August 15, 2013 6:24 pm
Africa: Mugabe undaunted
The Zanu-PF party is pressing ahead with its more radical electoral pledges
Cairns Holdings has long produced some of Zimbabwe’s most popular foods, ranging from Chompkins crisps to Cashel Valley baked beans. But at the company’s forlorn headquarters in Harare, the window panes are cracked and the walls have faded.
“We have not even been spending on new coats of paint because we have been in survival mode to be honest,” says one company official, who asked not to be named.
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- Opposition challenges Mugabe landslide
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Cairns, which once exported food and wine across Africa, the US and Europe, and traces its roots back to the 1940s, has been under voluntary judicial administration since late last year. Four years ago, its capacity utilisation fell below 10 per cent as plants were closed. The workforce has shrunk to only 620 from 1,600 in the mid-2000s. The official believes the group is now out of “intensive care”. The search is on for a new owner and capacity utilisation is back to averaging about 25 per cent.
Cairns is hardly an unusual case and the company, in fact, reflects Zimbabwe’s broader economic decline. Once hailed as a regional breadbasket, the country of 13m has more recently had to import food to feed its impoverished population.
All eyes are now on 89-year-old President Robert Mugabe and his Zanu-PF party, who have held a tight grip on power since independence from Britain in 1980. Businesspeople are seeking to determine how Mr Mugabe will handle the battered economy after his resounding victory in last month’s election, which theopposition hotly disputes.
The country’s bitter politics have weighed heavily on commercial life. Zimbabwe – known as Rhodesia before independence – is blessed with fertile land and rich deposits of minerals such as platinum, gold and diamonds. It once boasted one of Africa’s most developed industrial bases. But a decade of political instability, marked by electoral violence and the seizure of white-owned farms, fuelled an economic collapse. Blighted by hyperinflation, the country’s supermarket shelves lay empty, while the central bank printed Z$100tn notes that lost their value almost as soon as the ink dried.
The perception of economic decay in Zimbabwe, hit by sanctions and treated as a pariah in the west, has been accentuated by rapid progress elsewhere in Africa. While sub-Saharan Africa enjoyed an average growth rate of more than 5 per cent between 2002 and 2012, Zimbabwe suffered a 2.6 per cent annual decline on average over the same period, according to the International Monetary Fund.
The economy is still fragile, with nearly two-thirds of people living in poverty, but Mr Mugabe is sounding in no mood to bow to investors’ concerns. Instead, he is vowing to press ahead with his more radical electoral pledges, most notably Zanu-PF’s plans to “indigenise” foreign businesses. This would mean that at least 51 per cent of any enterprise should be owned by black Zimbabweans.
Shortly after his victory, he defiantly told his critics to “go hang”.
“Now that the people of Zimbabwe have granted us a resounding mandate in the governance of the country, we will do everything in our power to ensure that our objective of total indigenisation, empowerment, development and employment is realised,” Mr Mugabe said. “This is our final phase of implementing the ideals of the liberation struggle.”
Mining companies such as Impala Platinum and Anglo American have already been at the centre of Zanu-PF’s indigenisation efforts but now banks, including Barclays,Standard Chartered and Standard Bank, and manufacturers such as Nestlé andBritish American Tobacco, are in Zanu-PF’s sights.
This drive to take over foreign business follows years of economic mismanagement.
Many trace the beginnings of the economic malaise to around 2000 when Mr Mugabe, facing increasing political opposition, launched his land reform programme that was blamed for the collapse of the once flourishing agricultural sector. By 2008, when the country held disputed elections in which more than 200 people were killed, inflation had become incalculable, with an official figure in July that year putting it at 231m per cent as political and economic chaos became intertwined.
A measure of stability returned after Mr Mugabe’s Zanu-PF and the oppositionMovement for Democratic Change agreed to form a unity government in early 2009 and adopted the US dollar.
Now, however, the nation is at a critical juncture in the wake of Mr Mugabe’s electoral victory. For years, the “indigenisation” policy has been accompanied by belligerent rhetoric but it has been shrouded in uncertainty over how it would work in practice. Still, the threat of its implementation has stymied desperately needed investment.
“How do you come here with your brand and be told you own 49 per cent?” says an executive. “It’s just not practical and the policy has been very inconsistent.”
. . .
The policy has some popular support because more than 275,000 black households have received arable land plots from the authorities after the confiscation of white farms. The manifesto of Zanu-PF – which won more than two-thirds of contested parliamentary seats – vows to “unlock” $7.3bn from the indigenisation of 1,138 companies.
And Zanu-PF now looks set to manage the economy alone after four years in a dysfunctional unity government with the MDC. The party of Morgan Tsvangirai, the prime minister in the last administration who lost to Mr Mugabe in the presidential vote, held ministries such as finance and energy and was considered more pro-business and a check on Zanu-PF’s excesses, albeit a weak one. But as the MDC mounts legal action against the results, it has ruled out taking any positions in the next government.
The hope among businessmen is that Zanu-PF will remember the dark days of 2008 and, for all its bluster, will not push ahead aggressively. The central bank has already sought to counter post-election concerns about the possible reintroduction of a Zimbabwean currency, saying the US dollar will remain.
But Zanu-PF’s economic record does not inspire confidence. In its first day of trading after Mr Mugabe’s win, the Zimbabwe Stock Exchange’s industrial index plunged 11 per cent, after having risen 52 per cent since the beginning of the year.
“The victor itself is not a party that has set a track record that you would be very confident with in terms of making the right business decisions, so we can’t guess – we are hoping,” says one businessman in Harare. “And unfortunately the victor does not have the goodwill of the international community so we are not likely to see a lot of foreign direct investment flowing in.”
Some Zimbabwean businessmen say indigenisation was bound to happen in some form no matter who won the election. The concern, however, has been around tough implementation of the policy. Zanu-PF says it will not, for example, compensate mining companies that lose majority stakes, saying that they have already profited from the country’s natural resources.
Saviour Kasukuwere, a senior Zanu-PF official and the minister in charge of indigenisation in the unity government, told the Financial Times that the government would use different formulas for different sectors. These may include workers taking stakes in their companies – similar to some black economic empowerment schemes in South Africa implemented after the end of apartheid in 1994 – and listings on a new stock exchange that Zanu-PF plans to launch for local investors.
“Zimbabweans are ready to work with the world and we have set out the terms and the parameters in which we will engage. We are saying 49 per cent is a hell of an opportunity for you to come and participate alongside our people,” Mr Kasukuwere says. “We must grow out of this mode of threatening each other each time Africa puts out policies that are meant to undo years of colonialism . . . it is immediately branded ‘scaring off investors’.”
“If there’s anybody scared, they had better stay away,” he adds.
Zanu-PF blames Zimbabwe’s economic woes on sanctions and there is little sign of an end to these embargoes. While African leaders have congratulated Mr Mugabe and praised the elections as free and peaceful, western governments, notably the UK and US, have described the vote as flawed.
The boycotts only compound the country’s dire need for investment and stability. Growth rebounded after dollarisation in 2009 but the recovery has been tentative. The economy is forecast to expand 3.4 per cent this year compared with 10.5 per cent in 2011. Capacity utilisation in the manufacturing sector was just 44 per cent last year, according to the Confederation of Zimbabwe Industries, while a report by the body quotes data suggesting that 300 manufacturers have closed or have shed some parts of their production since 2009.
. . .
Cairns’ story graphically illustrates the companies’ travails.
It has not had the funds to invest in new equipment other than vehicles for more than a decade. After agricultural production plummeted, it was forced to import raw materials.
After dollarisation, its savings in Zimbabwean dollars were worthless and, like other businesses, it had to start from scratch. It went to the banks to stay afloat, borrowing $10m in 2009 and 2010. But with liquidity tight, interest rates were more than 20 per cent. The company has paid back $12m but still owes $14m as it was forced to reschedule its debts, taking on higher interest rates, the official says. Burdened with antiquated equipment while still having to import raw materials it once procured locally, it has struggled to compete with imports from the likes of South Africa.
Cairns has attracted interest from potential suitors, mainly South African groups, but whether a deal goes through could depend on the scale of indigenisation.
Still, while western companies may be wary about the indigenisation programme, Russian investors are showing interest. Indeed, The Herald, Zimbabwe’s state-run newspaper, has reported Russian interest in buying Cairns. The Russians are certainly also interested in platinum mining projects, while Chinese companies are looking at opportunities in mining and infrastructure.
However, unless there is policy certainty and a willingness among investors to pump money into the country, much of the economy will remain in the hands of the informal sector, economists say, with small businesses plying their trade but paying no taxes to a broke, debt-burdened government.
“Once you have finalised a firm policy for new investment it will be better,” says one Chinese investor.
-------------------------------------------
MDC: Little hope that Tsvangirai can overturn his electoral loss
After four years partnering President Robert Mugabe’s Zanu-PF party in a unity government, the Movement for Democratic Change went into the July 31 election complaining about the lack of reforms but still confidently predicting victory.
It was the first poll since a disputed 2008 election during which Morgan Tsvangirai, the MDC’s leader, knocked Mr Mugabe into second place in the first round of the presidential vote. Mr Tsvangirai then pulled out of a run-off citing violence against his supporters in which some 200 people were killed.
Ahead of this vote, the MDC had expected to build on its successes in 2008 with the belief that Zimbabweans would not countenance voting for the 89-year-old Mr Mugabe, who, like his Zanu-PF party, has been in power since 1980. Yet hours after the polls closed, it became clear that the MDC’s ambitions had been shattered. On August 1, Mr Tsvangirai, prime minister in the unity government, grimly read a statement describing the election as a farce and “null and void”, while Zanu-PF officials boasted of a predicted landslide.
The latter proved correct. Official results gave Mr Mugabe 61 per cent of the vote, against Mr Tsvangirai’s 34 per cent. Zanu-PF won more than two-thirds of the contested 210 parliamentary seats, with surprising inroads into what were traditional MDC strongholds.
The election was peaceful and the African Union and the Southern African Development Community gave qualified approval to the vote. In contrast, the UK and US raised serious concerns with the poll, as did the Zimbabwe Election Support Network, a coalition of non-governmental organisations that had more than 7,000 observers deployed across the country.
It said more than 750,000 people were missing from the voters roll in urban areas, where the MDC had previously enjoyed strong support, adding that up to 1m voters were disenfranchised.
Other concerns included 8m ballots being printed for 6.4m registered voters and thousands of voters being turned away from polling stations, particularly in urban areas.
Last week the MDC mounted legal action in the constitutional court to contest Mr Mugabe’s victory but the impartiality of the judicial system is questioned and few expect Mr Tsvangirai to succeed in his challenge.
Additional reporting by Tony Hawkins
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http://www.zimbabw...hange.com/indices/
Not exactly a vote of confidence. And yes the market did rally the last few yrs, but that was largely due to policies that scrapped the Zim Dollar in favour of allowing business to be conducted in USD .