Indigenisation law clarification: The facts

via Indigenisation law clarification: The facts – The Zimbabwe Independent January 15, 2016

Very few will require persuasion in order to accept the importance and significance of empowerment of indigenous Zimbabweans and all historically disadvantaged people of Zimbabwe.

STERNFORD MOYO

Corporate social responsibility and balancing the interests of investors and those of communities where the investment takes place are indeed important emerging human rights issues particularly in the area of extractive industries.

Furthermore, few will require a lecture to appreciate the negative impact on investment inflows into Zimbabwe, of an empowerment programme focused on equity and transfer of control from the investor. Consequently, our cabinet ministers ought to be congratulated for identifying the nexus between the implementation of our indigenisation laws and the poor inflows of investment into our country. The current law has many philosophical and technical defects which require urgent attention.

That is not, however, the subject matter of my paper today. I shall confine myself to clarifying the recent clarification of the indigenisation law and leave you to determine whether more should not have been done.

On January 8, Youth, Indigenisation and Economic Empowerment minister, Patrick Zhuwao, published a government notice executed by him on the January 4 in which he replaced and substituted in its entirety the notice published in the Government Gazette Extraordinary on December 24 2015.

It is important to emphasise at the outset that the notice does not change any law. It does not change and cannot change the Indigenisation and Economic Empowerment Act Chapter 14:33. It was issued to simplify and clarify the framework, procedures and guidelines for complying with the Act.

The stated objective of “encouraging private sector investment” which was in the notice issued on December 24 2015 has been dropped from the new notice.

The apparent objectives of the new notice, apart from being to replace and substitute the earlier notice, appears to be to raise funding for the National Indigenisation and Economic Empowerment Board, the National Indigenisation and Economic Empowerment Fund and the National Indigenisation and Economic Empowerment Chapter which are said to be “in place and now require adequate funding”. A further apparent motive is “to give impetus toward compliance with indigenisation …”.

The notice complains of what it describes as “rampant non-compliance with the indigenisation and economic empowerment legislation” and quotes President Robert Mugabe as having said inter alia “all companies should comply irrespective of the views of those that incorrectly claim that indigenisation is inhibiting”.

The notice states, quoting Mugabe, that the principle of Section 51:49 is “very clear” when it comes to natural resources.

The notice reiterates what was stated in the 2016 national budget, namely, that: “The position of indigenisation in the resource sector has been clarified on several occasions by his Excellency, the President, to reflect that the contribution of our designated entities towards our 51% shareholding will be effected through the resource being exploited and at no monetary cost to the government or designated entities.”

The notice reiterates what is stated in General Notice 114 of 2011, namely, that in respect of the mining sector businesses must dispose of 51% equity to designated entities, namely:

National Indigenisation and Economic Empowerment Fund (Nieef); Sovereign Wealth Fund; Employee Share Ownership Trusts; Community Share Ownership Trust; Zimbabwe Mining Development Corporation (ZMDC); Zimbabwe Consolidated Diamond Company (ZCDC); and any other company incorporated by government or in which government has a controlling interest.

The notice does not clarify:
The apparent change from an indigenisation law as provided for in the Act to a nationalisation law in terms of which state entities become the beneficiaries as opposed to indigenous Zimbabweans as widely defined in the Act;
The apparent removal of the non-indigenous businesses’ entitlement to choose their empowerment partners. Under the Act, it is only when an indigenous business requires assistance with identifying indigenous Zimbabweans that the ministry comes into the picture to provide such assistance. The choice of partners is clear from the wording of the Act. The clarification purports to take this away in the same manner as General Notice 114 of 2011 purported to do so. A government notice cannot lawfully alter the provisions of an Act of parliament. Not even a statutory instrument can do so.

The government notice does not explain how the disposal of 51% equity must take into account the state’s sovereign ownership of the mineral or minerals exploited or proposed to be exploited. The problem of double-dipping by using the mineral in the sale of shares and at the same time claiming royalties in respect of the same minerals has not been explained or clarified.
In respect of the non-resource sectors, the notice reiterates previous notices providing for a lesser share than 51% that may be allowed and the maximum period it may be allowed for.

In respect of reserved sectors, namely, agriculture, primary production of food and cash crops; transportation (passenger buses, taxes and car hire services); retail and wholesale trade; barber shops, hairdressing and beauty salons; employment agencies; estate agencies and real estates; bakeries; advertising agencies; provision of local and craft, marketing and distribution; tobacco grading and packaging; cigarette manufacturing; valet services; milk processing; grain milling; fuel retailing; and artisanal mining of all minerals (except diamond), the notice provides that “no new non-indigenous businesses will be allowed to invest in the reserved sector unless under special cases as determined by line ministries and approved by cabinet”.

In the reserved sectors, “indigenisation compliance levels exclude credits for socially and economically desirable objectives unless under special cases as determined or approved by cabinet”.

Specific credits and the ratings for such credits have been provided for in order to reduce ministerial discretion in determining the impact of socially and economically desirable activities.

It is clear that socially and economically desirable objectives are applicable to the mining sector because, among the activities to be weighted and to add towards 51% is “the beneficiation to a specified extent of raw materials that are extracted in Zimbabwe by the business in question before it exports them”. Others include development work, technology transfer and employment and imparting new skills to Zimbabweans.

Models for allowing a lesser share than 51% are still to be developed in consultation with line ministries.

An empowerment levy will be imposed on non-compliant businesses. Rebates from the levy will depend on the extent of compliance. A 100% compliance will earn 100% rebate.

Although the levy regulations are still to be promulgated, it has been made clear in the notice that these shall be “linked to the annual gross turnover of the business entities”.

All companies that have not yet submitted their indigenisation implementation plans as required by the Act should submit their application through the Zimbabwe Investment Authority by the new deadline of March 31 2016.

Moyo is a top corporate lawyer and a senior partner at Scanlen & Holderness. He also sits on the boards of top companies.