Empowerment furore aimed at coming vote

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An intensified push by Zimbabwe’s government to force foreign-owned companies to turn over majority stakes to locals is being seen as politicking ahead of elections expected early next year and could end in a compromise to avoid a return to economic chaos.

Ministers loyal to President Robert Mugabe’s Zanu PF party have been ramping up calls for foreign companies to relinquish control of 51% of their local operations to Zimbabweans, a move analysts say is linked to drumming up votes.

The targeted companies range from the local unit of Britain’s Barclays to Zimplats, owned by South Africa’s Impala Platinum, the world’s number 2 platinum producer.

At stake are assets worth billions of dollars. The total value of Zimplats’ proven platinum resources and estimated reserves at current prices is around $175 billion.

Investors and foreign companies are unsure if they will be compensated if they give up the stakes.

Even if compensation is offered, many wonder how the government can afford it with foreign debt already at 115% of GDP.

“It is still uncertain whether the 51% will be paid for. I have a lot of money to invest, but unfortunately with the current policy it will not happen,” said one executive at a recent mining conference in Harare.

Zimbabwe’s Indigenisation and Economic Empowerment Act was signed into law in March 2008 before its last disputed election and is now used by Zanu PF to portray itself as fighting for the interests of black Zimbabweans.

“It has been signed into law before, but never enforced. It has also been a legislation that interestingly has been introduced during times of election campaigning. This time is no different, as the Zimbabwean government is anticipating elections,” said Mark Schroeder, sub-Saharan Africa analyst at US think-tank Stratfor.

Indigenisation minister Saviour Kasukuwere indicated a softening of the government’s hardline stance on Wednesday, saying progress had been made in talks with mining firms and the ownership law could be waived in some cases.

This change in tone is further evidence that the policy has been politically driven.

“While Kasukuwere and (President) Mugabe have both talked tough on the issue, it is likely that in light of the recent harrowing experience with hyperinflation and economic collapse, both will seek to reach some compromise with local mining firms in order to avoid a wholesale shutdown of the industry and risk a new bout of economic pain,” said Sebastian Spio-Garbrah of DaMina Advisors in New York.

(President) Mugabe and long-time rival Morgan Tsvangirai, now Prime Minister, were forced into a fragile power-sharing government after the 2008 election and this has made formulating policy even more difficult.

“In the murky world of Zimbabwe’s coalition politics and the even murkier faction-riddled Zanu PF it is simply impossible to state with any certainty what government policy really is,” Tony Hawkins, Head of the School of Business at the University of Zimbabwe, wrote in a recent opinion article.

Analysts say if the policy is implemented in its current form, Zimbabwe will fall back into economic chaos.

The economy has started stabilising, showing solid growth since the formation of the unity government after a decade of hyperinflation, food shortages and contraction.

But Zimbabwe remains one of the poorest countries in the world. The CIA World Factbook ranks it in 224th place on GDP per capita out of 227 countries in the world.

Hawkins says three-quarters of the population live on less than $1,25 per day, unemployment is over 50% and foreign debt arrears stand at 80% of GDP.

“Zimbabwe’s recovery depends on foreign investment, which is simply incompatible with indigenisation, no matter how it is packaged,” Hawkins said.

Analysts said it was unlikely the empowerment plan would be implemented without significant changes.

“At the end of the day I don’t think that the programme will be implemented in the radical way that it is being presented. Even the craziest must know what damage it will do to the economy,” said Eldred Masunungure, political science professor at the University of Zimbabwe.