Takeover of fertilizer firms to quicken flight of investors

HARARE - The Zimbabwe government could have hammered the final nail into the investment coffin by deciding to acquire forcibly a stake in three privately-owned fertilizer-making firms, with analysts saying the move would only help quicken the flight of investors from the country. They said the g

overnment’s decision to expropriate companies in the key fertilizer industry was ill-timed and dangerous for a country already battling to entice new investors and retain existing ones.

“It certainly sends the wrong message to both local and foreign investors as they not only fear that their companies may be forcibly taken over, but that there is also the possibility that what is happening in the fertilizer industry may one day be extended to other sectors of the economy,” said an official with Windmill, one of the fertilizer companies targeted for takeover.

Harare-based economic consultant John Robertson concurred, saying: “What this means is that all foreign investors will not put a cent more in Zimbabwe as they fear that their investment will be grabbed by the government . . . at a time when we should be doing all we can to lure foreign direct investment, we are driving it away. That will worsen the position of our foreign reserves.”

Zimbabwe has grappled an acute foreign currency crisis that began after the International Monetary Fund withdrew financial assistance six years ago. The foreign currency crisis has spawned shortages of food, fuel electricity and other basic survival commodities because there is no hard cash to pay foreign suppliers.

Bowing to pressure from President Robert Mugabe’s government, Norwegian fertilizer maker, Yara, which has a stake in Zimbabwe Fertilizer Company (ZFC), has announced plans to sell its minority stakes in three factories in Zimbabwe.

A spokesperson for the company, Arne Cartridge, summed up the frustrations of most foreign investors with operations in Zimbabwe by saying they were ready to dispose of their investments and move on.

“While we were fairly active in the mid-1980s and Zimbabwe was a good market, over the last five to 10 years things have gone the wrong way,” said Cartridge.

Besides Windmill and ZFC, the other player in the fertilizer sector is Sable Chemicals.

In a move that confirms existing fears among investors of the unpredictability of the policy environment in Zimbabwe, the government gave the fertilizer companies up to Thursday last week to hammer out an agreement to sell their assets to the state for the consideration of Z$1.5 trillion.

A new firm, to be called the National Fertilizer Company of Zimbabwe and in which the government would have controlling shareholding, would be formed to take over the fertilizer industry.

ZimOnline was unable to confirm whether the deal, being handled by Chemplex Corporation, a subsidiary of the quasi-state-owned Industrial Development Corporation, had been concluded as ordered by the government.

“The most striking part of the deal is that it is not clear on whose valuation the value of Z$1.5 trillion for the assets of the three companies was arrived at. Most interesting will be the effects of such manoeuvers on investor confidence by a government that so desperately needs all the support it can get,” said an analyst with a Harare stock broking firm.

Agricultural economist and main opposition Movement for Democratic Change party politician, Renson Gasela, accused the government of sabotaging the fertilizer firms by denying them foreign currency to import raw materials in order to build a pretext to seize the companies.

Gasela said: “It would appear that the government has been deliberately sabotaging the fertilizer companies by failing or refusing to provide them with foreign currency. If this is not so, then where are they (government) going to get the foreign currency to increase production after they have taken over?”

Defending its decision to take over fertilizer firms the government said it was doing so because the companies were failing to supply enough of the commodity to farmers.

“They (private firms) have not been utilising the plants so we decided to take over so that the supply for fertilizer adequately meets demand,” Ministry of Industry and International Trade permanent secretary Christian Katsande told the Press last week.

But government critics blame the shortages on the violent seizure of land from whites by Mugabe and the ruling elite which led to shortages of foreign currency to import raw materials.

The analysts said the dearth of investor confidence was also not being aided by sentiments from Reserve Bank of Zimbabwe governor Gideon Gono who recently threatened to shut down companies found to be delaying remitting export earnings to the central bank.

Noting that Zimbabwe would not be held to ransom by organisations, Gono warned that the bank would not hesitate to close companies found on the wrong side of the law. – ZimOnline

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