18 March 2019

Will South Africa learn from Zimbabwe’s ruin?

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On March 6, Zimbabwe’s Finance Minister Mthuli Ncube announced his government’s intention to scrap legislation requiring local investors to have a controlling stakes in his country’s gold and platinum mines: “We are removing that indigenisation rule, which is discouraging foreign direct investment … We say Zimbabwe is open for business”

Eleven years after Zimbabwe introduced the indigenisation legislation, which has deepened that country’s economy woes, Zimbabweans are rediscovering the importance of property rights. South Africa should learn from Zimbabwe’s ruin.

On March 9, 2008, Zimbabwe’s erstwhile dictator Robert Mugabe signed the Indigenisation and Economic Empowerment Bill, which specified that at least 51 per cent of all shares in Zimbabwe’s private concerns had to be transferred to “indigenous” Zimbabweans, defined as persons who before that country’s independence from the British rule were “disadvantaged by unfair discrimination on the grounds of his or her race, and any descendant of such person[s].” While historical discrimination against black Zimbabweans was not in dispute, the wisdom of Mugabe’s policies most definitely is.

Prosperity and property rights are intimately connected. As Gerald P. O’Driscoll from the Cato Institute and Lee Hoskins from the Pacific Research Institute have noted, “A private property system gives individuals the exclusive right to use their resources as they see fit. That dominion over what is theirs leads property users to take full account of all the benefits and costs of employing those resources in a particular manner. The process of weighing costs and benefits produces what economists call efficient outcomes. That translates into higher standards of living for all.”

Mugabe was not the first post-independence African leader to embrace indigenisation policies. In fact, many African countries expelled foreign merchants and expropriated foreign assets after becoming independent. In 1973, for example, Mobutu Sese Seko embarked on a policy of “Zairianisation,” which saw widespread expropriation of commercial buildings, light industry and agricultural holdings in Zaire (today’s Congo). Those were then “redistributed” to family members, government officials and army officers.

Many of the new owners did not have the necessary business expertise or an interest in managing and maintaining their newly acquired properties. “Their first impulse,” one commentator observed, “was frequently to dispose of liquid assets as quickly as possible and then to abandon the properties and enterprises to ruin … The adverse effects were especially evident in small businesses where the new owners often simply sold the goods and then left. Shortages of food and consumer goods became common countrywide.”

The results were catastrophic and after a year of chaos, former owners were invited to come back to Zaire and to “reclaim a proportion of their businesses.” In fact, “the requirement that Zairians retain a sizeable stake in such businesses was largely ignored for those expatriates who did return.”

As in Zaire, so in Zimbabwe, indigenisation proved more attractive in theory than in practice. Instead of ordinary Zimbabweans, the main beneficiaries of Mugabe’s racial gerrymandering were his family members, as well as government officials, and army and police officers. Investment dried up, economic production contracted, unemployment increased and standards of living dropped. Today, Zimbabwe’s economy is roughly where it was in the late 1960s and the government is, at long last, recognising the folly of its former ways.

South of the Limpopo, the South African government has been busy restructuring the economy along racial lines for decades. The “colour bar,” which was a system of racial preferences designed to protect white workers from their black competitors during the apartheid era, was replaced by the Employment Equity Act and the Black Economic Empowerment legislation that require private enterprises to hire workers in proportion to their population share. Likewise, strict affirmative action policies govern civil service hiring and government procurement.

The Mining Charter, under which the African National Congress government nationalised South Africa’s mineral rights, also stipulates that at least 26 percent of shares in mining concerns have to be held by African shareholders. A recently-scrapped plan would have raised that threshold to 30 percent. That’s just as well, for South Africa’s mining sector has been, in contrast with extractive industries in other parts of the world, contracting.

In response to the government’s policies, hundreds of thousands of white professionals have left the country, thus depriving the country of valuable human capital and putting at risk Nelson Mandela’s dream of a multi-racial democracy. The delivery of public services, where worker’s racial profile is more relevant to advancement than competence, has suffered greatly. Nothing better exemplifies the negative consequence of the government’s obsession with race than the near-collapse of the state-owned electric power utility, ESKOM.

“Load shedding,” which is a euphemism for rolling blackouts, ought to be a reminder to the socialists of all parties who run South Africa that a sophisticated economy and cut-throat international competition demand that merit be prioritised over all other consideration. Zimbabwe has learned that lesson the hard way. The question is: can South Africa learn from Zimbabwe’s pitiful example?

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Marian L. Tupy is Editor of HumanProgress and a Senior Policy Analyst at the Center for Global Liberty and Prosperity.