Monday, June 25, 2007

New Biz Takeover Law in Zimbabwe?

The government of Zimbabwe released plans for the “indigenization” of the country’s publicly owned companies today. If the draft legislation becomes law (which it likely will), the government will disallow mergers and acquisitions that don’t result in majority-ownership by “indigenous” Zimbabweans. In Zimbabwe, the term “indigenous” refers to all races that were discriminated against prior to independence.

It’s unclear how this will all play out on the Zimbabwe Stock Exchange. I have not checked, but I presume that few listed companies currently meet this criteria. The market was down only about 1% today.

Perhaps investors took solace in the fact that the proposed law does not appear to demand immediate compliance. It may only pertain to major business deals going forward. A more likely explanation for the calm response is that Zimbabwean investors have nowhere else to go. The ZSE is the only investment vehicle that manages to keep up with the quadruple-digit inflation.

There’s no argument that black Zimbabweans endured severe discrimination before independence, and they continue to bear the legacy of this. But I see little good that can come of this legislation. What minuscule attractiveness Zimbabwe still held for international investors will surely dissipate.

Neighboring South Africa uses a system of incentives to entice public companies to increase black ownership. The program is not perfect, but it is surely less chilling than Zimbabwe’s Indigenization and Economic Empowerment Bill.

Investing in Africa


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An interesing story on a great topic.