Zimbabwe's Road to Ruin

Zimbabwe is back in the news, and again for all the wrong reasons. Last week Indigenization Minister Saviour Kasukuwere announced that any firm worth more than $500,000 will be required to sell a controlling 51% stake to black Zimbabweans. This effectively means that all of Zimbabwe's foreign-owned industries are to be nationalized. This policy was first threatened in 2008, but now it appears set to be pushed through--just when you thought Zimbabwe had suffered all the policy disasters it possibly could.

Although he later denied that this was a "xenophobic" move, Mr. Masukuwere told the BBC that he refused to allow white business leaders "to continue plundering this country's wealth and resources at the expense of the majority." He added: "This is a continuation in the struggle for freedom."

That rhetorical smokescreen can not hide the facts: White-owned companies did not enslave hundreds of local villagers to mine Zimbabwe's newly discovered Marange diamond fields--Zimbabwe's military did. That's the same military that is controlled by Mr. Kasukuwere's and President/Despot Robert Mugabe's Zanu-PF party, and the same military that waged a war over access to diamonds in the Democratic Republic of Congo, which resulted in the deaths of many Zimbabwean soldiers and even more innocent Congolese, while lining the pockets of the Zimbabwean military elite.

Harare knows that while it continues to target white-run businesses using the rhetoric of overthrowing colonialism, it will never face sanctions from other African governments. A decade ago, Mugabe's government blessed the invasion of white-owned farms: 4,000 white farmers were evicted, and their property confiscated and handed over to Mugabe's cronies. This began Zimbabwe's economic collapse, which accelerated with each bad policy, ultimately leading to its infamous hyperinflation. Through all that, most white-owned businesses were allowed to continue functioning, if only to provide hard-currency tax revenue.

I recall being somewhat indignant when speaking to some tobacco companies in 2005 and 2006 with operations in Zimbabwe. It seemed absurd, even immoral, that they still operated there. But of course, those companies were the only lifeline for their thousands of workers. It wasn't just self-interest that kept the companies there; with hyperinflation, their land and property was worthless and the quality of their tobacco was no longer top grade. But they felt a responsibility to their employees, and hoped that at some stage things would turn around.

That was five years ago. Today, their resilience and loyalty is being rewarded with a forced takeover. The list of British companies alone that will be affected runs from Barclays all the way down the alphabet to Unilever.

Mr. Kasukuwere says the companies will be paid a fair price for their shares, though not an "exploitative" amount. This is hardly promising, given how Harare has defined both fairness and exploitation throughout Mugabe's 30-year rule. I spoke with an executive of a British company operating in Zimbabwe, who asked not to be named, and he didn't seem hopeful that a realistic valuation would be forthcoming.

Bankers and household-products vendors are unlikely to lose much, given how little the Zimbabwean finance and retail markets are worth. But private players in the extractive industries may lose their access to the considerable mineral wealth under Zimbabwe's scorched soils, such as palladium and platinum. When Mr. Kasukuwere told the BBC that "everything that is underground belongs to the people of Zimbabwe and their values must go to the people of Zimbabwe," he may have been thinking of one Zimbabwean in particular: Saviour Kasukuwere. Given his own considerable business interests, it's not hard to imagine that he will take control of some of the confiscated foreign assets himself, and stay in office while he does it.

So much for Prime Minister Morgan Tsvangirai's efforts to attract foreign investment. The still-popular reformist--and no doubt the true winner of the 2008 presidential elections--has managed to make some gains in the last 19 months since Mugabe agreed to "share" power with him. Mr. Tsvangirai and his allies can be credited, for instance, with containing a cholera outbreak, reducing malnutrition, stabilizing Zimbabwe's money supply, and slightly improving health care and employment.

But few initiatives are more damaging to a nascent and fragile economic recovery than forced nationalization of businesses. Mr. Tsvangirai has said he hopes to forge a compromise whereby international firms will be able to retain their assets if they invest in public-sector infrastructure projects. But such an outcome would only heap blackmail on top of the economic insults these companies have already endured.

In an interview with Reuters, Mugabe said he expects foreign firms to remain in the country even as their property is expropriated. With that, the 86-year-old proves that he is as delusional as he is ruthless. Nationalization may well be the final straw for what's left of Zimbabwe's economy.

Roger Bate is the Legatum Fellow in Global Prosperity at AEI.

Photo Credit: iStockphoto/Christopher Steer

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About the Author


  • Roger Bate is an economist who researches international health policy, with a particular focus on tropical disease and substandard and counterfeit medicines. He also writes on general development policy in Asia and Africa. He writes regularly for AEI's Health Policy Outlook.
  • Phone: 202-828-6029
    Email: rbate@aei.org
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