adminSpecial Correspondent
If you hear critics attack Zimbabwe’s Indigenisation and Economic Empowerment Programme, you might think it is the first country to embark on such a project, yet it is not. History shows that all the nations that have made a jump from poverty to wealth, embarked on some form of indigenisation and economic empowerment.
They range from almost all the Western countries that today lead the table of rich nations to the recent economic success stories, such as Japan, China, Singapore, Malaysia, South Korea, etc. Even nearer home in Africa, South Africa and Namibia have implemented some form of IEE programmes in the past though they were not as successful as their citizens expected. Beyond Africa, India and Sri Lanka have implemented IEE projects in the past as well. So Zimbabwe is in good company and should not be shy to learn from international best practice as it moves ahead with its IEEP.
As two Zimbabwean academics, Jesimen Chipika and Joyce Malaba pointed out in a study last year: “There are various lessons learnt from regional and international experiences on successfully implementing IEE programmes. Firstly, IEE is a process and not an event, which requires a strong developmental state to drive it. A stable political and macro-economic environment as well as investment in strategic economic triggers such as infrastructure and skills are prerequisites.
“There is a need (also) to balance between IEE and attracting foreign direct investment in strategic areas. IEE should be an integral part of all national policies at all levels, driven by tripartism between government, business, and labour to ensure sustained policy implementation.”
In fact, economic history shows that all of today’s rich nations used nationalistic policies such as tariffs, subsidies, restrictions on foreign investment, etc, to promote their economies and their people. So which countries’ IEE best practice can Zimbabwe borrow from? The following is just a snippet.
United States of America
America’s criticism of Zimbabwe’s land reform and IEEP, and the imposition of economic sanctions on the country, stand in sharp contrast to what it did itself when a British colony and as a young, independent country. According to the South Korean academic and economic historian who teaches at Oxford University in the UK, Ha-Joon Chang, the USA had a terrible record in its dealings with foreign investors. From its earliest days of economic development right up to World War I, the USA was the world’s largest importer of foreign capital, but there was considerable concern in the country over absentee management by foreign investors.
“Reflecting such sentiment,” Chang recalls, “the US federal government strongly regulated foreign investment. Non-resident shareholders could not vote and only American citizens could become directors in a national (as opposed to state-level) bank.”
This meant that foreigners and foreign financial institutions could only buy shares in US national banks if they were prepared to have American citizens as their representatives on the board of directors, thus discouraging foreign investment in the banking sector. There were also strict regulations on foreign investment in natural resource industries. Many state governments barred or restricted investment by non-resident foreigners in land. Then the 1887 federal Alien Property Act was enacted to prohibit the ownership of land by aliens — or by companies more than 20 percent owned by aliens – in the “territories “ (as opposed to the fully fledged states), where land speculation was particularly rampant.
Federal mining laws also restricted mining rights to non-US citizens, while allowing them to companies incorporated in the US. In 1878, a timber law was also brought in, permitting only us residents to log on public land.
“Yet,” says Chang, “despite all these extensive, and often strict, controls on foreign investment, the USA was yet the largest recipient of foreign investment throughout the 19th century and the early 20th century — in the same way that strict regulation of transnational corporations in China has not prevented a large amount of FDI from pouring into that country in recent decades. This flies in the face of the belief that foreign investment regulation is bound to reduce investment flows.”
Japan
In Japan, the Ministry of International Trade and Industry orchestrated an industrial development programme that has now become legendary. Imports were tightly controlled through government measures restricting the use of foreign exchange.
“Exports were promoted in order to maximise the supply of foreign currency needed to buy better technology (either by buying machinery or by paying for technology licences),” says Chang. “This involved direct and indirect export subsidies as well as information and marketing help from the Japan External Trade Organisation, the state trading agency.”
The Government also put subsidised credits into key sectors through its “directed credit programme” while heavily regulating foreign investment by transnational corporations. Foreign investment was simply banned in most key industries. Even when it was allowed, there were strict ceilings on foreign ownership, usually a maximum of 49 percent, much like Zimbabwe is currently instigating, with its IEEP. As Chang shows, foreign companies were required to transfer technology and buy specified proportions of their inputs locally. The government took it upon itself to regulate the inflow of technologies, to make sure that overly obsolete or overpriced technologies were not imported.
France
After World War II, the French government acknowledged that its conservative, hands-off policies in the past had been partly responsible for the country’s relative economic decline, and thus defeats in two world wars. To stem the tide, the French state decided to take a much more active role in the economy. It launched “indicative” planning and took over key industries through nationalisation, and channeled investment into strategic industries through state-owned banks. To help its new industries to grow, the government imposed industrial tariffs and maintained them at a relatively high level until the 1960s. The strategy worked. By the 1980s, France had t transformed itself into a technological leader in many areas.
As recently as the mid-2000s, the French government drafted a law to protect companies in “strategic industries”. This became known as the “DANONE Law”, as it was used to protect DANONE, the international foods company best known for its yoghurts, from a takeover by the US giant Pepsi Co.
China
Like the USA in the mid-19th century, or Japan and South Korea in the mid-20th century, China used high import tariffs to build up its industrial base. Right up to the 1990s, China’s average tariff was over 30 percent, though China was more welcoming to foreign investment than Japan and South Korea were. But China still imposed foreign ownership ceilings and local content requirements that demanded that foreign firms should buy a certain proportion of their imports from local suppliers.
Contrary to the liberalisation theory and the hands-off-by-the-state sermons preached to Africa, China has used heavy state intervention and an enlightened state owned enterprise (SoE) strategy to grow its economy to a point where it is now an economic superpower vying for global domination with the more established big players. In the past, all Chinese industrial enterprises were owned by the state, but today the SoE sector accounts for 40 percent of industrial output.
Finland, Norway, Italy, Austria
Finland, Norway, Italy, and Austria were all relatively economically backward at the end of World War II and saw the need for rapid industrial development. They all then used strategies similar to those used by France and Japan to promote their industries.
All of them had relatively high tariffs until the 1960s. They all also actively used state owned enterprises (SoE) to upgrade their industries. This was particularly successful in Finland and Norway. Also, the governments of Austria, Finland and Norway were very much involved in directing the flow of credit to strategic industries. Finland, especially, heavily controlled foreign investment, while in many parts of Italy, local governments provided support for marketing and research and development (R&D) to small and medium-sized firms in their localities. “In Finland,” Chang says, “it took Nokia 17 years to earn any profit from its electronics subsidiary, which is now one of the biggest mobile phone companies in the world. If Finland had liberalised foreign investment from early on, Nokia (which started as an SoE) would not be what it is today.”
Singapore
The economic prowess of the island city state of Singapore is trumpeted as a victory for liberal, free market ideas. But state intervention has played a huge role in Singapore’s success for example, Singapore Airlines, one of the world’s best, is a state owned enterprise, 57 percent controlled by Temasek, the holding company whose sole shareholder is Singapore’s Ministry of Finance. “Virtually all land in Singapore is publicly owned and around 85 percent of housing is provided by the government’s Housing Development Board,” says Chang. “The Economic Development Board also develops industrial estates, incubates new firms, and provides business consulting services.” — New African.
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