Our northern neighbour is in the process of passing an “empowerment Bill” to force transfer of the majority stake in private companies to black Zimbabweans. Though this is indigenisation rather than empowerment in the South African sense, it raises interesting parallels with South Africa’s draft Mining Charter, which led to the outflow of billions of rand in foreign investment.
Unlike the liquid fuels industry, the mining industry was not particularly enthusiastic about a formal agreement. The proposed Mining Charter, like the Liquid Fuels Charter before it, was to shape how black people and companies would get a share of the then overwhelmingly white South African and foreign-owned mining industry.
In July 2002, an early draft of the Mining Charter found its way into the press, revealing that government was proposing 51% of mining assets be transferred to historically disadvantaged South Africans, that is black people, within 10 years. This caused consternation among foreign investors, who began to sell South African mining shares in a big way.
In the ensuing rush to defuse the situation, I was conscripted by a South African broking firm to explain BEE to unnerved foreign fund managers. I soon concluded that fund managers were the people who panicked first and asked questions later.
The charter that was eventually agreed on binds the industry to a number of other targets on affirmative action, affirmative procurement, human resource development and social responsibility. The agreement is that 26% of the industry will be transferred within 10 years.
One fund manager, phoning from London, asked me directly if the Mining Charter was the equivalent of the Zimbabwean land grabs, where at the time often violent groups of youths were taking over farms and evicting white farmers and their labourers. I explained that the government had been cautious in how it framed its economic policies and was not about to take over the mining industry. In time, a combination of soothing words from government and the mining industry restored calm.
Damage had been minimised and both the industry and government seemed to have — for the moment anyway — learned their lesson. The mining industry had to accept that the minister of minerals and energy was serious about a charter. Government had to realise how badly ownership transfer, if handled clumsily, could be for foreign investment.
The key figure in the empowerment Bill and the draft Mining Charter is the 51% ownership target. At this level, forced transfer of ownership seems to be regarded as equivalent to outright expropriation.
Why 51%? Why not 35%, which can be seen as effective control? Why not 49% or 50%? Anton Rupert, founder of multinational Rembrandt, felt that 50% represented true partnership.
By insisting on 51% or more, Zimbabwe will make absolutely certain that no new foreign investment enters the country. Since the country has insufficient capital, that more or less means no investment. Once again Zimbabwe is experimenting with extreme policy options. Indeed, Zimbabwe is a kind of laboratory for bad policy in Southern Africa.
One such experiment was with land reform. The argument is spurious that giving the go-ahead for illegal occupation of land was the only course of action for a government that had done little about the land question for almost two decades. Surely the Zanu-PF government could have expropriated land, with or without compensation, in a more orderly manner?
Another experiment has been ignoring the international consensus on how to run monetary policy, financing massive state overspending by printing more and more money, leading to spiralling inflation that has made the nearly worthless Zimbabwe dollar the subject of jokes in the region.
Instead, the government has tried to rely on arbitrarily decided price controls, causing chaos in the supply of goods. Recently the Zimbabwean Central Bank has signalled that it knows this experiment is a bad idea by raising interest rates. Sadly, the rise from 650% to 800% in the main lending rate is unlikely to tame inflation, which is running at 6 600% year-on-year.
From a purely economic point of view, the crisis in Zimbabwe has already had some unfortunate consequences for South Africa. One has been the effect, no less real for being hard to pin down, on foreign investment in South Africa. BusinessMap, an organisation that used to track foreign direct investment (FDI) in South Africa, noted a sharp decline in announcements of FDI after the land grabs began.
Various incidents in the years thereafter caused foreign investor nervousness. Land invasions in Bredell, near Kempton Park, in July 2001 were thought to be the cause of a fall in the value of the rand against the dollar. What actually causes currencies to move is debatable, but this was symptomatic of the nervousness that Zimbabwe’s land invasions may have infected South African politics. Certainly the Pan African Congress, which was wounded but still alive in those days, hoped it would.
The Zimbabwean authorities’ thumbing of their nose at the rest of the world and their consequent isolation has cast a shadow over Southern Africa. In 1999 countries of the subcontinent appeared united in their determination to pursue economic reform.
Soon afterwards Zimbabwe appeared determined to go backwards. South Africa and Zimbabwe could have been the boost the region needed to break out of a cycle of mediocre economic growth.
There are a number of lessons to be learnt from the Zimbabwe experience. One is that transformation must be done within a legal framework. This was the message that Reserve Bank Governor Tito Mboweni delivered to an audience in Grahamstown last week, where he spoke about the importance of upholding property rights in the context of Zimbabwe’s land grabs.
The pity of it is that one policy experiment Zimbabwe undertook proved for many years to have been completely justified. This was to support the education system inherited from the colonial regime and make it work for ordinary Zimbabweans. South African employers of ZimÂÂbabwean immigrants will attest to the quality of their education. This is one area of empowerment we really should have copied.