BILL WATCH 17-2016

BILL WATCH 17/2016

[15th April 2016]

President Mugabe’s Clarification of Government Position on

Indigenisation and Economic Empowerment Policy

Since the 1st April Government deadline for submission of indigenisation implementation plans by “non-compliant businesses” [aspects of which were considered in Bill Watch 16/2016] there have been further developments on the indigenisation front, culminating in the release, through the Ministry of Media, Information and Broadcasting Services, of a Presidential Statement signed by President Mugabe and dated 11th April 2016, entitled—

Presidential Statement to Clarify the Government Position on the Indigenisation and Economic Empowerment Policy

The Presidential statement was distributed in a poster-size document included in some newspapers on 13th April [soft copy available from Veritas – see note at the end of this bulletin].

Purpose of the Presidential Statement: To Provide Guidance

The statement refers to “the conflicting positions in the interpretation of the Indigenisation and Economic Empowerment Policy that have arisen of late” and states that this has caused confusion among Zimbabweans, the business community, current and potential investors, thereby undermining market confidence and leading to increase in the costs of doing business and the weakening of Zimbabwe’s economic competitiveness.

The President then says the purpose of his statement is to “provide clarification on this very vital national policy, for the guidance of Government Ministers, the business community and current and would-be foreign investors”.

Note:  A striking example of conflicting positions causing confusion was the recent public disagreement between two Ministers over whether or not foreign-owned players in the banking sector have complied with the indigenisation and economic empowerment law and policy.  The Minister of Finance and Economic Development, endorsing views expressed by the Governor of the Reserve Bank, published a statement saying foreign-owned banks were compliant.  The Minister of Youth Development, Indigenisation and Economic Empowerment promptly and emphatically rejected his colleague’s statement.

Timing

The statement’s timing is significant.  It came shortly after the President’s visit to Japan on a search for investors and just before the current Spring meetings of the International Monetary Fund and the World Bank, being attended by Minister Chinamasa and the Governor of the Reserve Bank.    

Status of the Statement: It Is Not New Law

The President makes it clear that he is spelling out Government policy, not making new law.  A sentence at the very end of the statement confirms this [emphasis supplied by Veritas]—

“To the extent that the Indigenisation and Economic Empowerment Act may not sufficiently conform with this policy position, I have directed that the Law be amended or changed forthwith accordingly.”

As a statement of policy, the President’s statement obviously outranks statements by Ministers who hold office at his pleasure.  But, as the sentence just quoted implies, it does not override the law stated in the Indigenisation and Economic Empowerment Act or  the Statutory Instruments and General Notices made under the Act.  But it seems to announce major changes in policy, as indicated below.

Different Approaches to Three Different Economic Sectors

Having pointed out that the implementation of the Indigenisation and Economic Empowerment Policy distinguishes between three economic sectors, the President goes on to deal with each of the sectors in turn.

1 Natural Resources Sector

Businesses in this sector deal with the exploitation of Zimbabwe’s “natural and depleting resources, such as minerals”.   This, says the President, means that Government has a duty to ensure the resources are exploited in a manner that safeguards the best interests of current and future generations of Zimbabweans.  Government – and/or its designated entities – will hold a 51% stake in businesses in the sector, with the other 49% belonging to the partnering investor/s. 

EXCEPT, the President goes on to say, for existing businesses where Government does not have 51% ownership:  in those cases compliance with the Indigenisation and Economic Empowerment Policy should be through ensuring that the “local content” retained in Zimbabwe – value in the form of wages, taxation, community ownership schemes and activities such as procurement and linkage programmes – is not less than 75% of the exploited resources.   This qualifies as a major policy change.

2 Non-Resources Sector – including Financial Services Sector

Under this heading, the President does not mention 51% Zimbabwean ownership at all.  But businesses in this sector, he says, should exhibit socially and economically desirable strategic objectives towards the turn-around and sustainable socio-economic transformation of the economy, such as—

- Beneficiation of raw materials before exportation

- Technology transfer to enhance productivity

- Creation of employment for and imparting of skills to Zimbabweans

- Granting of ownership and/or employee share ownership “for value” to indigenous Zimbabweans

- Linkage programmes, enterprise development, value chains and other socially desirable objectives to be defined by line Ministers for the purpose of attracting foreign direct investment into Zimbabwe.

- Sector-based empowerment credits or quotas reflecting an investor's “contribution to national development efforts” will be granted by line Ministers and agreed through negotiations with investors.

Role of the Minister of Youth Development, Indigenisation and Economic Empowerment

At this point in the statement the President says that the role of the Minister responsible for Indigenisation and Economic Empowerment is “to co-ordinate the activities of line Ministries in the implementation of the (Indigenisation and Economic Empowerment) Policy through the relevant Cabinet Committee, which he chairs”.

Special Section of Statement on Financial Services Sector

Although already described as part of the Non-Resources Sector, the Financial Services Sector is dealt with separately by the President, as follows:

Banking Sector  will “continue to be under the auspices of the Banking Act, which is regulated by the Reserve Bank of Zimbabwe.

Insurance Sector  will continue to be under the auspices of “the Provident and Insurance Act” [sic]  [Note: This is not the correct title of the Act for the insurance sector, but the intention is clear enough.]

These institutions, says the President, will nonetheless “be expected to make their contributions by way of financing facilities for key economic sectors and projects, employee share ownership schemes, linkage programmes and such other financial empowerment facilities as may be introduced by the Reserve Bank”.  

Comment – Banking Amendment Bill   When considering the financial services sector, it is important to bear in mind that the Banking Act will be extensively amended when the Banking Amendment Bill passed by Parliament just before Christmas is finally gazetted as law, an event believed to be imminent.  The Bill’s new provisions for the ownership of and shareholding in and control of banks and other financial institutions are comprehensive and exhaustive, leaving little, if any, room for the application of the Indigenisation and Economic Empowerment Act and regulations.  This has prompted legal opinions that the Banking Act, once so amended, will override the indigenisation legislation as far as financial institutions are concerned.  But there is no express exemption from the indigenisation legislation.  [The Banking Amendment Bill, including the full text of the new Part IIIA [Shareholding and Control of Banking Institutions] is available from Veritas – see note at the end of this bulletin].

3 The Reserved Sectors

These are the eleven sectors reserved for “Zimbabwean entrepreneurs” [the President does not mention the word “indigenous”, although it appears in the relevant section 9A of the Indigenisation and Economic Empowerment (General) Regulations, SI 21/2010 as amended].   Apart from the omission of the word “indigenous”, important points about this part of his statement are—

- the President’s acknowledgement that there is an exception for what he calls “existing businesses”.  Official statements on the subject frequently fail to mention that section 9A of the regulations on the reserved sectors does not apply to businesses that were operating before 1st March 2010.

- The President’s statement that there is another exception from the reserved sector – “where a special dispensation is granted by the relevant line Minister”.   [Comment:  This is one several aspects of the statement that requires an amendment to the law, in this case the regulations.]

Will the Statement Serve its Stated Purpose?

Noteworthy features of the Presidential Statement are—

- limitation of the role of the Ministry of Youth Development, Indigenisation and Economic Empowerment and the emphasis on the responsibilities of line Ministries for their respective sectors

- an apparent abandonment  of the notion of enforcing the 51% indigenous ownership rule for foreign financial institutions in a way that leaves complete or near-complete responsibility for the financial services sector in the hands of the Minister of Finance and Economic Development and the Reserve Bank

- the new more realistic treatment of existing businesses in the natural resources sector

- the two exceptions recognised for businesses in the reserved sectors.

Whether the statement’s fine-sounding words will serve to reassure the business community and would-be foreign investors is another matter.  Investors may feel those words are too broad, vague and general to provide real guidance, and leave far too much to flexible discretionary responsibilities to be exercised by line Ministers [for instance, to “negotiate” empowerment credits and quotas, and grant “special dispensations”] – thereby perpetuating previous confusion and uncertainty rather than removing them.   Changes to the law to incorporate policy shifts may help to restore investor confidence.

Documents Available from Veritas

To access these documents on the Veritas website, please use the links below or, if without Internet access, email a request to the address for requests – veritas@mangol.zw.

Banking Amendment Bill

Documents on Indigenisation and Economic Empowerment

- 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

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

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