened in the past with respect to government empowerment schemes such as the lend reform programme," he said in a statement in October.

Multinational firms that may be affected include Barclays Bank, Bindura Nickel Corporation and mining giant Rio Zim.

According to the law, published in the government gazette on Friday, the minister for indigenisation and empowerment will conduct a rating of every company to ensure compliance.

The law also provides for the establishment of an economic empowerment board to give loans to locals intending to acquire shares, start businesses or expand existing ventures.

Last year, Mugabe warned his government would nationalise firms, accusing them of pushing prices up to trigger anti-government protests.

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