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White-Owned Companies May be Forced to Give Up Majority Stakes in Zimbabwe

Printer Friendly VersionPrinter Friendly VersionSend to a FriendSend to a FriendZimbabwe's unity government is plunged into another crisis as new regulations designed by President Robert Mugabe's loyalists demand that 51 percent of all companies be given to blacks. Prime Minister Morgan Tsvangirai says the regulations were formed without his approval and are therefore null and void. Under legislation Parliament passed in 2008, by March 1st every company valued at more than $500,000 must submit a plan for indigenous ownership within five years. Prime Minister Tsvangirai has objected to the legislation, which was passed under the Zanu-PF-led government before the 2008 elections. A few days after that, Mr. Tsvangirai's Movement for Democratic Change won the elections, and it later formed a unity government with President Mugabe. The company law, however, threatens a new crisis for the nation. Fourteen sectors in the economy have been reserved for indigenous, or black, Zimbabweans only, including transport, agriculture and retail. And failure to comply is a punishable with up to five years in jail. Regional economists warn the regulations mean that potential foreign investors will now stay away from Zimbabwe. One of the world's largest mining companies, Rio Tinto, has a small diamond mine in Zimbabwe and has said it hopes to expand operations. Rio Tinto spokesman Nick Cobban in London describes the regulations as "draconian and unworkable". The Zanu PF Minister in charge of indigenization, Saviour Kasukuwere, says the regulations are the result of widespread consultation and will be flexible. Mr. Tsvangirai however, says he had not been consulted. He says he is responsible in the government for policy formulation and that the regulations had not been presented to cabinet. Unlike South Africa's black economic empowerment program, in which blacks buy shares, the new Zimbabwe regulations presume majority shares in companies will be handed over for free. President Mugabe and other Zanu-PF leaders and supporters have taken control of nearly all of Zimbabwe's white-owned commercial farms since 2000. Most beneficiaries had no commercial farming experience and could not obtain bank loans to fund operations. About 80 percent of that land is now idle. Before 2000 it produced 40 percent of Zimbabwe's foreign currency. Economists blame Zimbabwe's collapsed economy on the massive shrinkage of commercial agriculture. Zimbabwe economist John Robertson says he fears the new regulations will doom many companies if they end up with boards of directors with no knowledge of the businesses. He predicts many will go broke as they will fail to secure funding and that company bosses will become less motivated to perform when stripped of their majority shareholding.