Zimbabwe: Banks Break Silence On Indigenisation

Source from:  Financial Gazette (Harare) 19 September 2007 09/21/2007

TWO of Zimbabwe's leading foreign-owned banks, Stanbic and Standard Chartered, have broken their silence on the controversy surrounding proposed indigenisation legislation, warning the proposal would bring grave consequences. Parliament's legal committee issued a non-adverse report on the Indigenisation and Empowerment Bill yesterday, drawing its passage a step closer. But business groups have warned that foreign investment in Zimbabwe would plunge 30 percent if the Bill were passed in its current form. The two banks, in submissions to a parliamentary hearing, said foreign banks could withdraw from Zimbabwe if they were compelled to sell 51 percent of their businesses, a level they said was too high. "We think that it is important for Zimbabwe not to implement an empowerment process that is materially different from what other countries have done," Stanbic Bank said. "The proposed indigenisation threshold of 51 percent targeted in Zimbabwe would make our country relatively less attractive to foreign investors," said Stanbic Bank. Standard Chartered proposed that the minimum threshold be revised to 49 percent, saying proposed levels would make it difficult for foreign banking groups to remain in Zimbabwe. "Brand name and equity is critically important to many businesses. Removal of the possibility to hold a controlling interest may make it difficult for existing companies or potential new investors being able to justify their continued interest in the country," Stanchart said. Stanbic Bank said the economic crisis means that local banks require foreign support in securing international lines of credit. "Once all banks are made indigenous, the current support relationships arising from foreign control of certain Zimbabwean banks would be severed. Currently, for example, the only banks providing offshore funding for tobacco are the international banks. A case in point being Stanbic Bank, which with the support of Standard Bank of South Africa, provided US$75 million for tobacco financing in 2007," said the bank. International institutions, said Stanbic, would demand that the new majority owners develop their own brand identities, which would not be immediately recognised by the outside world. The new entities could continue using international brands, but would be charged punitive royalty fees for their use. With the acute foreign currency shortages, it was also unlikely that local investors would be able to mobilise sufficient funds to facilitate the purchase of shares in the banks. This could have the danger of being seen as expropriation, Stanbic warned. "The empowerment drive should not be limited to just acquisition of shareholding, but should recognise the positive work done by foreign-owned institutions in the areas of social responsibility," Stanbic said, adding it hoped government would "retain (the banking sector's) current profile, where locally owned and internationally owned banks co-exist". Four of Zimbabwe's 28 banks are foreign held: Stanchart, Stanbic, owned by South Africa's Standard Bank, Barclays, 70 percent held by Barclays plc, and MBCA, controlled by NedBank and its parent Old Mutual. Chamber of Mines president Jack Murehwa said Zimbabwe now lags its regional peers on mineral output because of a dearth of new foreign investment into mining. The new law, he said, would only deepen concern among foreign investors over security of their assets. "I do not know whether this Bill is intended to undermine certainty in the sector," Murehwa said. "Zimbabwe is already seen as a high risk destination, because of negative perceptions over security of tenure and the rule of law." Cain Mpofu, Zimbabwe National Chamber of Commerce chief executive, said business was concerned at the sweeping powers granted the responsible Minister, the timing of the Bill, and the additional tax burden placed on companies that will be forced to fund the purchase of their own shares. He warned: "There is a likelihood of a 30 percent drop in foreign direct investment following passage of the proposed Bill. A decline in gross domestic product is also to be anticipated after implementation of the indigenisation programme." Enditem