JOHANNESBURG – Uncle Bob is having a fine few weeks; investors in Zimbabwe, not so much. After the 89-year old Robert Mugabe of Zimbabwe secured his seventh term in office, the Zimbabwe stock exchanged tumbled 11 percent – its largest one-day drop since 2009 when the country was forced to abandon its own currency. And that was just the beginning. The stock market remains shaky, unemployment is stuck at 80 percent and power outages continue to plague the suburbs. To make matters worse, Mugabe has doubled down on his campaign promise to intensify his "indigenisation" drive – the highly controversial and increasingly opaque government program to transfer controlling stakes in 1,138 foreign and white owned companies (particularly in the mining and banking sector) to black Zimbabweans.
At a post-election rally, Mugabe, whose Zanu PF party platform was "Taking Back The Economy: Indigenize, Empower, Develop and Create Employment" said, "[n]ow that the people of Zimbabwe have granted us a resounding mandate in the governance of the country, we will do everything in our power to ensure that our objective of total indigenisation, empowerment, development and employment is realized."
Investors are right to be weary.
The indigenisation plan adds yet another hurdle for Harare's stuttering economy as it attempts to climb out of its self-inflicted economic collapse from 2000-09 when inflation had ballooned to 231,000,000 percent forcing the central bank to issue an almost comical one-hundred-trillion-dollar note (worth about $30 at the time). In the run-up to the election, the economy had shown glimmers of life. Inflation has been in the low single digits for much of 2013. Bank deposits increased 31 percent last year and the informal economy is awash in cash.
Yet, consumers remain jittery as the indigenisation plan – which passed Parliament in 2007 – follows on the heels of another economically ruinous, nationalist policy involving the eviction of some 6,000 white farmers from their land, many without compensation. That land reform program was roundly cited as the impetus for the collapse of Zimbabwe's agriculture sector and drew international condemnation.
Perhaps weary of repeating the economic and political fallout from the land reform program, Mugabe backtracked a bit this week as he sought to clarify and limit his indigenisation policy in an attempt allay investors' growing concerns. "Where an investor brings in his or her capital, technology, expertise and raw materials, we will not insist on the principle," Mugabe said. "However, where finite natural resources such as minerals were concerned, the country could not be bystanders in their exploitation."
"We need a share in all ventures that exploit our non-renewable natural resources. Where we can, we go it alone. Where we cannot do so, we seek partners on a 51/49 percent principle," he added.
Even a pared down version is worrisome. With the current economic uncertainty, investors will continue bankroll sectors that promise to generate immediate profits (i.e. mining) but are actively deterred from making the kinds of structural, long-term investments that lead to sustained, non-resource growth that country so desperately seeks.
Drew F. Cohen is a law clerk to the chief justice of the Constitutional Court of South Africa. Follow him on Twitter at @DF_Cohen or email him at email@example.com.
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