Can Zimbabwe offer any lessons?

Zimbabwe is still in economic doldrums under the loose moribund political-power sharing arrangement.

Last week, the Zimbabwean Herald Business Daily ran a headline that caught my eye, “Indigenisation regulations gazetted. ”

The government has gazetted the Indigenisation and Economic Empowerment Regulations 2010.

The regulations are meant to achieve 51 per cent indigenous shareholding in existing businesses with owners given a five- year period to comply.

The regulations require that all existing businesses with a threshold of US$ 500,000 should within 45 days from March 1 2010 declare their shareholding status.

This is likely to be interpreted as a way of chasing away foreign investors while other people feel it is tantamount to nationalisation or expropriation of foreign businesses.

Analysts view it as a retrogressive piece of legislation that will only contribute to the ever deteriorating political risk profile.

By and large, political risk refers to the complications businesses and governments may face as a result of what are commonly referred to as political decisions that have a probability of affecting business objectives.

This decision is bound to raise eye brows and indeed make potential foreign investors shy off.

The law is an equivalent of a legalised expropriation of assets owned by private interests since it compels that all businesses and companies cede 51 per cent shareholding to indigenous black interests.

Indeed forceful redistribution of wealth may not be the sure panacea to the problem of empowering the black indigenous people.

Entrepreneurship spans beyond getting the wealth.

For companies, manufacturing entities or factories to flourish there must be proper allocation of scarce resources that the locals may not effectively offer.

Contrary to my expectations, this country is full of resources and the infrastructure especially in the city of Harare puts Kenya to shame.

The gold, diamond and platinum mining significantly contribute to this economy.

I can also bet that few of us would believe that Zimbabwe has one of the highest literacy rates in Africa at around 94 per cent for males and 92 per cent for females.

The streets are wider and cleaner possibly due to the small population that do not exert a lot of pressure on these infrastructural investments.

For a country that for the last fifteen years has been under severe economic sanctions- it is doing fine.

It is therefore my considered opinion: Zimbabwe is a sleeping giant.

Her only problem is one- politics.

Zimbabwe was in a state of free fall embroiled in the worst political and economic crisis of its twenty-year history as an independent state.

The crisis has negatively affected virtually every aspect of the country and every segment of the population.

The genesis of this economic mess can be traced to the violent seizure of thousands of white-owned farms for redistribution to black Zimbabweans, combined with years of drought.

Inflation had soared to unprecedented levels.

Last year, the Zimbabwean government announced a partial dollarisation of the economy, declaring the US dollar and other foreign currencies as legal tender in its efforts to fight a crippling hyper-inflation.

By that time prices were doubling every 24.7 hours or an equivalent daily inflation rate of 98 per cent.

My host reminds me, “Almost every day we would see passengers being thrown out of moving buses because they quarrelled with the conductor over the value of the item they have offered as bus fare.” Chicken was a popular medium of exchange.

Before adoption of the US dollar as the legal tender, the Zimbabwean dollar had become a worthless piece of paper that no one would accept.

You could walk along the street and spot a Zimbabwean dollar note and not bend to pick it.

Employers became innovative and would pay their workers in fuel coupons or groceries.

This may look unbelievable but that’s how serious the issue had become.

In fact the economy has now fully transited into a US dollar economy.

The stock market has adopted it and even buying a sweet from the hawker along the streets must be by the currency. This has stabilised the economy a great deal.

The economy desperately needs resuscitation and the last thing it may need at this point in time is retrogressive laws like the indigenisation and empowerment law.

Such news emanating from Harare is likely to make the economic recovery a hard nut to crack.

The economy lacks liquidity and banks needs to recapitalise.

It is virtually impossible to access credit from any financial institution in this country.

The lending has been limited to a maximum period of 180 days.

But it is not all gloom. The World Bank’s 2010 Global Economic Prospects report, projects an economic growth of 7.1 per cent in Zimbabwe this year then slows down to 6.3 per cent next year.

Mr Kihuro is a risk management practitioner at Shelter Afrique in Nairobi. jkihuro@yahoo.com