Back to Index
equity law is recipe for economic disaster: analysts
March 11, 2008
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
"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.
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
Last year, Mugabe warned
his government would nationalise firms, accusing them of pushing
prices up to trigger anti-government protests.
Please credit www.kubatana.net if you make use of material from this website.
This work is licensed under a Creative Commons License unless stated otherwise.