Bold but Stupid
Now that the dust has settled and the political euphoria has waned from what was called a politically bold move by the Prime Minister by supporters and advocates, let us now look at the realities behind the nationalization of Belize Telemedia Ltd. (BTL). In a bold and unprecedented move, PM Barrow drafted legislation, rammed it through the House and Senate and moved in on a privately owned company in three days. He calls it nationalization in the best interest of the people. Investors in and out of Belize and critics call it expropriation or a hostile takeover.
The Prime Minister in defense of his move said that investors would not be scared off from the seizure of assets from a privately owned company. The Prime Minister compared the nationalization of BTL to the bailouts that President Obama had to undertake earlier this year to stop the financial hemorrhaging that the big banks and automakers where experiencing in the United States. Anyone with some understanding of Finance and Economics can see that these are two totally different issues. One was done to save an economy from collapse and the other was done to appease one sector of the media and to provide the United Democratic Party with a cash cow. I guess the PM’s lack of financial and economic astuteness coupled with his eagerness to build street credibility caused a lapse in judgment in breaking a fundamental rule of law and that is the right to property.
What Happened to the Right to Property?
As a very skilled and experienced attorney, I am sure that the Prime Minister knows very well that the Right to Property, an important aspect under the Rule of Law is critical for any investor when deciding whether to put money into a country. Experts like former Ronald Reagan aide Tony Blankley, believe that the right to property is one of the most important variables in attracting investors to a developing country like Belize. Experts also believe that the right to property is an important catalyst in any economic development strategy. As a panelist on a recent CPAN show on Economic Issues at the prestigious Steamboat Institute, Mr. Blankey shared his experience on what the Reagan government encountered when they tried to attract investors to Grenada in the Eighties just after they had invaded the island. He explained that hotel, airline and other investors refused to invest in the island because they were afraid that their property would not be safe.
The rule of law in this situation means a well-defined and enforced property rights, broad access to those rights, and predictable rules symmetrically applied for resolving property rights disputes. By no rule of law I mean a legal regime that does not protect investors’ returns from arbitrary confiscation, does not protect minority shareholders’ rights from tunneling, and does not enforce contract rights.
The Zimbabwe Story
A good example where the breach of right to property caused a collapse of a country is the African nation of Zimbabwe. For many years, Zimbabwe was known as the “jewel” of Africa. With an abundance of natural resources and fertile farmlands, Zimbabwe grew enough food to feed its people and had excess to export. The farm sector supplied about 60 percent of the inputs to the manufacturing base—so agriculture was truly the foundation of the economy.
Zimbabwe also had a strong banking sector, vibrant tourism, and more dams than any other Sub-Saharan country except South Africa. Most people believed in the police and that the judicial system would treat cases fairly; indeed, the low crime rate rivaled that of many European countries. Perhaps most important, the country had a secure rule of law, with a modern property rights system that allowed owners to use the equity in their land to develop and build new businesses, or expand their old ones. All that led to strong real GDP growth, which averaged 4.3 percent per year after independence in 1980.
This all changed when Mugabe, under pressure from supporters (due to the disparity in land ownership) decided to embark on a policy on land seizure. Even though some of Mugabe’s advisers knew better than to upend property rights, the President decided to proceed with this his mad policy.
Between 2000 and 2003, Mugabe’s government seized over 4,500 commercial farms. The strategy was to divide the farms into hundreds of thousands of small plots for traditional black farmers. In practice, most plots ended up in the hands of Mugabe’s political supporters and government officials, whose knowledge of farming was meager.
During the next four years, the economy began to collapse with increasing speed. By 2003 it was shrinking faster than any other in the world, at 18 percent per year. Inflation was running at 500 percent, and Zimbabwean dollars lost more than 99 percent of their real exchange value. Today the economy continues its extraordinary freefall and starvation is rampant throughout the country.
Belize’s Investment Future Weak
In isolation the nationalization of BTL by the Prime Minister is not as drastic as Mugabe’s land seizure policy. However when combined with the closure of the Department of Lands for such a long time, the confiscation of people’s lands, and the public treats by the government towards Belize Electricity Ltd. and Belize Natural Energy, investors will definitely ask the question: is my land or property safe in Belize?If the Prime Minister thinks that investors are lining up to come to Belize he is sadly mistaken. This one brazen act by an overzealous and egocentric Prime Minister has set Belize back some years as a country being serious about attracting investors. With investor confidence at an all time low, the lack of a serious investment policy, the shameful performance of Beltraide, a weak judiciary, compounded by the fact that investor’s property may not be safe, let’s wait and see if the Prime Minister’s action becomes an albatross around his neck. Only time will tell!!!