‘Foreign firms still operate in reserved sectors’

‘Foreign firms still operate in reserved sectors’

Source: ‘Foreign firms still operate in reserved sectors’ | Financial Gazette (News)

A VERIFICATION exercise carried out by the National Indigenisation and Economic Empowerment Board (NIEEB) into the operations of firms with interests in sectors reserved for domestic investors has exposed abuse of the country’s empowerment laws by foreign companies, The Financial Gazette can reveal.

According to industry correspondence obtained by this paper, foreign firms were said to be seeking compliance with the Zimbabwe Investment Authority (ZIA), but immediately changed their residence statuses to enter the reserved areas.

Sectors reserved for indigenous Zimbabweans include agriculture (primary production of food and cash crops), transportation, retail and wholesale trade, barbershops, hairdressing and beauty salons, employment and estate agencies and grain milling.
Also reserved are bakeries, tobacco grading and packaging, tobacco processing, advertising agencies, milk processing and provision of local arts and crafts and marketing and distribution.

These sectors are generally less capital intensive and less complex, which suits circumstances of Zimbabwean investors that struggle to access capital.
High interest rates also undermine local companies’ capacity to compete in big processing enterprises.

A notice dispatched by the (CZI) to members last week indicated that, NIEEB, which has recently raided firms, had noted that foreign firms had clandestinely entered the protected areas.

“NIEEB has also pointed out that a lot of foreigners were coming and (being) licensed by ZIA to invest in sectors that are non-reserved,” CZI said in its notice to members.
CZI told members to prepare for NIEEB inspections.

“They then go to immigration to get a residence status, but they then start operating in reserved sectors contrary to their investment licences. Not having the compliance certificate is a criminal offence under which one can face up to four months in jail. NIEEB can also make a request for the operating licence to be cancelled,” CZI said.
“NIEEB…(officials) are moving around business premises to find out the status of companies with regards to compliance to operate in reserved sectors. Some of the factors they look for towards verifying compliance include verification that one is banking money; tax compliance; shareholding status and other statutory documents that facilitate business operation from institutions such as NSSA; ZIMRA; city council etc,” the notice added.

NSSA stands for the National Social Security Authority, a State-run pension fund, while ZIMRA is the acronym for Zimbabwe Revenue Authority.

According to NIEEB, firms operating in reserved sectors must obtain compliance certificates from authorities.

Under the country’s tough empowerment laws, which allow foreign firms to hold not more than 49 percent shareholding in firms operating in Zimbabwe, NIEEB has the power to ask for documentation to verify compliance.

In its notice to members, CZI said when firms are operating in a reserved sector, regardless of whether they are Zimbabwean or foreign, they must show a certificate of compliance.

Statutory Instrument (SI) 66 of 2013 enforces these regulations.
The SI said: “Every business operating in the sectors of the economy prescribed under the Third Schedule since the prescribed date shall apply for an indigenisation compliance certificate commencing from the gazetting of these regulations.
An application made in terms of subsection (1), shall be in Form IDG07 together with the payment of a fee prescribed on that form.”

Any person who operates a business in the sectors prescribed under the Third Schedule without an indigenisation compliance certificate from January 1, 2014 shall be guilty of an offence and liable to a fine not exceeding level four or to imprisonment for a period not exceeding three months or to both such fine and such imprisonment, according to the SI.

The SI said the empowerment Minister may direct any licensing authority “to revoke, suspend or cancel the operating license of a business operating without complying with these regulations”.