Joint Venture Act new barrier to investment

via Joint Venture Act new barrier to investment – The Zimbabwe Independent February 19, 2016

Barely two months after Finance minister Patrick Chinamasa and Indigenisation minister Patrick Zhuwao unveiled new frameworks, procedures and guidelines for implementing the Indigenisation and Economic Empowerment Act, government has gazetted the Joint Ventures Act to bring further clarity to the country’s policy environment and attract foreign capital.

Taurai Mangudhla

Government last week gazetted the Joint Ventures Act whose objective is to provide for the implementation of joint venture agreements between contracting authorities and counterparties; and to provide for matters connected with or incidental to the foregoing.

The Act comes into operation on a date to be proclaimed by President Robert Mugabe through a Statutory Instrument.

While government’s intentions are noble, given persistent calls for policy clarity particularly on the shareholding structure stipulated in the Indigenisation Act, it seems the ruling party is ignoring calls by the private sector and the investment community for the state not to interfere with business. At the same time, the lengthy process, from application to approval of joint ventures, is in itself a barrier to investment.

Government established a unit to be known as the Joint Venture Unit (JVU), a department which shall be under the control and supervision of the Secretary for Finance, further increasing bureaucratic inertia.

The role of the JVU, according to the Act, is to consider project proposals submitted to it and assess whether or not they are affordable to the contracting authority and provide value for money. It will also provide for the optimum transfer of technical, operational and financial risks to the counterparty. The JVU also ensures proposals are competitive and conform with the approved feasibility studies through monitoring and evaluation as well as advise government on joint venture projects generally through a joint venture committee (JVC).

Creation of the JVU and JVC repeals section 7(d) of the Zimbabwe Investment Authority (ZIA) Act, whose functions were to respond to proposals from any domestic or foreign investor for joint ventures with the state or otherwise.

The JVC is a body consisting of the permanent secretary for the Finance Ministry, who shall chair the committee; and the permanent secretaries from the Ministries of Industry and Commerce, Transport And Infrastructural Development, Energy and Power Development Local Government, Justice, Economic Planning and a representative of the Attorney-General at director level and the director of the unit.

According to the Act, a person invited by the minister to attend a particular meeting or series of JVC meetings by reason of that person having expertise which the committee may require as well as a representative of a contracting authority whose project proposal is on the agenda of a meeting of the JVC, for as long as that item of the agenda is under consideration by the committee, has the right to attend meetings of the committee and take part in its deliberations, but not to vote on any matter put to the vote by the chairperson.

The other role of the JVC, which shall be staffed through the Civil Service Commission, is to assist the minister to formulate policy guidelines on joint ventures, ensure that all projects are consistent with the national priorities specified in the relevant policy on joint ventures, make recommendations to cabinet as to whether to approve or reject project proposals submitted to it by the JVU and to perform any other function as may be conferred on it by the minister in terms of this Act or any other law.

In order to promote transparency, the JVC is required by the Act to, within 45 days after December 31 each year, to submit to the minister an annual report on matters the unit would have dealt with during the previous year as well as submit to the minister a special report on any matter which the unit considers desirable to report from time to time. The responsible minister is in turn required to lay before Parliament the annual report submitted to him or her by the committee. The Act forbids any contracting authority from awarding a project or signing a joint venture agreement relating to the project unless the joint venture agreement has been approved by Cabinet in accordance with the Act.

“Any agreement required to be so approved that is purported to be concluded without such approval shall be null and void,” reads part of the Act.

Harare lawyer Obert Gutu said the Joint Ventures Act should be viewed in its proper context as an exercise of putting new wine in old bottles, whilst the letter and spirit of the Act, particularly Section 6 that deals with the functions of the JVC committee and Section 8 that deals with the responsibilities of the contracting authority and approval of projects by cabinet, can only stimulate economic development in an environment that is free from endemic corruption and deep-seated political patronage.

He said government should appreciate that being in business is outside its mandate.

“Government should mainly concentrate on drafting policies that enable the creation of a conducive environment to attract both domestic and foreign investment,” said Gutu, who is also the MDC-T spokesperson.

“The regulatory quality and efficiency of doing business in Zimbabwe is hugely compromised. The business operating environment in Zimbabwe militates against innovative free enterprise and cutting-edge financial engineering.

“Put alternatively, there’s just too much politics in everything that we do on the business front. There is too much bureaucracy.”
Gutu pointed out that the involvement of government officials and ministers enabled corruption.

“Corruption is another serious impediment to doing business in Zimbabwe. The cancer of corruption has become so endemic that both senior and junior politicians, including government officials, are now finding it very normal to openly solicit for bribes from prospective investors. Corruption is now fashionable and in vogue. If you want to play it clean, you may find it virtually impossible to do business in Zimbabwe,” said Gutu.

Zimbabwe National Chamber of Commerce ZNCC CE Chris Mugaga said while the Act clarifies implementation of joint ventures, it does not give business the independence it requires from government.

“Making JVs approved at Cabinet level is the biggest problem for me because JVs should be as independent as possible, at business to business level because when investors come they want to do business and not spend time dealing with government,” Mugaga said.
He said government’s role should be limited to policy formulation, policy implementation and monitoring.

“They (government) should simply set up a conducive environment and let the private sector run with negotiating and operating JVs,” Mugaga said. “Cabinet should just be updated by the ministers responsible for different areas on the progress of JVs happening.”
He also said government has too much on its plate to effectively run units for JVs .

“Government is just swamped and giving itself a lot more pressure. For instance, they have to run a National Competitiveness Commission and the President’s Office is now the implementing arm for ZimAsset. They can’t really manoeuvre,” Mugaga said.

Independent economist John Robertson said the Act was a new entry barrier for business given that government already has far too many regulations that slow down or discourage investments.

“It is already difficult to start and register a company in Zimbabwe and now one has to go through these units and committees if they want a JV. We are supposed to be easing doing business and this complicates the doing business environment even more,” he said.
Robertson said government’s philosophy is obsessed with control and this taints the investment climate.

“People should come and invest, build infrastructure, pay their employee, and their taxes and that should be enough for government, but the problem is government wants to control everything too much and this is a barrier,” he said.

Robertson concurred with Mugaga that government should stick to policy formulation instead of being in charge of everything.

“Philosophically, they don’t want to share power with anyone. Now they don’t have to deal with a powerful land owning class. This is a business owning class and they are saying you are no longer in charge,” said Robertson.