Academic journal article Journal of Emerging Trends in Economics and Management Sciences

The Feasibility of Value Addition in the Mining Sector in the Wake of the Indigenization Policy in Zimbabwe

Academic journal article Journal of Emerging Trends in Economics and Management Sciences

The Feasibility of Value Addition in the Mining Sector in the Wake of the Indigenization Policy in Zimbabwe

Article excerpt

Abstract

This study seeks to establish the effect of the Indigenization Policy in the country against the Value addition strategy which has been called for by policy makers to ensure that the country fully benefits from its resources. The purpose of the study is to explore the feasibility of funding value addition motive when the country employs the indigenisation policy. The study is significant because it contributes to existing knowledge on economic development in Zimbabwe and creates a base for further studies. This work assists policy makers to be equipped with the requisite knowledge on Indigenization and its relationship to foreign investment so as to ensure their viability and the growth of the economy as a whole. The period under study is from 2009 to 2012. Secondary data and empirical studies by other researchers assisted in the formulation of the methodology. Data was fetched from Chamber of Mines, Reserve Bank of Zimbabwe, International Monetary Fund (IMF), World Bank reports, Ministry of Finance and Failed Nations. Monthly data for (FDI), Risk factors, Interest rates, Inflation, Gross Domestic Product (GDP) and Labour costs was used to make a total of 47 observations. The classical linear regression model, Ordinary Least Squares was used to analyse the variables. The research found that, risk factors are significant albeit with a negative sign showing a negative relationship between Risk Factors and FDI. It was concluded that policies such as the Indigenization Policy are not yet forthcoming given that the country is still recovering from the economic downturn. The indigenisation policy has a negative impact on FDI. Policies that reduce country risk levels and that promote peace, anti-corruption and transparency should be encouraged if the economy is to realize long term inflows of FDI.

Keywords: indigenisation, value addition, foreign direct investment, feasibility, policy

INTRODUCTION

The Indigenization and Empowerment bill was passed into Parliament in 2007. The indigenization and Empowerment Act 14 of 2007 was gazetted on March 7 2008 and was signed in law on April 17 2008. The law provided for all foreign owned companies with a share capital above US$ 500000 operating in Zimbabwe to cede 51% of their shares to indigenous Zimbabweans. On January 29, 2010 the government of Zimbabwe published regulations with respect to the act, thereby rendering the law effective. The regulations included a requirement for companies operating in Zimbabwe to provide specified information to the ministry of Youth Development and Economic Empowerment included in an inclusive implementation plan, by April 15 2010. The publishing of these regulations marked the finalization of the act and consequently the real implementation effects of the act.

The rationale behind the promulgation of the policy is to empower black population which was disadvantaged in the colonial era, to give them a chance to partake in the national economy through owning businesses and generally increasing their stake in the corporate world. The strength of this policy is therefore premised on the nobility of the cause that gave impetus to its creation. This sunny side is however counterbalanced by an equally controversial and highly contentious side.

Much controversy has arisen from the contents of the policy. Under section 15 of the act, the Minister gives a database of people who want indigenous Zimbabweans to acquire shares in their businesses, and of indigenous Zimbabweans who wish to partner such people. The problem with this section is that it gives the Minister much leeway to impose politically acceptable partners upon reluctant businesses, where partners are not chosen on agreement or suitability, but political merit.

The obvious negative implication of the policy is its stalling of the Investment drive. The policy obviously makes the country an undesirable investment destination. The condition of surrendering 51 per cent to locals is too much a price to pay. …

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