Investors reacted with great concern after the government of Zimbabwe announced new policies that require foreign-owned firms to surrender to indigenous Zimbabweans majority ownership stakes in local mining companies. The policies were announced as part of the implementation of an indigenization law the country enacted in 2008. Foreign-owned mining companies with a net asset value of at least $1 have until May 9 to submit plans to the government on how they plan to complete the indigenization process and must sell their stakes by September 25. Previously the government had suggested that firms with a net asset value of less than $500,000 would be exempt from the policy. The foreign firms would have to sell their stakes to a few designated government entities or create employee share-ownership programs. Given that there are limited potential buyers and there is great concern about how Zimbabwe will get the money it needs to pay for the shares, it is unlikely that foreign mining firms would get fair market value for their ownership stakes. Moreover, the nation’s indigenization minister, jointly with the foreign firm, will calculate the value of the firm’s shares by taking into account the “state’s sovereign ownership of the mineral or minerals exploited or proposed to be exploited” by the foreign firm. Chinese companies will be exempt from the indigenization regulations.
- QUESTIONS FOR DISCUSSION:
Analyze the advantages and disadvantages to Zimbabwe of this indigenization program.
- How should foreign mining firms respond to the proposals announced this week? What options do the firms have to try to stop the indigenization program?
- Zimbabwe is a resource-rich country but yet struggles to promote long-term economic growth. How could the United States and other advanced economies best help Zimbabwe to prosper?
SOURCE: Maylie, D., & Mutsaka, F. (2011, March 29). Zimbabwe shuts out foreign miners. Wall Street Journal, p. A15. (Retrievable online at: http://online.wsj.com/article/SB10001424052748704559904576228400007716110.html)