ZIMBABWE’S indigenisation law, which requires foreign companies to be 51%-owned by a local partner, was always going to be tricky to implement.
Report by FT.com
Cigarette maker British American Tobacco Zimbabwe (BATZ) has a new plan to meet the legal requirement. The problem may be with the other side – can the government deliver?
Around this time last year, BATZ was refining its strategy to restructure its shareholding in accordance with local equity rules.
Alongside other foreign companies like Barclays, Standard Chartered and Cargill, its provisional plans had been rejected by the Indigenisation ministry, which charged that Western firms were still not willing to surrender the majority of their shares to locals.
BATZ has now emerged with a plan to offer 10% of its shares to its workers and a further 10,74% for a corporate social investment trust to support indigenous tobacco growers. If approved, the result of the transaction will be that 26% of its shareholding will vest in the hands of indigenous shareholders.
It is anticipated that it will increase the local shareholding over the next 12 months, towards reaching the 51 threshold set by the government.
Economic analyst Masimba Kuchera says: “Western companies are coming under a lot of pressure to comply with these indigenisation regulations. There is still lack of clarity on the laws and serious aggression on the part of the implementing minister.”
But while foreign companies work on fulfilling their side of the bargain, fresh questions are emerging on the capability of the government to deliver on its side of the deal.
On the day BATZ announced its strategy, local media reported that government departments were wrangling for control of community share trusts launched under the indigenisation drive and that there were plans to loot the funds, which are contributed by companies that have complied with indigenisation. And bigger issues loom, with critics of the scheme pointing that the government is not in a financial position to fund the empowerment programme and that the bulk of black Zimbabweans, whom the law is meant to benefit, do not have the millions to purchase the shares either.
Zimbabwe, which is facing a liquidity crisis and has been seeking lines of credit from its regional neighbours, remains in debt distress, with its total external debt at $10,7 billion. On its part, the National Indigenisation and Economic Empowerment Board denies reports of wrangling over trusts and insists that locals are able to raise capital for the shares.
Its general manager Zwelibanzi Lunga adds that the government’s indigenisation fund is “exploring smart ways of raising finance through leveraging from value created through the use of resource ownership. This applies to assets in the mining sector held by companies subject to indigenisation.”
Whether these remarks will reassure majority shareholders at firms like BATZ and others faced with the challenging task of relinquishing equity is yet to be seen. Kuchera is not convinced it will.