Business unusual: firms have 45 days to draft share disposal plans

Youth Development, Indigenisation and Empowerment Minister, Saviour Kasukuwere, last month published regulations forcing all businesses owned by foreigners to set out in the next 45 days how they propose to cede 51 percent of their holdings to locals. Foreign-owned firms have five years from today to offload at least 51 percent stake to local Zimbabweans under the controversial regulations. The move has left alarmed investors seriously considering their future and dampening the countrys recovery prospects.

The fragile coalition of President Robert Mugabe and Prime Minister Morgan Tsvangirai is deeply divided on the issue and company executives want the government to shelve the law, at least until the country starts attracting big investment. There is uncertainty within the business sector and we are engaging government on this, to say why dont we set these (regulations) aside for now and focus on attracting investment, said Kumbirai Katsande, who heads the Confederation of Zimbabwe Industries. The regulations came after the signing into law of the Indigenisation and Empowerment Act by Mugabe on the eve of the March 2008 general elections. Tsvangirai has said the regulations were null and void because they had not been referred to him or the Cabinet, but Kasukuwere argued that he consulted widely and, while debate could continue on the issue, the law stood.

Land invasions

Investors were further alarmed on Friday when Kasukuwere said the government planned to amend or repeal 13 other laws that hindered the empowerment drive and threatened to impose huge fines on firms that failed to surrender majority shares to locals. This was after the Zanu (PF) politician had last week briefed his partys politburo, which adopted the regulations. Analysts said this showed the partys resolve to push ahead with the controversial law. Certainly it will not be business as usual from Monday and if there is anyone who doubts Zanu (PF)s resolve, they only need to look at the land invasions, which caught everyone by surprise. That is the extent to which they will go, said economist John Robertson.

For Zanu (PF), this is all about politics and you can see that they already are looking at the next elections. But this is not empowerment, they want to give these companies to their cronies, he added.

Mugabes supporters, led by war veterans and youth militia, shocked the world in 2000 when they invaded white-owned commercial farms, in a spree that left dozens of farmers dead and started the countrys isolation by the West. The free-for-all farm takeovers disrupted commercial agriculture, which is yet to recover a decade later, and analysts fear that this could be repeated in the business sector if not properly implemented.

Zanu officials keen

Unconfirmed reports say some senior government officials from Mugabes Zanu (PF) have approached some companies, including banks, with offers to acquire 51 percent of their shares. Although companies have up to five years to implement their empowerment plans, their directors face up to five years in jail if they fail to furnish Kasukuwere with their empowerment proposals by mid next month. Analysts see foreign companies coming under pressure ahead of elections, which look set to be held in 2013, when the current term of parliament ends, analysts said. At risk are foreign-owned banks and mines, which have the largest investments in Zimbabwe and which Mugabe has accused in the past of working with his Western enemies to remove him from power.

Financial institutions like British-based Standard Chartered Plc and Barclays Plc and mining houses Anglo Platinum Limited (Angloplat), Impala Platinum Holdings (Implats) and Rio Tinto all have operations in Zimbabwe and are easy targets in the empowerment drive. Rio Tinto is withholding $200 million to expand its 78 percent controlled Murowa diamond mine, Angloplat says it is monitoring developments before committing on more investment at its Unki mine and Implats says it has an agreement with the government that protects the takeover of its Zimplats unit.

Company closures

Zimbabweans have for years failed to buy a 15 percent stake in Zimplats. I dont see these foreign-owned companies ceding control to locals, it does not make business sense. Will Barclays Plc allow their bank to remain in operation when they have 49 percent shares? I dont think so, a European Union diplomat said. But I think the most important question is, do Zimbabweans have the resources to buy themselves into these businesses? Certainly no, added the diplomat, who refused to be named. Analysts said foreign-owned businesses could opt to shut down if they came under pressure to part with their shares, but miners like Implats could be exposed with their future growth pinned on its Zimbabwe operations.

The worlds second largest platinum producer is banking on the countrys rich platinum reserves along the mineral-rich Great Dyke for its expansion in future.