‘Zim must incentivise local content policy’

INCENTIVES should be rolled out for financial institutions to lend to local investors to drive Zimbabwe’s local content policy, a new report has revealed.
Zimbabwe is working on a local content policy, which is expected to stimulate the use of local factors of production, such as labour, capital, supplies of goods and services, technology, and research and development, to create value in the domestic economy, Treasury has said.

In a 2017 country profile report for Zimbabwe released on Sunday, the United Nations Economic Commission for Africa (ECA) said the participation of local financial institutions in productive processes in the country was one of the weakest links because of general risk aversion.

“The local content regulations should include incentives to attract local financial institutions into the sector, encouraging them to lend to potential local investors,” ECA said.

“State financial resources, including sovereign wealth funds, could provide the seed funds for local financial institutions to anchor investment by local banks.

“Insurance sector funds, including pension funds, should be encouraged by local content regulations to participate in the sector.”

It advocated for the development of legal and regulatory frameworks to make the policy legally enforceable supported by well-capacitated institutions.

Equity participation by locals, ECA said, was another pillar of localisation, which could be entrenched through local content requirements, adding that indigenisation was designed to increase the participation of locals.

But the body believes the empowerment law could be tweaked to lower the threshold of local ownership and the local component augmented through State free carried interest in any venture, where foreign entities are in the majority.

“In this context, a lesson could be learned from the experiences of Ghana, where government has a 10% free carried share in all mining projects, and of Ethiopia, where government has a 5% free carried share in the minerals sector,” it said.

ECA said the local content policy should make it mandatory for companies to list on the Zimbabwe Stock Exchange, thereby affording locals the opportunity to participate as shareholders with government mindful of “fronting”.

“Strategies and instruments to test the authenticity of the levels of local investment and materiality of the participation of local citizens in joint ventures should be developed as part of local content regulations,” it said.

In the 2018 National Budget, Finance and Economic Development minister Patrick Chinamasa said legislative, regulatory, institutional and reporting, monitoring and evaluation mechanisms would be established under the local content policy.

This, he said, would be cognisant of the internal systemic and political realities, as well as exogenous contextual factors, such as the cyclical behaviour of commodity prices, demand and supply dynamics and technological changes and world trade rules.

The local content policy is set to buttress Statutory Instrument 64 of 2016, which restricted the importation of products that have local equivalents to boost local industries.-=-newsday.co.zw

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