Indigenisation: Engine for Economic Growth
African hero Samora Machel once remarked that come voting day “people do not eat democracy, ideals and human rights. They eat food, schools and clinics.” One hopes that the MDC-T will realise that people cannot eat “change.”
Zimbabwe Indigenisation minister, Savior Kasukuwere. Photo courtesy
As the electoral drum beat grows louder voters will ask themselves whether the indigenisation programme will improve their lives, boost economic growth and create jobs. Zimbabweans will also take a long hard look at indigenisation's natural alternative – the MDC-T's flagship economic programme, the “Investment, Jobs and Upliftment Programme.”
The party knows that before election day it will have to turn its “Investment, Jobs and Upliftment” slogan into an actual concrete policy. One that is economically sound, drafted, debated, put before parliament and the nation at large. Until then the policy - consisting of five words - will raise more questions than answers. What is the actual policy? How will it balance the interests of foreign profit driven investors and the interests of the indigenous majority? Why does it prioritise foreign investment rather than local entrepreneurship if it truly seeks to create jobs?
Indigenisation on the other hand will clearly be an engine for job creation and economic growth.
Indigenisation will fuel broad based growth because the Sovereign Wealth Fund will boost the country's GDP on a national level. $2billion worth of community trusts will drive economic growth and development on a local level. The employee share ownership scheme will promote individual growth and prosperity on a personal level by putting at least $205million worth of shares into workers' pockets.
Far from merely redistributing the nation's economic cake, indigenisation will clearly bake a much larger one.
This economic growth, coupled with the Indigenisation Fund's focus on local entrepreneurship, start up companies and small businesses, will create jobs and drastically reduce unemployment.
For a start, giving locals shares will stimulate domestic demand thereby boosting economic growth. Simply because for every share that is in foreign hands the nation haemorrhages disproportionate amounts of rent, dividends and profits to bank accounts in far away lands. Whereas local shareholders are more likely to save their rent in a local bank, spend their dividends on domestic goods and invest their profits in local businesses.
All the public businesses on the Zimbabwe Stock Exchange are worth US$4,1billion and 5 percent is essentially reserved for employees through Employee Share Ownership Plans (ESOPs). Consequently, ESOPs will put at least US$205million dollars directly into Zimbabwean workers' pockets in the form of shares, which they can slowly pay back through rising share prices and dividends. Aside from these public companies listed on the Zimbabwe stock exchange all foreign owned private companies worth more than $500,000 will also need to create ESOPs. Therefore, the US$205million already earmarked for employees could well swell to half a billion dollars before indigenisation is complete.
According to the US National Centre for Employee Ownership, on average, employee-owned companies grow 8-11 percent faster than their peers. Clearly, encouraging employee ownership not only creates more worker-shareholders but more workers in general.
The economic democratisation programme will transfer over $2bn from foreign companies to local communities in the mining sector alone. These funds will be used for amongst other things building schools, equipping clinics and paving roads.
Just recently Government announced that indigenisation is going to pour $100 million into Zvishavane through Mimosa platinum mine's Community Trust. One could ask proponents of the “investment, jobs programme” how many millions of years it would take purely profit driven foreign investors to invest $100million into this local community for non-profit development projects?
As indigenisation shifts through the gears in 2012 and beyond, hundreds of millions of dollars will flow into the nation's Sovereign Wealth Fund (SWF) from the indigenisation of banking, manufacturing, telecoms, retail, tourism and other areas. A SWF is a state-owned investment fund composed of financial assets such as stocks, bonds, property that will benefit the country's economy and citizens. Zimbabwe's SWF is set to become one of Africa's largest. Government has already made the mandate of the financial technocrats that will run the fund very clear: invest in jobs here at home and make profitable investments abroad.
Sovereign Wealth Funds the world over have been sustained by local or government ownership of capital assets and precious resources like oil, diamonds and natural gas. However, proponents of the “investment and jobs plan” argue that Zimbabwe needs to sell its capital assets to foreigners in order to balance its payments. The problem with this approach is that it makes forming a SWF for the benefit of future generations an impossibility. It also endangers the nation's future balance of payments position as foreigners eventually repatriate their capital, profits and dividends
The National Indigenisation and Economic Empowerment Fund is primarily a means of creating new entrepreneurs and supporting growth for existing small businesses. According to a recent report by the UN's trade body "Foreign Direct Investment in Africa: Performance and Potential" the single biggest driver of job creation on the continent has been local entrepreneurs not foreign direct investment. So why then does the MDC-T's investment and jobs plan shun the real engine for job growth, only to put foreign investors in the economy's driving seat?
Foreign and local banks provide only a fraction of the funding new entrepreneurs need to start a business. The bulk of the funding comes from personal debt or from the "three fs" – families, friends and fools. The National Indigenisation Fund is poised to become the fourth "f".
A small number of start-up companies and small businesses in Zimbabwe account for a disproportionately large number of new job creation and over 80 per cent of total employment.
It won’t be long before employees who yearn for better pay are rewarded by indigenisation with shares and dividends. Before too long swarms of entrepreneurs with bright ideas and countless small businesses will be given a shot in the arm by the Indigenisation Fund. Soon after that, the long suffering unemployed youth will begin to be absorbed by these start-up companies and growing small businesses.
By not offering an actual concrete alternative to the indigenisation programme, the MDC-T risks becoming its own worst electoral enemy.
By Garikai Chengu.
The author is a research scholar at Harvard University's Faculty of Arts and Sciences.
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