Black Economic Empowerment and Corporate Governance in Zimbabwe Essay

Indigenous Zimbabwean as defined in the National indigenisation and Economic Empowerment Act refers to anyone who, before independence in April 1980, â€Å"was subjected to unfair discrimination [presumably in Zimbabwe] on the grounds of their race, and includes a descendant of such a person†. Thus indigenous Zimbabwean means any person who before 18 April 1980, was disadvantaged by unfair discrimination on the grounds of his or her race , and any descendant of such person, and includes any company association, syndicate/ partnership of which indigenous Zimbabweans form the majority of the members or hold the controlling interest. National indigenisation and Economic Empowerment Act, defined indigenisation as a deliberate involvement of indigenous Zimbabweans in the economic activities of the country, to which hitherto they had no access, so as to ensure the equitable ownership of the nations resources. Empowerment means the creation of an environment which enhances the performance of the economic activities of indigenous Zimbabweans into which they would have been introduced or involved through indigenisation. The locus of control shifts from managers to workers so that the workers become responsible for their actions but managers do not lose their involvement. Workers are considered as strategic business partners so that participation and involvement of workers is enhanced. Workers who participate in programs designed for learning are encouraged, recognised and utilised. Empowerment brings element of commitment and identity that is we are citizens of Zimbabwe. Corporate governance is a term derived from a Latin word gubanare which means to steer. It is the manner of directing and controlling the actions and affairs of an entity. Reduced to basics, it is the exercise of powers and actions to achieve goals of an organisational entity. Core concepts of corporate governance include†¦ accountability, responsibility, fairness, transparency, sustainability, good board practices, control environment, board commitment, openness, reputation, stakeholder interface, ubuntu. Background to Indigenisation and Economic Empowerment Despite reports that the Zimbabwean government is mulling over accelerating the implementation of the Indigenisation and Economic Empowerment Act passed in 2008, many foreign firms continue to operate their businesses. Lured by the ever increasing attraction of the Zimbabwean economy, which has been propped up by the economic stability brought about by the unity government, foreign economic players are making inroads into the Zimbabwean market. For example, the British American Tobacco company under its Zimbabwean subsidiary, BAT Zimbabwe, last year purchased 15 million kilograms of tobacco. The company will consumed just 10% of the crop and exported the rest to other BAT operations worldwide. Mining company, Zimplats, which is owned by South Africa’s Impala Platinum also recorded impressive gains and is reportedly seeking to increase platinum mining in the country and production at some of its mines. A report by the Confederation of Zimbabwe Industries (CZI) shows that factory-capacity utilisation in the country is up to 57% from less than 10% before the unity government, which is an encouraging sign for investors. Dr E.  Bloch warned that South Africa, Zimbabwe’s largest trading partner in the region, will be watching the empowerment issue closely, especially since they have several interests in the country. â€Å"Zimbabwe must be wary of scaring off investment. Empowerment must be acceptable to SA as well. Our version of their Black Economic Empowerment initiative must not scare them off,† he said. In Zimbabwe today, industry and commerce is predominantly the domain of big conglomerates, who own most businesses in all sectors. The levels of black people’s participation in industry and commerce and business entrepreneurship continues to be unacceptably low. As it stands, blacks who suffered discrimination due to their race have not really enjoyed the benefits of the Indigenisation Act. The indigenisation process therefore runs the risk of appearing to have been designed for the exclusive benefit of a certain class and in turn loosing the very credibility and broad based support that it requires to be a success. The Indigenisation and Economic Empowerment Act is not merely a moral initiative designed to redress the wrongs of the past, it instead serves as a pragmatic growth strategy designed to realise the nation’s full economic potential. However, neither the pasts wrongs nor future’s promise can be addressed without prioritising indigenous people’s economic empowerment. Officials are not acting in good faith regarding the implementation of the Indigenisation Act. They are looking the other way when foreigners continue to hog the retail business space and other secondary sectors. One only needs to look at how foreign nationals, particularly the Chinese have crowded out emergent black businesspeople from the retail trade to appreciate the concern. This is a sector that ought to remain exclusively indigenous. While Zimbabwe direly needs investment to create jobs enough to absorb a growing legion of jobless locals, there is absolutely no need to give the Chinese or any other foreign nationals the advantage to crowd out indigenous people from sectors that require nominal capital to start. Indigenous people have been crowded out of the lucrative diamond mining business by foreign companies. Government should also encourage firms to meet indigenisation targets by creating Employee Share Ownership Plans (ESOP) for groups of black employees. An ESOP is a means through which employees can own a share of the company they work for and employee ownership increases production and profitability, and improves employees’ dedication and sense of ownership. The government should not scuttle business ambitions of emerging indigenous entrepreneurs instead its major role should be to facilitate and create a business atmosphere that assists those with business acumen and pedigree to develop their enterprises for the betterment of a majority of the people. The Shabanie and Mashaba Mines saga is a case in point. It is an enduring lesson of how government should never, ever flex muscles in a sector which it is clueless about. The consequences are evident for all to see and do little to convince even those that the empowerment programmes are meant to benefit. Indigenous people who have the acumen to run a particular business should be given the chance to do so without government interference. It remains a sad reminder to national goals for economic emancipation when locals are squeezed out of the business and when these locals see opportunities they have identified being whittled away simply because of petty bureaucracy. Regulations of the Zimbabwe Indigenization Policy Regulations to implement the 2008 Indigenization and Economic Empowerment Act requiring local control of foreign firms doing business in Zimbabwe took effect amid rising concern the program would dash any interest investors might have in the country. The regulations require companies with a value of more than US$500,000, to report on the distribution of new shareholdings. The Indigenization and Economic Empowerment Act proposes for a 51 % transfer of shares in foreign companies to indigenous black citizens. The Zimbabwe Congress of Trade Unions criticized the drive to establish black majority control of foreign companies, saying indigenization will benefit just a few blacks who will replace minority whites. Businesswoman Marah Hativagone, director of the food processing ingredients company CodChem and a former president of the National Chamber of Commerce, said indigenization is desirable but added that the current initiative is poorly timed as it comes just as the economy is recovering its footing. Under Sections 3 and 4 of the Act, overseas-owned firms with an asset value of more than $500,000 (? 332,000) will have five years to sell a 51% stake to indigenous Zimbabweans. Failure to do so attracts a jail sentence. The foreign-owned firms have 45 days from the day of implementation of the Act to inform the government how they will achieve majority indigenous shareholding within five years. The regulations apply to â€Å"companies, associations, syndicates and partnerships whose object is the acquisition of gain; effectively this covers everything other than literary and charitable associations†. Under Section 4 of the regulations, all businesses with an asset value of more than US $500 000 must send the Minister a form [which is set out in the regulations] showing the extent to which they are indigenised and, if they are not majority-owned by indigenous Zimbabweans, their plans for indigenisation; these plans must conform with guidelines provided in the form. Existing businesses must submit the form to the Minister by the 45th day from the day of implementation but it is not a criminal offence to fail to submit the form — if a business fails to do so. The Minister can send it a form and order the business to complete it; only if the business fails to comply with the Minister’s order will it commit an offence [Section 4(4)]. Having received a form from a business, the Minister has 45 days within which either to approve the business’s indigenisation plans or to make his approval dependent on the plans’ conformity with a notice which the Minister published in the Gazette before the 1st March 2011. If a person or company that controls a business whose asset value exceeds US $500 000 relinquishes control over the business, the transaction will have to be approved by the Minister, and the approval will be conditional on the transaction conforming to indigenisation targets set out in an approved indigenisation plan [Section 8]. Under section 9, anyone who â€Å"projects or proposes an investment for which an investment licence is required in terms of the Zimbabwe Investment Authority Act† will have to obtain the Minister’s approval before obtaining such a licence, and â€Å"any investor requiring a licence in terms of the Zimbabwe Investment Authority Act† will have to obtain the Minister’s approval before investing in sectors of the economy which are listed in the Third Schedule. These sectors include agriculture, transport, â€Å"wholesale or retail trade†, barber shops, advertising agencies and milk processing. If goods or services are obtained from a supplier under the Procurement Act and the supplier is not controlled by indigenous Zimbabweans, the supplier must subcontract to competent indigenous businesses — but only if the supplier â€Å"is required by the Act to subcontract to businesses whose controlling interests are held by indigenous Zimbabweans. † Businesses will have to satisfy the Minister annually that they are indigenising in accordance with the law. Under Section 15 the Minister will establish a database of people who want indigenous Zimbabweans to acquire an interest in their businesses, and of indigenous Zimbabweans who wish to â€Å"partner† those people. The role of the Indigenisation Policy to the Economy Zimbabwe’s much publicised indigenization and economic empowerment program must aim at creating new wealth . The real solution is to grow the economy and in the process generate new wealth which in the process creates jobs and brings national prosperity. Zimbabwe’s broad based black economic empowerment must not merely focus on correcting historical wrongs. It should be refined and become a pragmatic growth strategy that aims to realise the country’s full economic potential while helping to bring the black majority into the economic mainstream which further creates a market for enterprises. The program must clearly identify individuals with potential who can be supported to build enterprises and businesses from scratch and create new wealth and jobs. The over focus on re-distributing current wealth only serves to bring disrepute to an otherwise very noble and necessary program. There are several practical steps which need to be developed and followed to ensure the program becomes a resounding success which include skills development and access to Entrepreneurial infrastructure. The ownership, management, socioeconomic development and preferential procurement are critical areas of broad based economic empowerment program which need to be clarified and developed to ensure the program’s success without disrupting established businesses which are already employing thousands of people and contributing to the Treasury through corporate and income tax. The rules of engagement of the Broad based Economic empowerment program must be well laid out in advance for all investors to understand. If done haphazardly the economy shrinks and more people go hungry because investors flee and the skills that we need also flee, we see that what we have inherited has turned to ash. A credible empowerment program must be aimed to ensure broader and meaningful participation in the economy by indigenous people to achieve sustainable development and national economic security. In light of Globalization and dominance of Foreign Direct Investment and Sovereign Wealth Funds in distribution of capital it is imperative for the economic empowerment to be done within the confines of the law. Admittedly Zimbabwe has several attractive features such as mineral resources, educated labour force, excellent weather etc but investors have multiple other potential investment destinations. This means Zimbabwe still has to be competitive in attracting FDI and the economic empowerment program implementation needs to take into account international trends and internationally acceptable practices on dealing with empowerment matters. Zimbabwe and Zimbabweans should shun being associated with grabbing other peoples businesses or assets but should rather develop a reputation as being welcoming to investors who will help in creation of new wealth. The focus should be on creating wealth and not grabbing, seizing or looting. It has been correctly noted that direct intervention in the distribution of assets and opportunities was needed to resolve the economic disparities created by historical colonial policies which had favoured white business owners and citizens at the expense of everyone else regardless of their education, skills or ambition. The World over BEE is intended to transform the economy to be representative of the demographics, specifically race demographics of the country in particular its racial make-up must be reflected reasonably in the ownership of resources and access to opportunities. There is need to avoid victimizing one section on the population even though it may have been a beneficiary of past ill-thought out and discriminatory policies of the past. It has been observed and universally accepted that â€Å"Societies characterised by entrenched gender inequality or racially or ethnically defined wealth disparities are not likely to be socially and politically stable, particularly as economic growth can easily exacerbate these inequalities. Thus broad based economic empowerment initiative is a necessary and critical program which should be carried out in a transparent and accountable manner for the benefit of broad sections of society which were previously systematically excluded from the Economy. The role of the Indigenisation Policy to Corporate Governance C. R. Baker and B. P. Quere contend that most theories on corporate governance do not acknowledge the importance of the state in bringing about good corporate governance practices but tend to focus instead on relationships between boards of directors, managing directors, shareholders and other stakeholders. This approach would leave the government abdicating its responsibilities to the citizens in the country because ultimately business practices impact on the general populace. Here the Enron saga is a case in point. Instead governments have tended to take the role policing the aftereffects of bad corporate governance practices. A pragmatic shift should be taken in the case of Zimbabwe. A proactive stance that anticipates the foregoing implementation of the indigenous economic empowerment strategies on corporate governance as we know it in industry and commerce today should be formulated. Conclusion Thus there is need for government and industry to realise that if boards of directors are to remain legitimate their constitution will have to change to reflect the new shareholding structure. Braudel, 1985, as quoted by C. R. Baker and B. P. Quere points out that it is the responsibility of government to put in place rules and regulations that specify to a very fine degree, the operations of businesses in the economy. Indeed, the advent of the global financial crisis has show that governments have been wanting by leaving firms with inadequate corporate governance that has precipitated the recurrent global crises. Despite the inadequacy of company law and the newly gazetted and revolutionary indigenization law, it is interesting that the government makes no mention of good corporate governance needs in its mid-term economic policy framework, when the global financial crises put forward a compelling case for government intervention in establishing good corporate governance practices. Thus, on one hand, company laws have been preoccupied with the formation and dissolution of business entities, while on the other hand indigenization law has been concerned with the redistribution of shareholding in firms, but both fall short of the modern responsiveness to the laying down of good corporate governance practices. As the government puts in place the new shareholding structures, it is imperative that codes of best practice for corporate governance are instituted so that empowerment of indigenous people does not lead to an economic downturn as happened with the land redistribution programme at the turn of the century.