Central Banker Dissents Over Nationalisation

The Zimbabwean authorities are pressing ahead with a nationalisation scheme despite warnings from the country’s central banker that the economic effects will be ruinous.



The dispute highlights the schism between politicians who place ideological policies above pragmatism, and the technocrats in the administration.



On September 26, the lower house of parliament passed the Indigenisation and Empowerment Bill, which will compel foreign-owned firms, including mining companies and banks, to cede 51 per cent of their shares to black Zimbabweans. After the upper chamber, the Senate, passed the law on October 2, only President Robert Mugabe’s assent is required for it to enter into force.



Defending the bill in the lower chamber, Indigenisation Minister Paul Mangwana likened the planned takeover of foreign banks, mining and manufacturing firms to the government’s seizure of commercial farms which started in 2000 – a move which critics say has been counterproductive, destroying farming and ultimately the wider economy.



Mangwana said the new bill represented a “political decision” taken to correct the injustices of the colonial past.



“They want to create white islands in a liberated Zimbabwe, but we will not take that,” he said. “The 51 per cent is only the minimum – we want 90 per cent. When you are carrying out a revolution, you do not do it in half steps. Zimbabwe cannot be half independent.”



The minister scoffed at warnings that partial nationalisation would prompt foreign investors to pull out of Zimbabwe.



“If Standard Chartered Bank feel they cannot continue their operations in Zimbabwe, they can simply go,” he said, indicating that local banks would step in and fill the gap.



A day before the Senate vote, President Mugabe made it clear he agreed with this view when he addressed ZANU-PF members at Harare airport on October 1 after returning from the United Nations General Assembly meeting in New York.



"The minerals are ours. We are offering partners, good partners, friendly partners, a share, 49 per cent or thereabouts. If they won't take it, hard luck – we will give it to our people," he said, according to the DPA news agency.



The same day, the governor of the Reserve Bank of Zimbabwe, Gideon Gono, adopted a very different line on the issue. In a statement on monetary policy, he called for a “fine balancing act between indigenisation of the economy and investment attraction”.



“Of particular concern to us as monetary authorities would be any attempts to forcibly push the envelope of indigenisation into the delicate area of banking and finance,” he said.



Imprudent statements by politicians worsened Zimbabwe’s country’s sovereign risk factor and undermined property rights, and this would act as a deterrent to badly-needed foreign investment, he said.



Gono warned that hasty decisions would have “unintended consequences”, just as he did in July, when the government to slash prices of goods and services in a bid to curb inflation. The result of that policy move was that basic goods disappeared from the shops in a rush of panic-buying.



Instead, the central bank chief recommended that the indigenisation process should be managed in such a way as to ensure local people were able to pay for shares. Thus, if a company had assets valued at 500 million US dollars, it would take about 15 years for locals to acquire a 51 per cent stake.



Gono alleged that the present nationalisation initiative was being backed by “well-connected cliques” who wanted to use it to “amass wealth for themselves in a starkly greedy but irresponsible manner”.



In a pointed rebuke to Mangwana, Gono challenged those who wanted to muscle into the banking and financial sector to apply for operating licences from the central bank.



Mugabe had a five hour meeting with Gono on September 3, which according to the Zimbabwe Independent, resulted in a “temporary truce”.



However, an economic analyst in Harare said it was unlikely the central banker and his political masters would be able to agree on the fundamental issues.



“Their imperatives are divergent,” said the economist, who did not want to be named. “Mugabe sincerely believes we need price controls to cushion the most vulnerable members of society. He also wants to take over companies he believes are working in league with the opposition against his government.”



The analyst said more of the same kind of populist rhetoric could be expected from the political leadership as the March 2008 presidential and parliamentary elections drew closer.



“People like Mangwana are more likely to align themselves with the president before they are reined in by prudent advice from Gono, who better understands the implications of such reckless utterances on investor confidence,” he said.



“When Gono said in his monetary statement that he was merely offering advice… he knew what he was up against. There will be more wanton spending and even more economically damaging statements until the elections in March. Any meeting of minds on policy issues can only be coincidental, although one would expect government to appreciate the importance of getting into an election riding on a healthy economy.”



Zimbabwe is in its eighth year of recession, with annual inflation put at 6,600 per cent, unemployment at 80 per cent, and widespread shortages of fuel and basic foodstuffs.



Mike Nyoni is the pseudonym of a journalist in Zimbabwe.