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Saturday, 21 July 2007

Betting on Mugabe's demise...

Financial Times carries a fascinating article on Foreign Investors who are betting on a "new dawn" in Zimbabwe once Mugabe goes.

Leading the charge is Lonrho, the conglomerate that has been seeking to rebuild the African empire created by the late Tiny Rowland. It announced on Friday that it had raised an initial £32.3m ($66.4m, €48m) from shareholders towards a new subsidiary – Lonzim – to buy up assets in Zimbabwe with a “significant opportunity for future growth”. David Lenigas, Lonrho’s executive chairman, told the Financial Times that he aimed to raise a total of £100m for the company through a share offer to be launched in London soon.

We are not going to asset-strip. We can buy big international names for cheap and stay in partnership with locals to drive the business as we have done, for example, in Tanzania and Uganda,” he said. In one case he hoped to acquire a company for roughly a tenth of its 1997 value.

One suspects Lonrho and others expect MDC to assume full command and sweep the Indigenisation and Empowerment Bill away. The market tends to know better, but this time perhaps the market should pay much closer attention to the other dynamics we have been discussing here.

17 comments:

  1. It announced on Friday that it had raised an initial £32.3m ($66.4m, €48m) from shareholders towards a new subsidiary – Lonzim – to buy up assets in Zimbabwe with a “significant opportunity for future growth”.

    Well if the MDC come to power, they will have the opportunity to do just that. The MDC is planning to follow in Zambia's footsteps, and start selling off parastatals and government assets against giveaway prices.

    In one case he hoped to acquire a company for roughly a tenth of its 1997 value.

    This may not be asset stripping of a company, but it is certainly the asset stripping of a nation.

    This is just making official what the MDC have been announcing all along - they will do to Zimbabwe, what the MMD did to Zambia in the 1990s.

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  2. These Lonrho guys are crooks... They fund opposition leaders in return for huge kick backs. They've fueled wars all over Africa.

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  3. "This may not be asset stripping of a company, but it is certainly the asset stripping of a nation." - Mrk

    What do you think should be done to prevent that? I mean the Government has artificially kept the exchange rate low, if we follow's Yakima's suggestion that the currency should find its natural point, most of these companies will look cheaper to foreigners relatively to people at indigenous Zimbabweans. Also there's a little issue of investment. I doubt indigenous Zimbabweans will have financial muscle to out bid the investors even at very low prices. The economic reality is that Government is also in debt. It won't be allowed to borrow again from the IMF and World Bank unless it implements certain changes. And that will include liberalisation of certain sectors e.g. abolishing some subdies in agriculture for example and relaxing exchange rate controls.


    "They've fueled wars all over Africa." - error27

    Happy to take this on 'faith' but I assume you also have more detail?

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  4. I doubt indigenous Zimbabweans will have financial muscle to out bid the investors even at very low prices.

    Of course they won't, that's the whole point of privatisation.

    There are no African owned corporations to buy up 'privatised' assets. The government is not allowed to keep anything. In Zambia, on many projects, Zambians were explicitly forbidden to bid at all, irrespective of how much money they had.

    On the other hand, with the MDC in charge, how much of Zimbabwe can LonRho buy up with a 50 million pound ($100 million US) fund? Think of the giveaway prices that Zambia's resources were 'sold' for. Vedanta paid $25 million, which is probably close to it's administrative costs?

    If you look at where the money will go, it is now clear that LonRho is the real actor behind the scenes. The MDC is merely the public face of LonRho's attempts to get their Rhodesian assets back.

    From the Wikipedia: Sir Angus Ogilvy, married to a member of the British royal family (Princess Alexandra of Kent), was a Lonrho director and this increased media interest in the company's affairs. Ogilvy's career ended when Lonrho was involved in a sanctions-busting scandal concerning trade with Rhodesia. Prime Minister, Edward Heath, criticised the company, describing it in the House of Commons in 1973 as 'an unpleasant and unacceptable face of capitalism'.

    So how much money has LonRho invested in 'regime change' in Zimbabwe?

    They have finally come out of the woodwork.

    Here is an interesting analysis on other Zimbabwean issues:

    http://www.zimpoliticalanalyst.net/News/doomsday.htm

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  5. There's something behind the Lonrho's story. I think it is unfortunate if MDC are soliciting funding from them. I mean it strikes at the heart of their credibility.

    On the other hand nearly all political parties get foreign funding. Its difficult to prove that all the backers are clean. I guess we wont know whether these are the true force behind MDC till MDC takes the reins. But then it might be too late of course...

    How to solve a problem like Zimbabwe....a real conondrum....but then you would say there's no problem :)

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  6. Cho,

    On the other hand nearly all political parties get foreign funding.

    But not like this. This is like a guarantee - if you elect us, we will sell off the state's assets to you. That alone is high treason to me.

    It is like Dick Cheney holding on to 400,000 shares worth of Haliburton options, and seeing their value go from $2 million to $16 million last year, because HAL went from under $5 in September 2001 to over $40 last year. While HAL receives no-bid contracts from the Pentagon, in a war Dick Cheney himself engineered.

    The very fact that LonRho is setting up a $100 million fund shows that they know they are going to score big when the MDC takes over.

    The fact that LonRho has such a huge fund, and will buy the Zimbabwean state's assets at fire sale prices, makes them more than just investors or backers. This is the hijacking of the Zimbabwean state.

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  7. In Mozambique Lonrho had joint ventures with the government at the same time they were giving $500,000 anually to the rebels. Also they had a private army of 1400 men. They even had their own tanks.
    http://www.c-r.org/our-work/accord/mozambique/business-peace.php

    In Sudan, Lonhro supported both sides or their 12 year civil war.
    http://www.sudanupdate.org/WHOSWHO/SPLAM.HTM

    In Zimbabwe they supported both sides of the fight majority rule in the 70's.
    http://www.time.com/time/magazine/article/0,9171,919755,00.html

    There are others. They have a history of bribery, corruption and fraud. When Tanzania nationalized their Tanzanian assets instead of writing them off their books they put a footnote that their company was "considered a national treasure." :P They never hesitated to deal with shady governments like aparthied South Africa and Gaddafi.

    It's interesting that Lonrho also played a significant role in Zambian history, part good, part bad...

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  8. error27,

    Very revealing links!
    Thanks...

    These Lonrho guys are definitely crooks!!

    This is why I think that we can talk about charters of governance for developing countries but the real problem may well lie in organisations located abroad. It those companies that need to be blacklisted so that no one can do business with them. A lot of lives would be saved just by pressure being brought on Lonrho by the London Government for example.

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  9. error27,

    Excellent links. I have been trying to find a direct link between LonRho and the MDC, but I guess I don't know enough about the individual MDC membership.


    Cho,

    This is why I think that we can talk about charters of governance for developing countries but the real problem may well lie in organisations located abroad.

    Which can be remedied by stronger legislation at home.

    It should be illegal to

    - sell any sizable government assets without long discussion in parliament, and the press, and with public input from the civil service.

    - the terms of sale should be known to the public long before any finance minister or president signs on the dotted line, there should be absolutely no secrecy about these deals at all.

    - there should be minimum standards about the benefits to local people or the state, like a mininum of share ownership by the local chief, local government or the state.

    - lastly, these points are far more enforcable and unevadable if they are adopted continent wide, or at least region wide. This is where the AU, SADC, COMESA and the likes could play a crucial role.

    If such legislation would be enacted, it would make a huge difference in Africa's ability to retain wealth.

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  10. MrK,

    Regional groupings have a role to play but there are everyone's club.

    They need to introduce more closed membership. Countries should only join if they fulfill a certain criteria on governance and tackling corruption for example. The problem is that there are coutries in these regional groups who welcome Lonrho with open arms at the detriment of their citizens.

    The real hope lies with pressuring developed countries to act. But even that just moves the problem to another country!

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  11. They need to introduce more closed membership. Countries should only join if they fulfill a certain criteria on governance and tackling corruption for example.

    Doesn't that defeat the purpose of creating better governance and accountability through regionwide agreements?

    If these organisations have something to offer (low or no import tariffs among member countries, making it easier to trade in other ways), then each country has something to lose by breaking the rules. Hopefully enough so they won't break the rules in the first place.

    Also, there could be a provisional membership, which could be transformed into a full membership. Or there could be regular membership, and goldstar membership, so to speak.

    There are all kinds of ways of making countries comply.

    Also, if you look at the creation of the EU, membership was used to streamline economies and certain macro-economic indicators first. Which I think is the way to move toward economic and national integration, perhaps first regionally, and later on continentally.

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  12. From http://www.minewatchzambia.com/reports/report.pdf

    In July 1987, facing protests against the austerity measures in its adjustment programme the Government rejected the conditions of its loan and instituted a ‘New Economic Recovery Programme’ that limited debt-service payments to 10% of net export earnings. By September, Zambia’s refusal to pay at the IMF’s preferred rate resulted in almost all of Zambia’s donors deciding collectively to starve the country of assistance (25). Arrears to the IMF continued to stack up, and no new money arrived. Within eighteen months the donors had made their point: the price of future support would be compliance with donor priorities. The Government decided that it had little choice but to accept, re-engaging the Bank and Fund, devaluing the currency, decontrolling prices and cutting food subsidies (26).

    Now how does this make the Zambian government's actions competent, and the Zimbabwean government's actions 'incompetent'?

    This is exactly the same as what happened to Zimbabwe, as spelled out in the Zimbabwe Democracy and Economic Recovery Act of 2001.

    This is the origin of hyperinflation in Zimbabwe.

    When Zambia accepted a new adjustment programme in 1989 donors started to come
    back in. Nonetheless, it was too late for UNIP. Repeated urban food riots, industrial unrest,
    and eventually the loss of support for the ruling party from the Zambian Congress of Trade
    Unions (ZCTU) saw the unions form an opposition Movement for Multiparty Democracy
    (MMD), headed by ZCTU leader Frederick Chiluba. They swept the board in elections in
    1991(27).


    This is what they want for Zimbabwe.

    Tsvangirai is intended to be Zimbabwe's Frederick Titus Chiluba.


    And here, Anonymous, is a lesson for anyone who thinks that the actions of the World Bank and IMF in Zambia are successful and are worth replication in Zimbabwe:

    In 2002, the World Bank also eventually accepted that despite massive lending and a massive adjustment programme, “The supply response from the extensive privatisation of small and medium enterprises was limited… outcomes could have been significantly better —in terms of faster and stronger resumption of economic growth and reversal in per capita income and poverty trends— if the relevance and efficacy of Bank strategy had been higher. Outcomes of many Bank operations, and of the overall Bank program, were unsatisfactory.” (32).

    Anonymous shoud take note of this, because here the World Bank itself admits that their program was a failure.

    These ‘stability periods’ are a particularly important provision
    because until they expire the terms of the Development Agreement are legally binding and
    overrule any existing or future national legislation.


    How can any contract be more important than the constitution? Which is the highest law in the land, and the law to which all other laws are subject?

    One financial measure is in place in the Development Agreements that aims to claw benefits
    back to Zambia in cases where the global copper price increases significantly and the
    companies start to earn major windfall benefits. These ‘price participation’ clauses state
    that if the price of copper at the London Metal Exchange exceeds a specific benchmark
    (US$2700 per tonne), then the Government starts to claim back a percentage of each sale
    made. However, the impact of price participation clauses is minimal because the payment
    to the government is again deductible by the companies for income tax purposes.


    Wow. This could be huge. Price Participation should be fully enforced. If there is any doubt about the integrity of the mining companies (cough...) they should be financially edited.

    If they are found to hide their profits, the government should claim back all the money plus interest, that has been made since copper prices moved above $2700.

    This might be the ticket. :)

    Price Participation.

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  13. we are going to be complaining about LONRHO and whoever wants to do business in our countries,with links to whatever.

    the fact of the matter is they have the resources that you badly need. stop demonising every investor or maybe come up with a good idea of investing yourselves in your countries if that is possible.

    we are even failing to run a corporation like zesco/zamtel and we will be quick to blame someone for our failures.we are counting gov. as our biggest debtor when in value terms that is good as nothing because gov. will never pay.

    political parties have to have funding to campaign,which costs huge money. have you ever wondered why someone will invest so much in politics when it has no clear business activities to make profits.

    we are going to come up with theories of wars in countries but the balancing factor is why is their no war in certain countries. eg botswana with massive diamond deposits, UAE or saudi arabia with its massive oil deposits?

    maybe these countries are so stupid not to fight or they reason better than fools that engage in combat to solve revenue percentages.


    as for zimbabwe how many black zimbabweans have a good credit rating to borrow for investment or do they have properties to use as collateral to borrow?

    this brings me back to our country, we live by each day and we don't plan for many years. how many out there are investing in property that they can use as collateral.we are busy building houses arround compounds that will never gain in value with cheap material and poor construction. you spend 80million but your house will be valued at 30million.are we that clever or we are the opposite.

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  14. we are even failing to run a corporation like zesco/zamtel

    No, 'we' are not. The government could do a better job, obviously.

    Again, I'm getting more than a little tired or your generalisations and sweeping claims.

    Be specific. Thanks.

    On the other hand,

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  15. MrK,

    "No, 'we' are not. The government could do a better job, obviously."

    Are you suggesting this is not a Government of the people for the people?

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  16. When was it ever? There still seems to be a schism, especially between the present crop of neoliberals who think of themselves as an 'elite', far removed from the grime of their people. Look at Mwanawasa's recent remarks about children and school fees. Look at the secrecy around these mining agreements.

    On ZESCO - even publically owned companies can be run well. What they need is an absence of political appointments, and a CEO who actively looks for young, dynamic management. And of course, there should be incentives for good performance, just like in the private sector (only not as extravagant as Enron or Worldcom, of course).

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  17. MrK,

    To deny that is to say Zambia is not a democracy. Surely you are not suggesting that?

    NOw I agree on your other aspects. Except on the school fees. It seems complicated. I mean, his point that the poor should not have children is probably wrong.
    We need more children. The more children we have the more bright people we have, the more ideas and so forth.

    But the idea that family planning must reflect financial income is just part and parcel of every day life. Our people need to be taught these things. The issue is that having more children tends to penalise your own family more than it penalises the next one.

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