In certain circles the government’s change of direction on the indigenisation and empowerment policy is being viewed as a “climb down”.
In fact it is nothing of the sort, but the opposite. The long overdue policy review will see Zimbabwe stopping digging its own economic grave. Sanity will have prevailed.
With the nationalistic fog lifted, the way forward in attracting foreign direct iinvestment (FDI) should be easy to map. Angola, Norway and other oil producing states provide examples of how to do it without shooting oneself in the foot.
“In oil Angola’s MPLA earned a reputation of tough and fair dealing. Western gloom mongers’ generalised carping about Marxist governments in Africa should take note of how Angola’s rulers have handled their petrochemical industry.
The MPLA government in Luanda, despite the upheavals of a civil war and appalling failures of its over-centralised bureaucracy, has shown flexibility in the face of volatile world oil markets which has been commended by those they deal with.
As one observer puts it: “The government deserves credit for a high degree of professionalism in its dealings with foreign oil companies . . .In spite of the war . . a large number of American oil companies have made high risk investments in exploration, lured by the high returns and laissez faire fostered by Sonangol [the State owned Oil company of Angola] and the Angolan government”.
Sonangol was founded in 1976 in an attempt to bolster Western confidence. The coastline was divided, after seismic assessment, into a number of blocks to facilitate orderly exploration.
Confidence rose and since 1982 oil production has risen consistently. Between 1980 and 1986 over $2,7 billion was sunk, literally, in investment in Angola’s oil industry.
Angola is considered to drive some of the toughest deals in oil business, but so interesting are the possibilities that in July 1989 a technical presentation by Sonangol to oil executives in London and Houston attracted major interest.
The 16 foreign investors in the country’s oil industry include Texaco, Elf, Agip, Fina, Ajax, Petrofina, BP, Cononco, Hispanoil, Total, Citizens Energy and Mitsubishi. Two types of association are possible between Sonangol, which is the sole concessionaire, and the Multi-national companies.
The first type is Joint Ventures, which share risk and cost of the initial investment. Sonangol retains the majority of the shares, and the multinational is taxed on a net income, as well as paying a royalty tax on the income which is in excess of the cost of operation and investment, a windfall tax.
The other type is Production Sharing Agreement (PSA) which applies largely to off shore sector. In this agreement foreign companies are acting as contractors to Sonangol, but assuming the full cost of the investment in exploration and development.
Operators raise all the commercial finance, shielding the national oil company Sonangol from risk, and are compensated with a large share than is divisible under Joint Venture agreements.
[That is recouping all investment costs]
The Angolans’ imaginative adjustment of the tax framework in response to fluctuations in the world’s oil prices has also impressed operators”.
The above paragraphs are an abridged version of an article, aptly titled “Nice people to do business with”, that appeared in a South African magazine, Africa South issue of December 1991. [The emphasis in bold print and, or italics is mine, and shows where Zimbabwe and ZMDC must concentrate] Since then Angola has flourished, with billions more of FDI pouring in.
In 1982 oil production was 455 000 barrels per day; now it is over 2 million bpd. In prospecting for Diamonds, De beers is currently pouring in hundreds of millions in exploration on a PSA basis.
Zimbabwe and its Zimbabwe Mining Development Corporation can draw pragmatic lessons from Angola and Sonangol.
Zimbabwean companies and the State are currently constrained financially.
For Joint Ventures, ZMDC could raise capital by diluting its shareholding on current operations, and in the process also embarking on Production Sharing Agreements that allow loans extended by JV partners to be recouped. In other words a hybrid of the two types of association Angola used. In the end that would give cash strapped Zimbabwe three options.
According to the Executive Summary of the United Nations Development Programme’s Comprehensive Economic Recovery Working Paper (Series) 10 of 2010: “The destruction of domestic savings, corporate, institution and household and the decimation of Bank balance sheets [due to hyper inflation and past policies] means that Industrial recovery will depend heavily on foreign savings and foreign investment.
The likely consequences will be the restructuring of manufacturing [and mining and agriculture] by foreign businesses that will involve the dilution of domestic ownership and control, and in effect, the de-indigenisation of the economy.”
Zimbabwe’s recent policies on indigenisation and empowerment have done the opposite of intended results to date.
To a large extent, as results have shown they have disempowered significantly through loss of savings and jobs.
They have also de-indigenised with sizable business such as Mucheche, Shiri Yekutanga and Musanhi Passenger Transport companies, indigenous owned banks, and State-owned enterprises such as Zisco, CSC going under.
To recover the economy, further disindigenisation through dilution of the national balance sheet by FDI, whilst, however, empowering the masses through the creation of jobs is the way forward. That government has belatedly seen the light makes 2014 a special year.
It must be remembered though that chrome, iron and coal are not oil. Public transparent tenders are the best way to pick partners, with those who offer the best terms getting into PSA and Joint Ventures with the ZMDC.
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