Thursday, June 28, 2007

Zimbabwe to consider controversial legislation, investor confidence predicted to plummet.

Source: Business Day (Johannesburg)—“Zimbabwe: Mugabe Wants 51 Percent Stake in Companies”

The government of President Robert Mugabe is moving forward with its Indigenisation Program, an effort to redistribute the resources and wealth of that nation to native Zimbabweans.

Perhaps one of the more recognizable programs advanced through Indigenisation in Zimbabwe was the seizing of white-owned farms by the government to resettle blacks. The latest move is legislation that will transfer majority control of “public companies and any other business” to black Zimbabweans.

Critics and observers have forecasted that implementation of the legislation—should it become law—will likely be highly chaotic and counter-productive, particularly with relation to private industry. Concerns have been expressed that the move will further dampen investor confidence and fuel the recession that has persisted in Zimbabwe for almost a decade.

Zimbabwe currently has the unpleasant distinction of having the highest inflation rate in the world. The country is also suffering from epidemic unemployment and massive shortages in food, fuel, and foreign currency.

Critics of Mugabe—who highlight the oppressive tactics he uses to quell political dissent—say that the latest inception of Indigenisation could destabilize the situation enough in that country to result in his ouster. Mugabe counters that such statements are malicious and blames the economic problems of his country on sanctions by the European Union and the United States that have been in effect since 2002 and 2001, respectively.

Are sanctions an effective mechanism for influencing government behavior?

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