Reserve Bank governor Gideon Gono spoke to the Financial Gazette's Editor in Chief Hama Saburi about his views on Zimbabwe's indigenisation laws and a wide range of other subjects. This is the full interview:
Hama Saburi: Last month, the government gazetted the Indigenisation and Economic Empowerment Act, which among other things, compels foreign-owned companies to cede 51 percent of their stakes to blacks. Many people are not disputing its objective but are not happy with its timing, methodology style and approach. What’s your position?
Gideon Gono: While national calendars and sovereign debates should never be dictated to by outsiders, it is an act of madness for a family to engage in domestic quarrels at a time when the whole village is up and about its business; more so when they are working around the borders of your household.
By this I mean that it is less than 90 days before the FIFA World Cup soccer showcase in South Africa opens, and between June 11 to almost a month after July 11 southern Africa in general and Zimbabwe and South Africa in particular are going to be under the focus of over 30 billion viewers the world over.
And as is common cause, the accompanying media is not going to focus on the soccer event 24/7, as that would be boring to the diversity of viewers out there. Therefore the media is going to be compelled by natural forces of curiosity to be focusing on Zimbabwe.
How better it would be focusing on a country that is experiencing a breath of fresh air in terms of tranquility, unity of purpose, business confidence and general cohesiveness, as is being shown by our principals to the inclusive government.
It is the kind of unanimity of voices that is emanating from the President, the Prime Minister and Deputy Prime Minister on such issues as sanctions, for instance, that the world must hear, that the 30 billion viewers out there must hear and not the throwing of stones and acts — whether real or imagined — of trying to dispossess one another of this and that.
Zimbabweans, and the world at large, have been witnesses to the futility of trying to rebuild their economy in an environment of pointless conflict and therefore should know better that some battles are better solved behind closed doors than through megaphone diplomacy.
I know like very few men and women know in this country how delicate the economy is to aspects of negative sentiment and perception. I know, like no other governor in this country know, how difficult it is to achieve sustainable economic development in an environment of conflict between major stakeholders, in particular business, government, labour and the civil society.
Business needs labour and cannot succeed if it is engaged in battle with its government. Government, on the other hand, needs business and cannot succeed in an environment of acrimony between itself and business or a section of business. The same goes for labour and the civil society. The best economic ambassador of any country is the business community, while governments are the best creators and facilitators of sound, safe and secure operating environments.
With labour coming in to support both government and business with its expertise which we call intellectual, physical and sweat capital, civil society, which include the academia, the clergy, the media and others, come into this equation. They play a watchdog role and provide the psychological, emotional, religious and feel good factor, which is very necessary in any society. There is also the aspect of bringing controversy on ourselves no sooner than after the country held successful investment promotion conferences where at various assurances were given by the country's leadership regarding the sanctity and safety of investment. The last six months have seen a flood of interest in the economy from both friends and foes and we must not disturb the momentum by being reckless, inconsistent and self-contradictory with our pronouncements or with what we say or do.
Another mis-timing relates to the general global economic climate. You don't shoot yourself in the foot during a time of scarce capital availability neither do you start any new wars before concluding battles of yesteryear.
This will lead to spreading the troops too thinly over a wider spectrum of vulnerable fronts that require guard with potential for unintended and opposite outcomes and consequences reminiscent of the June 2007 price blitz.
HS: As the RBZ governor what do you think of this law in general?
GG: We must realise that the subject of indigenisation and empowerment is in fact intrinsically a supreme debate that has its roots in the Constitution. When one looks at the Constitution of Zimbabwe and look at who is being defined as Zimba-bwean, one sees the coverage of black Zimbabweans, Indians, and mixed races that are also Zimbabweans. This inclusivity and diversity dictates that we de-politicise both the constitutional-making process, and we must also de-politicise the indigenisation and empowerment process itself. We must consider objective facts that shun racial discrimination or political polarities that do not move the country forward.
We must achieve the desired outcome of empowering the majority of Zimbabweans through smart, and innovative ways that maximise the overall benefits to Zimbabwe without throwing the wheels and engines of economic stabilisation, recovery and growth off balance.
HS: You seem to be critical without offering any alternatives. What are you offering as an alternative?
GG: It has to be appreciated that it is the prerogative of politicians to come up with policies that are popular with their electorate — after all politics is a game of numbers. It is he who gets the greater number of votes who then occupies the position of political authority in any country and therefore is entitled to craft policies that delivers according to their manifestos.
I am not being critical of the legitimate right of government but what I am saying is that our legislators as well as government, having come up with what they have come up with, should, in my view, step back and let technocrats implement that vision in a less disruptive manner as possible.
In other words, our political leaders should accept technocratic suggestions that attempt to achieve a fine balance between the objectives of indigenisation and the need to attract and retain foreign direct investment in magnitudes that promote a quick turn around of the country's economy, sustainable growth and balanced geographical development, while being respectful of the natural dictates and demands of capital and financial markets.
The position that I am advocating is not different from what I advocated through my Monetary Policy Statement of October 1 2007, Page 80 to 82; I quote: “As monetary authorities, we fully support the noble objective of empowering the majority of Zimbabweans through the introduction of enabling statutes that expand wider involvement of the people in the mainstream economy.
“Noble as this objective is, however, our well considered advice to legislators and government in general is that a fine balance should be struck between the objectives of indigenisation and the need to attract foreign capital.
“Specifically, the local-foreign ownership thresholds must be taken and implemented as down the horizon targets, as opposed to excitable but impractical overnight conversion events…Where foreign investors bring in clear long-term benefits to the country, a reasonable degree of flexibility ought to be exercised in allowing investors to hold, at least in the initial stages, majority shareholding so as to deliberately accord them escalated dividends that enable them to plough back their initial investment outlays.
“As monetary authorities, we also call upon government to ensure that the empowerment drive is not derailed by a few well connected cliques, some who are already making the most noise in ostensible support of this initiative, who would want to amass wealth to themselves in a starkly greedy but irresponsible manner, while the intended majority remain with nothing as happened in the past with respect to government empowerment schemes such as the land reform programme.
“In the world of finance, it is a recognisable fact that capital is a timid commodity, which always stands ready to jump ship at the slight inclination of attack whether factual or perceived…Of particular concern to us, as the monetary authorities, would be any attempts to forcibly push the envelop of indigenisation into the delicate area of banking and finance. To this end, we call upon those with interests in the financial sector to approach the central bank with their applications for new banking licenses. We will allow them 100 percent ownership as opposed to 51 percent. These applications will, however, be subjected to vigorous vetting, in line with the Reserve Bank’s normal pre-licensing scrutiny, as opposed to any inclination towards unstructured interventions into the shareholding of the sector.
“Generally we believe that 27 years down the road, there should be no free lunches as such.”
My heart is heavy that this advice was not listened to, as over two years down the road the controversies around this issue are deepening as opposed to abating.
HS: Are you therefore saying the law will not apply to Stanbic Bank, Barclays Bank, Standard Chartered Bank, CABS and MBCA Bank which are foreign controlled?
GG: First and foremost, it is imperative that as a country we appreciate that Zimbabwe, like any other sovereign nation the world over, cannot hope to succeed in the global financial landscape by running contrary to and against the progressive dissolution of geographic borders in the realms of money and capital markets, as well as trade and commerce in general. The past two or so decades have seen global financial markets being closely intertwined, such that market players interface with one another across sub-regions and continents.
For instance, those in the financial hubs of China in Beijing and Shangai engage in multi-billion daily trades with those in New York, London, the Euro area, Australia, Canada, the Middle East and the rest of us here in Africa. In other words, the global financial landscape epitomises the efficiency gains that come with oneness and conformity with basic principles and conventions that respect private property and honour financial obligations on both spot and forward contracts. It is this oneness, and universality in the global financial markets that enable countries and companies to scout for strategic financial support in regional and international markets to benefit their own backyards.Against this background, the concepts of indigenisation and empowerment need to be handled and managed with extreme caution when dealing with the financial sector. If it is agreed that the financial sector serves as any country’s umbilical chord with the rest of the world's money and capital markets, then the indigenisation and empowerment model in that sector must be crafted and implemented in a manner that optimises that country’s possibilities of tapping into international money and capital markets.
Accordingly, therefore, the firm policy position of the Reserve Bank is that all existing foreign owned banks must be left under their current parentage ownership to optimise on the capacity of the domestic economy to penetrate international financial markets.
To all the fellow indigenous individuals or companies that aspire to be empowered by penetrating the financial sector, the Reserve Bank stands ready to appraise their fresh applications for bank licenses which would ensure indigenous new applicants not even 51 percent but 100 percent of their new entities once the applications meet the inescapable requirements that we enforce statutorily to guarantee stability in the financial sector.
The public has to appreciate that no individual or company can climb the ladder to financial success with one’s hands in the pockets. To open and run a bank, it requires explicit minimum conditions that cannot be avoided, given the intricate linkages between the financial sector and the rest of the economy.
The position is, therefore, that the institutions you name, that is Stanbic, Barclays Bank, Standard Chartered, MBCA, CABS will not see the central bank seeking to dilute or disrupt current shareholdings unless of course if it is a voluntary manifestation of their own internal strategic planning processes.
Just to reiterate for double emphasis, we are saying that those itching to go into banking must feel free to apply for their fresh licenses, which they will own 100 percent.
HS: Banks are expected to play a central role in bankrolling empowerment transactions. Given the difficult conditions prevailing in the banking sector in particular and the country in general, are banks ready for this challenge?
GG: We will cross the bridge when we get there. But what has to be appreciated is that the collapse of a bank has wider consequences than an individual non-banking institution, so a one-size-fits all ownership structure is not an option that we will support. The nation must also appreciate that banks on their own do not necessarily create wealth that is divorced from the actual economic activity on the ground.
What this means is that the financial sector in any country is essentially a mirror image of the health levels in the real sectors of the economy.
I can confirm that to the extent possible, the financial sector in Zimbabwe will continue to play its part in supporting the country’s developmental programmes. This support is already happening in the form of increased lending levels, following our moral suasion and strong calls on banks to move away from the rigidities and aversions that had been bred by the excruciating hyperinflationary environment that characterised our economy over the 2007-2008 period.
Banking is a unique field that requires unique structures. Some people would want to mischievously equate and interpret the land reform type of indigenisation as the one that should, must and could be applied to other sectors of the economy.
Well, that will be the final nail to this economy and nothing of that sort should be allowed.
To that effect, we as technocrats are not going to be lazy in thinking. We shall assist our political masters in fulfilling the noble objective of empowering the majority of our people. I believe that we have got technocrats with workable ideas in the chicken industry, which is what I know best, banking, manufacturing, retail, infrastructural development, IT, tourism, mining to name but a few.
What is accepted as PPP (Public Private Sector Partnership) can be turned into a PPIP — Public Private Sector Indigenisation Partnership. Those who want to know more can engage the governor.
But it (PPIP) basically involves the inclusions of Zimbabweans or previously disadvantaged Zimbabweans into the mainstream of every economic activity undertaken by government, parastatals, local authorities, the private sector etcetera in the supply chain management and involves such concepts as outsourcing, mentorships, alliances and franchising empowerment programmes as opposed to the current approach advocated for by the Indigenisation law which seem to focus on empowerment at the bottomline level of profit and dividends, which are a very small fraction of the economic cake of government, local authorities, parastatals and private companies’ activities. That is PPIP my friend. I am prepared to engage the nation in that regard.
PPIPs are also suitable for such programmes as geographical gender-specific empowerment initiatives that can easily be monitored and are aligned to the natural endowment of specific provinces as well as gender and age distribution, which takes into account the majority of women and the youths across the country as opposed to a select few and connected individuals. We must also learn from the experiences of other countries. In South Africa for instance, industry specific black economic empowerment charters were developed and there exist in that country mining, petroleum, maritime, tourism and financial services charters. The transport, construction, health, cosmetics and wine sectors have also developed and tailor-made charters to suit their particular industries.
For example, the financial sector charter represents, banking, insurance, the stock exchange, fund managers and brokerage firms, while the ICT sector has a charter of its own that was developed by the ICT community in conjunction with the government. In the transport, construction, wine, tourism, health and cosmetics sectors, specific guidelines and commitments were developed encompassing even the pharmaceutical sector, care providers and retail. So a one-size-fits all as seems to be envisaged by the current legislation is a high hanging skirt that could lead to the commissioning of crime by those without self-control. Is that what you want especially when you have 30 billion people looking at you?
In short, therefore, we have got ‘a job of work to do’ to assist our country move forward in an all encompassing manner.
HS: It appears there is a lot of confusion in the country about what really constitutes indigenisation and empowerment. Some argue that empowerment should come by way of indigenisation, which is all about equity issues, while others say it is better off coming by way of increasing opportunities for entrepreneurship and access to finance. How do you relate the two — empowerment and indigenisation?
GG: From first principles, Economic Development can be defined as the general upliftment of the standards of living for the majority of a country’s people over time.
Indicators that are usually used to track these time-dynamics in an economy include access to clean water; availability of food; access to high quality health services; availability and functionality of infrastructural pivots such as roads, railway networks, electricity supply, coal, as well as other social amenities and educational facilities, among several other variables.
The more a country has, the majority of its people gaining ready access to these imperative facets of humanity’s existence, including the guarantees to national territorial integrity, sovereignty, human rights and individual freedoms, and freedom of association to its people, the more that country is deemed to be developed. To my mind, therefore, the real relevant factor and guiding principle must lie in what as a country we must do to successively elevate the quality of life for our people.
The above point may seem subtle per se but it is profoundly far-reaching. In America and Europe for instance, we saw very large corporates and banks failing during the now somewhat thawing global financial crisis.
These multiple collapses did bring intolerable pain and anguish to men and women, including children and vulnerable groups that depended on income streams from these failed entities. The lesson here is that ownership of capital or a corporate is by no means guarantee that that corporate will withstand the cruel and chilly winds of global competition in the new world order.
If we pose and think deeply and soberly about this, we will find that rather than exclusively focusing on ownership of the existing cake of private equity, real, and meaningful empowerment can be achieved through other iterations that are less disruptive.
HS: What sort of empowerment model would you wish to see in Zimbabwe?
GG: I want to reiterate that what we must preoccupy ourselves with is finding ways to trigger and attain broad-based general improvement in the quality of life for the majority of Zimbabweans; men, women, children, the youth and vulnerable groups characterising our society.
Accordingly, therefore, we must try and resist the lure of and the aroma and tempting opium of empowerment models that are driven by hate, racialism, greed by a few or absolute myopia on how the worlds of international trade, money and capital markets and the global economy in general functions and react to the interventions that national governments implement.Without suggesting that one alternative is the be it all, I want to argue, probably in a very thought provoking way that the most effective empowerment model is one that focuses more on giving the majority of the people access to capital and exposure to entrepreneurial self-growth, as opposed to overnight assimilations into existing structures.
I say this for the following three incontestable reasons: To acquire, say 51 percent of something that is legitimately privately owned, one must have the financial capacity to do so. Money is needed, otherwise what would end up happening is naked expropriation which, as you will agree with me, we must avoid by all means.
With a population of around 13 million people, not all Zimbabweans can feasibly end up in companies. Only a few will be able to do so; and in each individual company’s financial flows, 70-95 percent is spend on such areas as raw material procurement, financing charges, employment costs, utilities and other operating overheads. This leaves about 5-30 percent in profits, which only typically come right at the end of each corporate’s financial year. The typical revenue and expenditure cycle, therefore unequivocally suggests that a more effective model of empowerment is one that sets thresholds or benchmarks on companies, particularly government ministries and parastatals to procure from indigenous suppliers. This would create wealth for the majority of our people.
Through this, the targeted indigenous groups will be empowered through the existence of ready markets for their products, as opposed to clamoring for the smaller cake of 5-30 percent in profits that come once a year. It is a fact that every day each company in the productive sectors spends money on raw materials, utilities and other overheads. Where the empowerment model is one that stipulates thresholds of companies sourcing from indigenous suppliers, there will be empowerment on a daily basis, as opposed to exclusively limiting empowerment through dividends that come to those few who would end up owning the scrambled existing smaller cake.
By advocating for this procurement-linked alternative, which is much more broad-based and potent in reaching out to empower more people, I am not completely ruling out the admissibility and importance of smart partnerships and win-win joint ventures between locals and foreign investors. These should be encouraged in line with international best practices on capital flows management and under formulations that see the so set corporates having internal social responsibility programmes that benefit the locals through such schemes as PPPs in infrastructure development.
HS: After the so-called land grab, international investors are concerned the same may happen in other sectors of the economy. For instance, terms such as “expropriation” and “nationalisation” have been used to describe government’s proposition to indigenise the mining and other sectors. Is indigenisation not a threat to property rights and foreign direct investment?
GG: I would not want to be drawn into the emotive intricacies of the land reform programme, especially given that the inclusive government has unanimously declared that this programme is irreversible.
What I can say, however, is that there is a vast difference between the building blocks for the case for the land reform programme and those which ought to be deployed when dealing with private capital inflows, some of which capital came in even from our friends within the SADC region in the context of the current moves towards regional economic and financial integration. Whereas the soul of the land reform programme was the need to reverse and correct the injustices of the colonial past where, as history attests clearly, our forefathers and mothers were disposed of their land without compensation, the same cannot be blindly said about foreign investments that we as a country canvassed for in the SADC region, from the rest of Africa and from all over the World, including the East.
Take for instance, foreign investments in the mining, manufacturing, tourism, banking and afro-processing sectors that came in as a result of deliberate government investment attraction programmes. We will be shooting ourselves in the foot if we turn a blind eye to the giant leap of faith that these investors deposited in our government by bringing in their hard-earned financial resources to create jobs and produce goods and services for our country and go ahead to blindly push for the 49/51 percent rule without carefully looking at areas needing flexibility. As I said earlier, there is a considerable need for us to meticulously look at various alternative formulations that achieve empowerment without penalising the country’s image and attractiveness as an investment destination.
Going back to the land issue you raised, I am a firm believer in the concept of some kind of a land tax so as to motivate people to utilise their pieces of land. Those who leave their fields idle would find it hard to pay the taxes, which would persuade them to give up some of that land to others in need. Treasury would then deploy the tax revenue to go towards various developmental programmes.
HS: There is a widely-held suspicion in the country that indigenisation is a guise being used by people who have personal interests in certain sectors or companies. What is your reaction to that?
GG: Let us face facts. Already, in my own backyard in the financial sector, there have recently been very unfortunate incidences of ‘vulture-style’ attempts by some cohorts to wrest out stakes in some foreign-owned banks.
Fellow Zimbabweans, let us avoid falling into the trap of being driven by the shrill war-cries and voices of a few who are driving their own private agendas for personal gain in the name of empowerment of the masses. We definitely need to sober up and do what is ultimately in our best interest. A balanced and gradual approach has to be followed, ensuring that we maintain the good faith and trust of those investors who are already here, while negotiating our way for more to come in. This is absolute common sense.
HS: We understand US$10,2 billion is needed to support indigenisation in the mining sector, do you think indigenous people have the financial wherewithal to fund this?
GG: Again, I reiterate that getting equity of any legitimately held asset means paying fair value for that equity. This is how the real world of finance works; period. People must appreciate the difference between industrial capital in the productive sectors and the financial sector and the very valid motivations for the land reform programme.
HS: Consultations have been kick-started to see if the Act can be fine tuned. Are we not likely to see any change in this policy being construed as yet another example of policy inconsistencies?
GG: I am very hopeful that objectivity and a firm realisation that as a country we cannot go it alone will prevail such that the Act is fine tuned to restore investor confidence that our country is a sound and friendly destination for international capital.
HS: What sort of change would you like to see coming through these consultations?
GG: We expect refinements that reaffirm our collective observance of the sanctity of private property rights and a reflection that we are serious about the promotion of inbound foreign direct investments. As a country, there is no harm in us empowering ourselves through regulations that promote gender equality in employment, as well as procurement policies that encourage well established companies to buy from upcoming indigenous entities, among other workable variations.
Equally true, we must not be ashamed of even setting aside such thresholds and sectors that can be preserved for women and other disadvantaged groups as a deliberate government policy to expedite achievement of the balanced growth and economic development agenda.
HS: What safeguards should be put in place to ensure the noble cause is not manipulated by vultures seeking personal gain?
GG: Our political leaders must take the lead in openly condemning what we see as self-centered approaches that are evolving under the guise of indigenisation and empowerment drive.
This does not mean giving up the need to bring about a better quality of life for the majority of Zimbabweans.
HS: Were you consulted before the gazetting of this Act?
GG: As far back as 2007, the Reserve Bank submitted its comprehensive inputs and well considered advice to those who were in charge of the technical process at the time, but unfortunately this seems to have been set aside. We hope that the on-going reviews would see some of those modest suggestions being taken on board.
HS: Are investor fears on indigenisation in its current form justified?
GG: Absolutely, those fears are justified in the sense that most of those to be affected came in as a result of us as a country calling them to come and invest in our landscape.
We, therefore, need to find a way of striking a fine balance between the virtues of indigenisation and empowerment and virtues of attracting meaningful investment inflows into the economy.
HS: You have previously noted that capital is fickle, but is foreign capital averse to the political status quo or the policy formulation?
GG: The world over, it has been proven that foreign capital is very sensitive to the political events in any given country. This is why we are so pleased that the inclusive government is working.
HS: Have we aligned our policies to compete globally for hot capital?
GG: We need to be part of the action in attracting global capital. With the present laws on Indigenisation and empowerment, our chances of doing so successfully are very limited. There is, therefore a huge opportunity for us to introspect and improve critical needy areas so as to move our economy forward.
HS: It appears there is a hard push towards adopting the Highly Indebted Poor Country (HIPC) initiative to retire the country’s debts. As the central bank governor, do you think this is the best route available? Are there alternatives to the HIPC initiative?
GG: I have made my very strong views against the HIPC route known to my Principals along with these views, I have also submitted modest proposals on alternative ways that would allow us to leverage on our natural resources.
We remain hopeful that this advice will be considered in good light.
HS: You have been linked to suggestion that we can retire our debts using Marange diamonds. How is this possible?
GG: I wish to defer debate on this to allow our Principals time to look at the proposals we gave them. Suffice it to say that how tragic it is that we are seeking help from other countries yet we are sitting on vast wealth of untapped minerals.
HS: There are fears of stringent conditionalities being tied to this route. Do you think people are ready for any belt tightening coming out of a crisis?
GG: There is need for all of us in Zimbabwe to realise that we are our own salvation and this comes at a big prize of selflessness and absolute dedication by all to make a positive difference. Short of this, we will take a very long and painful time to recover.
HS: You have previously expressed your disappointment with the IMF. Do you think there is now any goodwill to support Zimbabwe's recovery?
GG: I am a firm believer in the model of talking whilst doing things on the ground. Let us wait and see how the road ahead evolves, but in the meantime, let us work internally to self-correct and move the economy forward.
HS: What do you think of Merkel’s statement that we have to undo the land reforms before any support? Do you think this will inform debt forgiveness?
GG: The Inclusive Government has made a clear policy position on the Land issue and this matter to me seems closed.
HS: Your boss, who happens to be the Finance Minister, as told the nation that “we are all alone,” after failing to secure the US$10 billion needed to bankroll the country’s recovery. Are you at all surprised by this sudden turn of events?
GG: Indeed, we are all alone. Let us work together to unlock value from our internal resources.
HS: You have been too quiet lately Governor. What is happening?
GG: I have agreed with my Principals that under the new mandate of the Central Bank, our various pieces of advice will be given behind the scenes and more directly to the relevant arms of Government. My Minister of Finance is very happy with this new way of doing business.