BILL WATCH 16-2016

BILL WATCH 16/2016

[14th April 2016]

Indigenisation: Cancellation of Licences of Non-Indigenous Businesses
What is a Non-Compliant Business?

Late last month the Minister responsible for Indigenisation and Economic Empowerment announced a Cabinet decision that from 1st April all line Ministers should take steps to cancel the licences of “non-compliant businesses” in their sectors, acting in terms of section 5 of the Indigenisation and Economic Empowerment Act [which we shall call “the Act” in this bulletin].

The announcement caused alarm and confusion in the business community, which may have been exacerbated by a fake report that the Government had “climbed down” over the issue [published in a newspaper as a remarkably irresponsible April Fool’s Day “prank”]

Subsequent public disagreement between the Minister and the Minister of Finance and Economic Development over the indigenisation of the financial sector was seen as further evidence of divisions within Government over Ministerial responsibilities regarding indigenisation, coming after their December/January brush over the gazetting of statements of the Government position on indigenisation [see Bill Watch 3/2016]

In this bulletin we look at the legality of the Minister’s threat to cancel the licences of non-compliant businesses.  In a separate bulletin we shall outline more recent developments, including this week’s release through the Ministry of Media, Information and Broadcasting Services of a statement by President Mugabe, dated 11th April, entitled Presidential Statement to Clarify the Government Position on the Indigenisation and Economic Empowerment Policy [full statement available from Veritas – see note at end of bulletin]

No General Power to Cancel Licences

There is a widespread belief – apparently shared by the Minister – that the Government has an all-embracing power under section 5 of the Act to bring about the cancellation or non-renewal of the licences of businesses that are not 51% owned by indigenous Zimbabweans and have not submitted indigenisation implementation plans.

The true position is very different.

Limits of the Government’s power to interfere with licences

There is, indeed, provision in section 5 of the Act for the cancellation and non-renewal of licences, but it is limited by a special narrow definition of “non-compliant business” in section 5(1).  As a consequence of the narrow definition, businesses are “non-compliant” and can have their licences cancelled if and only if:

they have merged or restructured, or a person has acquired a controlling interest in them, and they have not notified the Minister in terms of section 4(1) of the Act, or

they have de-merged or unbundled their businesses, and the Minister has not been notified in terms of section 4(1) of the Act, or

the person who controlled them has relinquished control and the Minister was not notified in terms of section 4(1) of the Act, or

they were established by an investor with a licence issued by the Zimbabwe Investment Authority but, again, the Minister was not notified in terms of section 4(1) of the Act.

The Government therefore has no power under section 5 of the Act to have a business’s licence cancelled or denied merely because the business failed to submit a provisional indigenisation plan by 31st March, or merely because the business was not on 1st April at least 51% owned by indigenous Zimbabweans.

Due process must precede cancellation/denial of licence

In those, probably exceptional, cases where section 5 is applicable, loss of a licence is not something that can be sprung on a business without warning.  As the Minister has acknowledged, at least in recent interviews, the section lays down a procedure that must be followed:

First, the Minister must notify the allegedly non-compliant business, in writing, of his intention to order the cancellation of its licence, setting out reasons and stipulating a reasonable period within which the business may show “just cause” why the licence should not be cancelled.

Next, if after considering any representations from the business, the Minister decides he must deprive it of its licence, he must notify the business of his decision but cannot order the licensing authority to cancel the licence until another 30 days have passed.

The business has the right to appeal to the Administrative Court against the Minister’ decision, and the court can suspend the decision until the appeal has been decided.

Only after complying with this procedure – and [something not mentioned by Government spokespersons so far] obeying the Administrative Justice Act’s command to “act lawfully, reasonably and in a fair manner’ – can the Minister finally order the licensing authority concerned to cancel a licence or not to renew a licence when it next comes up for renewal.

Who decides to cancel a licence – “Minister” or “line Minister”?

In the preceding paragraphs we have referred to “the Minister”, but it is not clear from the Act whether that means the Minister of Youth, Indigenisation and Economic Empowerment or the line Minister, i.e. the Minister responsible for the sector of the economy to which the business concerned belongs.

A Real Climbdown: Government Abandons Proposed Indigenisation Levy

After the Cabinet meeting of 22nd March the Minister of Youth, Indigenisation and Economic Empowerment announced that Cabinet had decided that no such levy will be imposed.  This reversed the position stated in his General Notice 9/2016, which dealt at length with plans to introduce an “indigenisation compliance and empowerment levy” [it was not necessary to amend GN 9/2016 because it merely gave advance notice of those plans but did not give legal effect to the levy or claim to do so]. 

Note, however, that the Minister’s power to impose a levy under section 17 of the Act remains intact.  But he can do so only with the approval of the Minister of Finance and Economic Development and after both Houses of Parliament have approved the draft statutory instrument imposing the levy.

Documents on Indigenisation Law and Policy

The following documents are available from Veritas—

President’s Clarification of Government’s Position on Indigenisation and Economic Empowerment Policy

Indigenisation and Economic Empowerment Act [updated to incorporate all amendments]

Indigenisation and Economic Empowerment (General) Regulations [SI 21/2010] [updated to include all amendments]

The Operations of the Community Share Ownership Trusts & Employee Share Ownership Schemes – Report by the Senate Thematic Committee on Indigenisation and Empowerment [2015]

GN 9/2016 [Frameworks, Procedures and Guidelines for Implementing the Indigenisation and Economic Empowerment Act]

GN 394A/2016 [Frameworks, Procedures and Guidelines for Implementing the Indigenisation and Economic Empowerment Act] [NB this was replaced by GN 9/2016]

GN 280/2012 – Indigenisation requirements – Finance & Other Sectors

GN 459/2011 –  Indigenisation  requirements – Manufacturing Sector

GN 114/2011 –  Indigenisation  requirements – Mining Sector

To access these documents on the Veritas website, please use the links above or, if without Internet access, email a request to the address given for requests below.

                                                                

Veritas makes every effort to ensure reliable information, but cannot take legal responsibility for information supplied

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