Liquidity challenges derail indigenisation drive

The indigenisation programme is aimed at empowering Zimbabweans by giving them an opportunity to acquire equity in foreign-owned companies.
However, the liquidity crunch that emerged following the dollarisation of the economy in early 2009 has meant that even some locally owned firms have been compelled to dispose of part of their equity to recapitalise their businesses.
Local companies have limited funding options, notably costly short-term borrowings and expensive short-term deposits from commercial banks.
These were sentiments expressed by University of Zimbabwe’s Professor Tony Hawkins while addressing participants at a business conference in the capital recently.
“Many firms have been forced to de-indigenise, precisely the same time that the Government wants them to indigenise.
“So when a company like Delta Corporation installs a new bottling line, it is the South African parent company that pays for it by acquiring shares from the local company, that is, de-indigenisation,” he said.
Other notable cases have been the acquisition of a 54 percent shareholding of the Zimbabwe Iron and Steel Company (Zisco) by Mauritian firm, Essar Energy, and the acquisition by Ecobank of a 70 percent stake in local financier, Premier Finance Group.
Firms such as Zisco and Premier had been facing serious working capital challenges prior to the intervention of foreign investors.
Although such a strategy (that is, diluting local equity) has helped to increase these companies’ capital base, the flip side has been the dilution of local existing shareholders’ equity interest.
Companies have been finding it difficult to access funding due to the country’s deteriorating creditworthiness over the years and this has led companies to raise funds through rights issue initiatives.
This is notable, for instance when you look at the extent of foreign investor activity on the Zimbabwe Stock Exchange.
Net foreign investment on the ZSE since 2009 currently amounts to US$200 million, representing some 40 percent of the total value added traded on the market over the last two years.
Economists estimate that the entire industry requires an estimated US$2 billion for it to operate at full throttle. Presently production capacities are constrained to below half of maximum potential.