The government of Zimbabwe has been continuously revising the Indigenisation and Economic Empowerment Act (IEEA) to suit the current context and the thrust of the current regime.
The Act was first introduced in 2007, its major highlight being that foreigners who have businesses in Zimbabwe must not own more than 49% of the shares. However, the fourth amendment in 2017 saw the scrapping off of this clause by the incoming political administration.
The spotlight shifted to reserved economic subsectors. By explanation, there are some sectors in the economy that foreigners are not allowed to invest in as they are reserved for indigenous people.
According to the IEEA, the threshold of the reserved sectors includes, transport (passenger buses, taxis and car hire services), retailing, wholesaling, valet services, hair salons, advertising agencies, estate agencies, grain milling, bakeries, tobacco grading and packaging and artisanal mining.
Recently, the Zanu PF secretary for Indigenisation and Economic Empowerment Dr Mike Bimha has been vocal about enforcing the clause and making sure that only citizens of Zimbabwe benefit from the reserved sectors.
Speaking to Zimpapers, Dr Bimha said, “The reserved sectors are only for Zimbabwean citizens and not for foreigners. Local authorities must stop issuing licenses to foreigners.”
He highlighted that there was a need to form a funding initiative that will help to boost participation, capacity and entrepreneurship amongst citizens who will be operating in these reserved businesses.
“The facility which must be supported by Government and the private sector can be in the form of a trust which is auditable, transparent and accountable. This fund will scale up the number of entrepreneurs in communities throughout the different value chains and test innovative economic empowerment approaches to share lessons learnt and build the evidence for effective business models. There must be pilot innovative interventions for the communities’ economic empowerment in different sectors of the economy,” he further indicated.
The revision of the IEEA has caused some misconceptions amongst people, stakeholders and investors. Some critics have raised eyebrows, highlighting the government is shooting itself in the foot and going against the ‘open for business’ mantra by deterring foreigners from operating in the said industries.
In retrospect, protectionism in some economic sectors kills foreign competition. Considering the Zimbabwean economy, local business people are likely to have less capacity to compete in these areas.
That is the concept of empowerment. To grow an effective economy there is a need to build local capacity by providing skills, support, technique and the capital boost for business to sprout in the said economic subsectors.
The policy is not only identifiable with Zimbabwe but almost every other country in the world has a way of protecting local investors and empowering its citizens in doing business.
Botswana is well known for its Financial Assistance Plan industrial development policy that reserved low skill sectors of the economy to locals. This policy contributed significantly to the growth of local industries.
South Africa implemented a series of Black Empowerment Policies meant to support and develop small and medium businesses by locals through support initiatives such as procurement.
However, research and study have shown that the major downfall of most local empowerment policies in most countries is the lack of proper monitoring and evaluation structures that leaves the initiatives susceptible to corruption and abuse by the elites.
This is where the Zimbabwean government must play its cards right and put in place a fund that has effective monitoring mechanisms that ensure that the funding initiative reaches the intended beneficiaries. This will see local businesses in those sectors thriving and acquiring the necessary skills and capacity to also expand to other big industries when implemented in good faith.
Foreigners who already have businesses in these reserved sectors are allowed to continue operating. However, they are encouraged to also support local players by extending their skills and capacity.
The reservation of some businesses will have less impact on the countries capability to attract Foreign Direct Investments. Other sectors that require high levels of capacity, skills and capital are open for investments.