THE government’s latest threat to foreign business – this time foreign banks – is seen in Harare as bluster rather than substance.

The instruction by indigenisation minister, Saviour Kasukuwere, to a handful of foreign-owned banks to reduce their ownership to a maximum of 49 per cent by July 2013 has more to do with his political party’s dismal electoral prospects than serious restructuring of Zimbabwe’s financial system.

Kasukuwere’s Zanu PF party, led by president Robert Mugabe, is in serious trouble ahead of elections due in mid-2013 and desperately needs to convince a sceptical electorate that its local ownership programme will improve the lot of the man in the street.

The minister has an uphill task. Tendai Biti, finance minister, who is responsible for the financial sector, and Gideon Gono, governor of the central bank, are both strongly opposed to hasty localization.

The foreign banks themselves – two British, Barclays and Standard Chartered, and three South African, Stanbic, MBCA and CABS building society – are wisely keeping their heads below the parapet in the hope that disagreement between the two main parties in the coalition government – Zanu PF and prime minister Morgan Tsvangerai’s MDC-T – will prevent Kasukuwere from carrying out his threat.

It is far from clear just how he can enforce his order anyway. The three South African banks are covered by a bilateral investment treaty between Zimbabwe and South Africa, which stipulates that fair compensation be paid to existing shareholders forced to sell. The government, with foreign debt equal to 110 per cent of GDP, including arrears equal to 70 per cent of GDP, is in no position to buy out the majority owners.

Indeed, when he presents his mid-year fiscal review next week, Biti is expected to reveal that the country faces a large budget deficit in 2012 – equal to 15 per cent of GDP – leaving him no alternative but to cut spending substantially.

With the civil service including teachers, health workers and the military clamouring for wage increases, buying shares in foreign banks will not be on his agenda.

Kasukuwere says foreign banks must be “transformed” because “they deny you [Zimbabweans] funding”. The banks’ response is that they cannot lend their depositors’ money to high risk borrowers, pointing out that currently 10 per cent of bank loans are non-performing.

Nor are the banks in the best of health. In the first quarter of 2012, 10 out of 26 banks reported losses and in the past year two banks have been placed under custodianship and one has been closed.

Bankers and financial analysts agree that the industry needs to consolidate because there are just too many – mostly small – banks for Zimbabwe’s $10bn economy.

At some future juncture, there might well be a case for enhanced local ownership of banks, possibly in the form of listings on the Zimbabwe Stock Exchange, as in the case of Barclays.

But with Zimbabwe having run a current account deficit of $3bn last year, incurring fresh offshore debts of over $1bn as well as additional foreign arrears of $660m, the country needs all the friends it can get. Now is not the time to pick an unnecessary fight with foreign financiers.

Although such realities are unlikely to restrain Kasukuwere, it is unlikely that he has the political firepower to override such powerful opponents as the prime minister, the finance minister and the governor of the central bank.

Barclays, for one, has much more to worry about in the Libor scandal in Britain and the profits warning and subsequent share price slump of Absa, its South African subsidiary, than in Kasukuwere’s electioneering.