A New Plan for Zimbabwe
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By MICHAEL WINES
Published: June 27, 2007
JOHANNESBURG, June 26 — Zimbabwe’s government has put forward legislation that would require virtually all publicly traded companies to cede controlling interests to “indigenous†citizens, raising the possibility of a sizable redistribution of the country’s remaining wealth at a time when its economy is collapsing.


The draft legislation, which was published Monday, would mandate that a 51 percent stake in the companies be transferred to Zimbabweans who were “disadvantaged by unfair discrimination on the grounds of his or her race†before April 1980, when the nation won independence from white rule.

The government calls it a plan for black empowerment, while critics label it a bid to shore up crumbling political support for Zimbabwe’s president, Robert G. Mugabe. Given that Mr. Mugabe’s party dominates Parliament, the measure will almost certainly pass.

The legislation would establish a government fund to help citizens buy stock in public companies, and would allow the government to reject any corporate mergers, acquisitions, investments and other transactions in which so-called indigenous Zimbabweans did not hold a 51 percent stake. It was unclear, however, how Zimbabwe’s bankrupt government, beset by hyperinflation and a currency crisis, would finance the transfers.

Nor was it apparent how the companies’ new controlling stakeholders would be chosen. The law apparently contemplates black workers at companies taking stakes in their employers, a move that would surely win Mr. Mugabe some public support as he prepares for what could be a difficult re-election campaign in early 2008.

Empowerment programs that transfer corporate stakes to black shareholders are not unusual. South Africa’s government sponsors a highly successful, but much criticized, program that has transferred large blocks of corporate stock to workers and managers, and has helped make multimillionaires of a handful of well-connected businessmen.

Mr. Mugabe’s critics, however, say the proposal is a scheme to loot the remainder of Zimbabwe’s economy for the benefit of political insiders and backers of the president. To them, the legislation evokes the specter of Mr. Mugabe’s seizure of thousands of white-owned farms early this decade, mostly without compensation, in what was then called a redistribution of land to poor blacks. Instead, many of the best farms were awarded to leading figures in Mr. Mugabe’s government and his ruling party, the Zimbabwe African National Union-Patriotic Front.

Rather than confiscating stakes in companies, however, the legislation envisions a more gradual, potentially compensated transfer of ownership.

At the same time, the government began an effort to rein in Zimbabwe’s hyperinflation, officially about 4,500 percent, but described by private economists as approaching 20,000 percent. A cabinet-level task force on price controls ordered factories and sellers to cut the prices of certain basic goods and services by as much as 50 percent — to levels that existed roughly one week ago.

Mr. Mugabe’s minister of industry and international trade, Obert Mpofu, said that increased prices were unjustified and that they were “a political ploy engineered by our detractors to effect an illegal regime change against the ruling party.â€

Shopkeepers throughout the country ignored the decree, according to several Zimbabweans interviewed by telephone on Tuesday. “No one is even thinking about freezing prices,†said one member of the ruling party, on condition of anonymity because of a fear of retribution.

That person and others interviewed Tuesday suggested that both the price decree and the ownership legislation reflected an increasingly frantic effort by Zimbabwe’s rulers to contain the damage from an economy that has moved in recent weeks from steep decline to outright free fall.

Inflation is now so steep that Zimbabwe’s currency is virtually worthless. The plummeting Zimbabwe dollar, now trading on the black market at about 130,000 to one United States dollar, collapsed last week to as low as 400,000 to an American dollar before recovering. The drop was almost certainly the result of Zimbabwe’s reserve bank flooding the black market with freshly printed bills, seeking to buy scarce foreign currency to pay its own debts.

Prices change daily, if not hourly; one news report last week noted that golfers at a Harare country club were paying for their 19th-hole drinks before teeing off after discovering that prices were rising while they were on the course.

The nation’s industrial production, estimated to be running at only 30 percent of capacity, is grinding to a halt in many places. “The rapid rise in prices is a killer for all concerned,†said Iden Wetherell, an editor at the weekly Zimbabwe Independent newspaper in Harare. “What you’re seeing now is people not bothering to go to work. It’s not worth it when their incomes are consumed entirely by transport costs. Things are deteriorating exponentially here.â€

Mr. Mugabe’s critics and a Harare economist said Tuesday that the “indigenization†legislation would almost certainly make Zimbabwe’s economic havoc even more severe by driving away the few foreigners still willing to invest in the country. The flight of foreign capital has been a crucial element in Zimbabwe’s economic decline, and until the draft legislation was published, the government had been courting Chinese investors and other outsiders, albeit with little success.

“The investment environment here is very fragile, and this is the kind of stuff that, even if it were warming up, would kill it,†said the economist, who declined to be named for fear of retaliation by the government. “Obviously, it’s going to scare even more people away.â€

Foreign firms with stakes in Zimbabwean businesses reacted cautiously to the proposal. “This is still a draft piece of legislation, which means it is open for general comment,†said Ross Linstrom, a spokesman for Standard Bank Group of South Africa, which has a subsidiary in Zimbabwe. Implats, a South African mining giant with a large platinum mine in Zimbabwe, said through a spokesman that it had already ceded part of its Zimbabwe reserves to the government and that it believed that it was already in compliance with the law.

The government has said that the law will apply to all companies, including the foreign banks and mining firms that power much of what is left of the economy. However, legislation that would have transferred a 51 percent stake in mining firms has lain dormant in Parliament for months, after mining firms protested that it could lead to chaos and steep drops in production. More recently, the government has indicated that it might nationalize some sectors of the industry, like coal and uranium mining, but that it would impose less stringent rules on some other sectors.

Some critics noted that one effect of the legislation would be to make a huge pool of corporate stock available for distribution to lucky Zimbabweans — factory workers and black managers, perhaps, but also those with political influence. Some of Mr. Mugabe’s closest allies have become fabulously rich, even by Western standards, during his 27 years in office, those critics say.

Moreover, Mr. Mugabe has frequently doled out patronage to ensure that his close allies remain close. Earlier this month, Mr. Mugabe handed out more than 1,000 Chinese tractors and some 30 harvesters to members of the ZANU-PF ruling party’s central committee, high-ranking officers in the army and air force, provincial and national officials in the Central Intelligence Organization, and ministers and deputy ministers in the government, among others.

Should the proposal become law, one member of the ruling party predicted, corporate stakes would follow suit. “The situation is desperate here,†that person said. “And so we are taking desperate measures.â€

The news from there just keeps getting more bizarre all of the time.

There are so many problems with that legislation that I don't even know where to start. I think the statement that Old Bob is trying to shore up support due to a difficult election in '08 is right on the money...oh, that's a really bad joke.

What has to happen for him to leave will be the local black population deciding that they would be better off without him. That is the only way that lasting change will happen and that is why we keep seeing this type of legislation proposed. It's not enough for the whites to get upset...the majority has to get there too.

I'm cautiously optimistic as the economists will tell you that no nation has ever survived this type of inflation for long.