For two years Robert Mugabe’s Zanu-PF has been ratcheting up the pressure on foreign-owned firms demanding that they dispose of a minimum of 51 per cent of their shares to indigenous Zimbabweans. This week’s agreement (in principle) for the localisation of majority ownership of Zimbabwe’s largest exporter Zimplats has the potential to be a gamechanger, economically and politically.
With elections due in the next 18 months, the Zanu-PF will be keen to push on with the programme. So which companies are next in line?
Last August, David Brown, CEO of South African miner Impala Platinum which owns 87 percent of Zimplats, rejected the Zimbabwean government’s demands on the ground that to give 51 per cent ownership to local institutions was “unworkable” and would “retard investment”. But by March 13 the unworkable had become acceptable – in principle. Brown stresses that there is no agreement yet on either the timing of Impala’s divestment, or the valuation of Impala’s shareholding, estimated by analysts at a minimum of $350m.
Now that Zimbabwe’s largest foreign investor has signed up, the focus will switch first to the other big mining houses – Anglo Plats which operates the Unki platinum mine, Rio Tinto (Murowa Diamonds) and an Impala associate company, Mimosa Platinum. Behind these big boys stand dozens of small and medium foreign-owned mines, mostly gold, that will now be expected to toe the “indigenisation line.” The threat to the industry that is driving the country’s recovery is acute.
The Zimbabwe Chamber of Mines sees the deal as a precedent that will set the tone for the months ahead, and not just in the mining industry. Zimbabwe’s firebrand Indigenisation minister, Saviour Kasukuwere, who is leading the charge is a man in a hurry. Zanu-PF sees what it calls “total empowerment” as its best – and probably only – chance of winning at the polls.
After mining, next in line for forced local ownership are the banks. The government has long criticised foreign banks – Barclays, Standard Chartered, South African-owned Stanbic and the Merchant Bank of Central Africa – for unduly conservative lending practices and their holding of large amounts of their deposits offshore in nostro accounts. Many politicians and some businesspeople are convinced that the solution to the country’s current liquidity squeeze is local ownership of these “unpatriotic” banks. Foreign insurers, and especially the highly unpopular Old Mutual will also be forced to comply with the indigenisation law.
The government also has its eyes on a handful of high profile companies, especially in tobacco (BAT, US-owned Zimbabwe Leaf Tobacco); consumer goods companies Nestlé and Unilever; and BOC Gases and dozens of lesser-known industrial firms.
Flushed with his apparent victory over Zimplats, Kasukuwere seems certain to try and accelerate his localisation programme, but because the Zimbabwe government is broke – with offshore debts of $10bn, including $6.5bn in arrears – he may be forced to settle for many more “agreements in principle”, leaving such tiresome details as financing to be resolved later.
Whether a string of high profile indigenisation successes would be enough to swing the election Mugabe’s way is doubtful, though Zanu-PF propagandists can be expected to exploit their perceived Impala victory to the full. But whatever the political impact of more Impala-type deals, there seems little doubt that the economic impact will be substantially negative.
It is understandable that companies already invested in the country should seek to protect their businesses by conceding majority local ownership. But potential investors waiting on the sidelines are likely to give the country a wide berth. The Zimbabwe government is about to learn that capitalism without capital cannot work.