The telecel saga and corporate xenophobia

Economic nationalism takes many forms but at its roots is a deep fear of anything that is deemed to be foreign. I have just returned from Zambia where a company incorporated in in that country in which I am the ultimate sole shareholder is involved in a dispute with another company also incorporated in Zambia whose majority issued share capital is held by a foreign registered company.

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Mutumwa Mawere

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The two companies in dispute are corporate citizens in Zambia but the mere fact that the issued shares are held by foreign domiciled parties automatically qualifies them to be regarded as foreign companies. The directors of the companies are, in the majority, Zambian nationals who, in terms of the law, control the management of the company yet it is a generally held view that companies are controlled by shareholders with directors and management playing subordinate roles.

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Although, to a large extent, the control of any company is at the coal face and customers are the people who matter in the daily operations of companies, the propensity of the human mind to seek to define the identity of a child through its parents is irresistible and inevitable. In the natural human world, it is often the case that an individual whose two parents may be domiciled in another country will naturally and easily be labelled a foreigner irrespective of his or her real status.

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In a similar vein, Telecel Zimbabwe (TZ) whose two shareholders are Telecel International (TI) holding 60% and Empowerment Corporation (EC) holding 40% carries the identity of a foreign corporation. Corporate xenophobia is a phenomenon that is universal and as such it has to be understood in its proper construction and context. It flows from the same sentiment of self-determination that has inspired many struggles for political emancipation and also the confusion that is often associated with commerce.

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Political struggles for independence were inspired by an idea that human beings are all endowed by the creator with certain inalienable rights. It is the proper understanding of what humanity means or ought to mean that led the proponents of the oppressed to question the legal and moral basis of exclusionary constitutional orders that placed certain human beings, based on race, as superior beings whose lives, liberties and pursuits of happiness ranked higher than others in terms of the law.

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The civil rights struggles were aimed at dismantling constitutional orders that sought to promote and protect the rights of a few and not all the human beings that shared the same air and geography. All human beings share the same basic features to allow anyone to exclude others simply on the basis of birth and other artificial attributes.

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In Zambia, for example as is the case in other sovereign states, I am treated as a foreigner simply because I am foreign-born but there is nothing about me that would overtly qualify me to earn that label of a foreigner. There are many Zambians who share the same surname with me yet human identities are often, if not always, associated with language and, more significantly, the place of birth.

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On Sunday, 10 May 2015 we met with fellow residents of South Africa under the umbrella of the 1873 Network to discuss the issues surrounding the interplay of xenophobia and the idea of self-determination. The Network was inspired by the recognition that in 1873, our beloved continent had no borders that human beings could seek to protect and certainly xenophobia as an operative term could not be given life to.

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As members of the network, we all share the interest of restoring Africa to what it was then not out of nostalgia but out of recognition that the continent and the prospects of its peoples are stronger when its billion plus inhabitants think and act in the name of Africa as separate, indivisible and diverse members of an African human family. Africa has many faces and attempts to limit the face to some utopian homogeneous face will not work in as much as Europeans, for example, may wish to hallucinate into believing that Europe is and should be reserved for certain pale looking faces.

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It is human beings whose movements across borders creates the need for passes to cross border posts, something that is foreign in the world of animals who do not need any border control agencies to cross borders in search for greener pastures. Be that as it may, in this article I seek to interrogate the idea of corporate xenophobia. What does a foreign company look like? How does it manifest itself in real life? If a foreign company exists; then what distinguishes it from a domestic company?

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A company is a company in as much as a human being is a human being. It is absurd that an artificial person that can only be given life to by law as applied in a specific jurisdiction can qualify to be described in terms that place the very same juristic person outside the borders from which its existence is located and premised. It should be common cause that Telecel Zimbabwe (TZ) should be the focus of attention rather than its parents. The company has more than 2 million subscribers who have 24/7 access to voice and data transmission capabilities. It is also the case that even President Robert Mugabe has had to acknowledge that indigenisation cannot and should not be applied randomly and without any regard to the fundamentals of the business eco-system.

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In this case, unlike mineral resources that were deposited by a generous benefactor, the mobile phone industry requires infrastructure in order to deliver the promise. To bring to life such infrastructure, capital and skills are required. This involves investment and such investment is not readily available in Zimbabwe. The indigenisation requirement has to be put in context. At the time TZ commenced business, the lawful currency of the nation was the Zimbabwe dollar, a currency that was subsequently buried.

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Pursuant to the exchange control regulations of the country, EC, the local shareholder of TZ, had no access to foreign currency and, therefore, could only make its investment in local currency. The infrastructure required to build a mobile phone network was not available in the country and could only be purchased in foreign currency, a commodity that was generally and critically in short supply. In the premises, it can safely be concluded that EC played no part in the procurement and financing of the infrastructure that has allowed TZ to meet its obligations to its subscribers in terms of service.

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We learned recently from the Managing Director of EC, Mr. Patrick Zhuwao that TZ needed about US$300 million to recapitalize its operations as well as pay its license fees in full. We learned from Ms. Mutasa in her court papers that EC holds about 80 million shares in TZ suggesting that the total number of shares in issue should be about 200 million shares. It is also the case that the par value of the shares in issue should be in Zimbabwe dollars, the applicable currency of the day.

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In this case, TI was the holder of shares denominated in Zimbabwe dollars. If TI were to decide to dispose of its shares in TZ, the new shareholder would have to be issued shares by TZ in the jurisdiction of Zimbabwe. In response to Ms. Mutasa’s court application, Mr. Zhuwao correctly stated that as the Managing Director of EC, he had the requisite powers to act on behalf of the company.

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He, however, went further to assert that: “it was shareholders such as Mutasa who had frustrated investment in Zimbabwe’s third largest telecoms firm.” This implies that shareholders of EC who have no direct legal nexus with TZ had played a part in undermining the very company from which they stand to benefit in terms of dividends, if any, that EC will receive from TZ.

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It is not in dispute that no shareholder has received any dividend from TZ since the commencement of business in 1998 and, therefore, the value of the company to any would-be shareholder has to reflect the fact that no dividend is likely to come his or her way in the near future especially having regard to the investment that the firm needs to grow and stabilize its business.

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According to Zhuwao, the audited financial statements of Telecel… for the year ending December 2013 showed… total assets of… $216 million.” However, the current and non-current liabilities were about $203 million leaving a net asset value (NAV) of less than $15 million. Notwithstanding, the position of Ms. Mutasa was that the 40% shares held by EC in TZ was worth a staggering US$200 million. This valuation has to be seen in the context of the fact that EC’s investment could only be in Zimbabwe dollars suggesting that the real money was injected by TI or entities that fall outside the four corners of the shareholding of TZ.

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It was Zhuwao’s averment in court papers that: “…the financial position has… since significantly deteriorated to a NAV position of less than $100 000 by end of 2014. Further… Telecel has not fully complied with licensing requirements and has up to the end of February to satisfy all requirements. Telecel is therefore seriously threatened by licensing risk.” Mr. Zhuwao was alive to the implications of the new capital required by TZ especially having regard to the fact that EC had and has no financial capacity to inject any capital in the company.

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It would appear that unless TI injects new money, TZ is a troubled company. In fact, TZ may be stronger financially than one of its parents who now seeks to be its controlling shareholder. In a normal country, TI would be congratulated for making it possible for EC to pretend to be a bona fide parent without suffering the burden of paying school fees.

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What then are the options for TZ? Any successor to TI will have to deal with the elephant in the room i.e. the indigenisation and license fee obligations. In addition, if any transaction takes place at the Zimbabwe level, it means the new shareholder would have to contend with EC’s aspirations that include obtaining an additional 11% equity for mahala.

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Who would be foolish enough to step-into the shoes of TI? I do not believe that any rational thinking investors would be persuaded to assume the role and nightmares of being a funder with limited rights especially with respect to control of the company. TZ is and will always be a Zimbabwean juristic person and as such its viability and sustainability are a function of what takes place in the territory of Zimbabwe including the approach to the rule of law and protection of property rights.

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If it takes a judge to stop the abuse of state office, then Zimbabwe has a long way to go in understanding the importance of the state and its actors in giving life to the bill of rights entrenched in the constitution.