Fight over Zimbabwe economic policy turns in favour of Finance minister Chinamasa

Mugabe issued a statement softening regulations forcing foreign companies to ensure black residents own at least 51% of their businesses

Chinamasa has won a battle, but will he win the war over Zimbabwe's economic future? (Photo/File).

Chinamasa has won a battle, but will he win the war over Zimbabwe's economic future? (Photo/File).

ZIMBABWEAN Finance Minister Patrick Chinamasa is gaining the upper hand in a power struggle in the ruling party over his efforts to revive an ailing economy and tap financing from the International Monetary Fund.

In recent weeks, Chinamasa has said the state may compensate white farmers whose land was confiscated and that the southern African nation will pay $1.8 billion of about $10 billion it owes to foreign lenders by June 30. 

President Robert Mugabe issued a statement on April 12 softening regulations forcing foreign companies to ensure black residents own at least 51% of their businesses.

“What was presented in Mugabe’s statement is actually a policy shift of seismic proportions,” said Alex Magaisa, a Zimbabwean constitutional lawyer at the University of Kent in the U.K. “In many ways the statement represents a significant retreat by the Zimbabwe government on a flagship indigenisation policy.”

National disaster

The changes highlight the government’s drive to resuscitate an economy that’s half the size it was 15 years ago, with about 90% of the population out of formal employment. Mugabe declared a state of national disaster last month due to the worst drought in almost two decades that’s killed cattle, withered crops and left millions of people needing food aid.

The government’s also struggling to meet monthly wage bills that consume over 80% of revenue.

Zimbabwe hasn’t been able to access finance to build infrastructure and create jobs since it fell into default to the IMF in 1999. The U.S. and European Union nations imposed sanctions on Mugabe and senior members of the ruling Zimbabwe African National Union-Patriotic Front (Zanu-PF), citing allegations of human-rights abuses and electoral fraud.

“ZANU-PF’s election campaign slogan three years ago was ‘indigenise, empower, develop, create employment’,” Magaisa said. “It has not created employment, there has been no empowerment, there has been no development and now indigenisation has just been abandoned in all but name and slogans.”

Policy resistance

Resistance to the policy shift has centred around a faction in ZANU-PF known as the Generation-40, which has coalesced around Mugabe’s wife Grace as a potential eventual successor to the 92-year-old president.

Criticism of Chinamasa’s policy direction has been led by Indigenisation Minister Patrick Zhuwao, who’s Mugabe’s nephew.

When Chinamasa and central bank Governor John Mangudya assured banks that they were exempt from rules requiring all businesses to be at least 51% locally owned, Zhuwao accused them in a statement of disregarding the law and a decision by the cabinet. Chinamasa and Zhuwao declined to comment about any differences within the government or the ruling party.

“My appeal and plea to you is to urgently engage the financial services sector so that all affected institutions make a commitment to developing indigenisation implementation plans and indicate such commitment to comply by the deadline of 31st March 2016,” Zhuwao said in a statement.

Ownership rules

About two weeks after the deadline passed, Mugabe issued the statement saying that banks wouldn’t be forced into unwanted partnerships. Standard Bank Group Ltd., Barclays Plc and Standard Chartered Plc have units in Zimbabwe. 

Mugabe also proposed watering down ownership rules for mining companies that have been in place since 2010.

While new miners will have to offer a 51% stake to black Zimbabweans, existing operators will be able to retain ownership if they retain or spend 75% of their earnings within the country including expenditure on tax and wages. Foreign miners such as Zimplats Ltd., Anglo American Platinum Ltd. and Aquarius Platinum Ltd. met their empowerment obligations as early as 2014.

“It’s a humiliating moment for Zhuwao. The indigenisation minister has now been reduced to the role of coordinator, after adopting a belligerent tone in recent months,” Magaisa said. “It’s a victory for Chinamasa in that ugly fight with Zhuwao.”

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