The indigenisation effect

Posted: 29th November 2011 by admin in Remittance methods

Anyone who has any sort of connection to Zimbabwe has probably been following this story closely, some with more interest than others.

Regardless of our personal opinions on this, we are all concerned on the ramifications this move will have on Zimbabwe’s fragile economy.

A law which was put into force at the beginning of the month requires companies with a minimum capital of $500000 to cede 51% shareholding to locals within five years.

This is one of the government’s ongoing efforts to correct historical imbalances in the ownership of Zimbabwe’s resources.

What effect will this have on the economy in terms of foreign investment?

The effects of this law were immediately visible as the Zimbabwean stock exchange plummeted soon after the government made this announcement; a few foreign-owned companies have decided to freeze new investment for the time being. The question is not so much about the nobility of the motive but rather if investors will be willing to invest in a venture where they only have minimum shareholding.

According an understanding between the government and foreign investors, the indigenisation requirement will be made up through a number of elements. This means that given enough time and consideration this process should reach a position that will be beneficial for all stakeholders. Well, at least that’s the idea…