Under the proposed supply-chain based approach, government would institute policies that would ensure that indigenous people supply all the operational requirements in the banking sector.
This empowerment strategy would then ensure that indigenous people realise immediate benefits through receipts from guaranteed supply of goods and services to international banks, as opposed to dividend payments, which are contingent upon the profitability of the bank and the decision to issue dividends to shareholders.
Youth Development, Indigenisation and Empowerment minister, Saviour Kasukuwere, recently summoned executives from four foreign-owned banks operating in Zimbabwe to inform them of his indigenisation intentions.
The four foreign banks are MBCA, owned by South African-based Nedbank, Stanbic, a unit of Standard Bank (South Africa), British-owned Standard Chartered Bank and Barclays Bank.
Gono warned against indigenising banks in the current environment, where the financial sector is highly illiquid, a development he said would worsen the liquidity crisis in the economy, where the 51% is ceded on credit.
He said that under the equity approach, beneficiaries were generally people seeking to satisfy their esteem and self-actualisation needs. “The high number of locally-owned banks implies that the sector is already dominated by indigenous banks. A coercive change in bank ownership structure, under the guise of indigenisation, would lead to a weakened banking sector, thus undermining the stability of the sector,” said Gono.
He noted that international banks in the country constituted 38,7% of total deposits in the banking industry and 52% of banking sector profitability.“As at 31 December 2011, total turnover for the banking sector amounted to US$870 million, of which US$800 million was utilised to cover operational costs, resulting in a net profit of US$70 million.
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Of the US$800 million that was utilised, US$320 million was in the form of non-interest expenses and Gono said this presented empowerment opportunities through the supply-chain based approach.
Of the total profitability for the banking sector amounting to US$70 million, foreign banks accounted for 52% (US$37 million), while indigenous banks had the balance of 48% (US$33 million).
“Based on the foreign banks’ share of profitability amounting to US $37 million, if indigenous participation were to be based on profitability alone, the indigenous investors would be entitled to US$19 million, which is commensurate with the 51% of US$37 million.
“Moreover, assuming a dividend of 10% is paid on the US$19 million; indigenous investors would be entitled to a paltry dividend of US$1,9 million per year if the equity-based approach is adopted,” he said.
This, he said, would not be comparable to the implied benefit of US$320 million under the supply-side approach, which is available throughout the year and has the added benefit of the multiplier effect of reinvested profits.
“International banks accounted for 34% of the banking sector’s total turnover of US$870 million, while indigenous banks accounted for the balance of 66% as at 31 December 2011,” he said.
Gono said one way to ensure adequate financing to indigenous people under the supply-based model was “to put in place procurement financing measures that ensure that indigenous people have access to capital from the financial sector for both operational and capital spending with little or no traditional type of security for loans”.
