A few years ago I travelled with a few friends to an area just north of Masvingo to look at birds that were known to breed in that region. On one farm, we found a line of the largest Eucalyptus trees I have ever seen. The largest specimen was many metres in diameter and towered into the sky - over 100 years old it had been planted as a wind break by a settler farmer who had then built his home in the shelter of the young trees.
Eventually, fearing that the old farmhouse would be destroyed by a falling branch from these giant trees, the farmer built a new homestead some half a kilometre away. He told us he only realised the danger when the trees had reached the size that any attempt to cut them down, would threaten the farm buildings.
My mother's father was a Canadian lumberjack who made his living felling trees in the Canadian Rockies. I understand the dangers in tree felling. In my younger years I was a keen Scout and we were trained to use an axe and how to cut into the stem in such a way as to direct where the free would fall. Big trees are dangerous - they can fall in the wrong direction, jump the stump and injure and even kill the lumberjack.
In 2007, Zanu PF passed the Indigenisation Act. They did so in spite of strong opposition from the MDC who saw it as a racist grab for assets not yet taken in the wholesale rush for wealth that Zanu PF had unleashed in 2000. Zanu PF did nothing to activate the Act until late in 2010 when they realised that the MDC was the main political beneficiary of any economic recovery. So as part of their strategy for a snap election before any GPA reforms had been adopted and implemented, they activated the Act. On a Friday evening the Minister responsible, Saviour Kasukawere, published a sweeping set of regulations.
In those regulations all firms with assets of more than $500 000 were given weeks to make arrangements to 'cede' 51 per cent of their equity to 'indigenous' Zimbabweans. Heavy penalties were threatened for non compliance. There had been no consultation with the MDC in the GPA Government. The Prime Minister announced that the Minister had not complied with Cabinet procedures and therefore the new Regulations were null and void. This was followed by the Parliamentary Legal Committee that has responsibility of reviewing all new legislation to ensure it complies with the Constitution - the Committee came out with a negative report stating that the Regulations were contrary to the Constitution.
But the damage was done, Foreign Direct Investment slumped from $1,4 billion in 2009 to $400 million in 2010. Thugs from Zanu PF began to visit firms threatening that if they did not comply they would simply take over the company by force. The goals of Zanu were achieved, the recovery stopped and then reversed - capital flight resumed, confidence plummeted and stocks crashed across the board.
Kasukawere did not rest on his laurels; he revised the regulations and repeated what he had done the first time. Again no consultation with the MDC in Cabinet and still the regulations flaunted the Constitution. It made no difference, he now wrote to the top firms in the country, demanding that they submit plans to him on how they would meet his demands. The four top Banks, all foreign owned, were targeted. The largest South African foreign investment in the world, Zimplats, was also targeted.
On the ground, Zanu thugs again made the rounds, walking into firm's offices and simply demanding compliance that they hand over control. Managers panicked and investors and shareholders froze maintenance and new investment. Nervous local businessmen started to take their liquid assets out the country. The Reserve Bank acted to try and stop some of the exodus.
But Saviour has failed to learn the one really important lesson of tree felling. If you are set to cut down a large tree, you had better plan it carefully and be very cautious in your approach and always have an escape route. The real danger is that the damn thing will fall on you or destroy more than just the small trees in the vicinity. In this case he has tackled the largest firms in the game and he quickly found that they were a very different target to a commercial farmer on his farm in some remote district. These firms have big parents and powerful friends and he has been quickly forced to back down.
I have often said that no firm, large or small, will give up a controlling stake in their company. No investor would trust strangers or even hostile elements to simply take over the management of the firms they controlled because they put up the risk capital that was needed to start the company. No firm, anywhere, would accept that.
This is exemplified by one company in Bulawayo that was approached. They simply stated that if they were required to sell 51 per cent they would require the new investors to take 100 per cent and they would take their capital and do something else. So we have a standoff. The MDC does not accept the idea of indigenisation as expressed in the Act and the Regulations. We would support broad based empowerment, investment and policies that would empower the generality of our population without undermining the legitimate rights of investors.
Like so many things that are not moving under the GPA, this is perhaps just another casualty that will only be attended to properly once the political crisis is dealt with. As for Saviour, he is going to need one before very long.
Nyanga, September 14, 2011