ECONOMIC GOVERNANCE WATCH 1/2021
27th January 2021
Mining Industry : Indigenisation Through the Back Door
Last year’s Budget Bill – the Finance (No. 2) Bill – was published in the Gazette on the 14th December and three days later was passed by the National Assembly and the Senate with very little debate. Although our Bill Watch of 15th December alerting the public to the publication of Bill mentioned that it amended the Indigenisation and Empowerment Act, few MPs can have noticed a clause tucked away inconspicuously towards the end of the Bill that was not mentioned in the Bill’s explanatory memorandum. If any Members did notice the clause, they would not have understood its implications because it was not self-explanatory. It read:
“37 Amendment of section 3 of Chapter 14:33
Section 3(1) of the Indigenisation and Empowerment Act [Chapter 14:33] is amended—
(a) by the insertion after “extraction of” of “such mineral as may be prescribed by the Minister in consultation with the Minister responsible for Mines and the Minister responsible for Finance”;
(b) by the repeal of paragraphs (a) and (b).”
Having passed through the Senate and the National Assembly, the Bill was published as an Act on the 31st December and the clause in question now stands as section 36 of the Finance (No. 2) Act 2020 [link]. [The difference in numbering came about through the deletion of an earlier clause in the Bill].
A law firm, Manokore Attorneys, has issued a paper in which they say that section 36 opens the way for the wholesale indigenisation of the mining sector. The lawyers are correct, and they have performed a public service in drawing attention to the section: it is worrying because of its potential effect on the economy and also because of the surreptitious way it was enacted.
Effect of the Amendment
Section 3(1) of the Indigenisation and Economic Empowerment Act before it was amended
Section 3(1) of the Indigenisation and Economic Empowerment Act provided as follows:
“(1) The State shall, by this Act or through regulations under this Act or any other law, secure that at least fifty-one per centum of the shares or other ownership interest of every designated extractive business, that is to say a company, entity or business involved in the extraction of—
(a) diamonds; or
shall be owned through an appropriate designated entity (with or without the participation of a community share ownership scheme or employee share ownership scheme or trust, or both).”
Section 3(1), it will be noted, applied only to diamond or platinum mining. Its effect, when read with the rest of section 3 and the Act, was that:
- The Government had to ensure that a controlling interest in diamond and platinum mining businesses was held by the Zimbabwe Minerals Marketing Corporation, the Zimbabwe Consolidated Diamond Company or the National Indigenisation and Economic Empowerment Fund [which are collectively called “appropriate designated entities” in the Act]
- Diamond and platinum mining businesses could not merge or restructure unless a controlling interest in the new merged business was held by an appropriate designated entity; conversely, conglomerates or syndicates of such businesses could not de-merge or unbundle unless an appropriate designated entity held a controlling interest in all the resulting businesses.
- If a shareholder in a diamond or platinum business relinquished a controlling interest in the business, above a prescribed minimum, the interest had to be relinquished to an appropriate designated entity.
- Foreign investors could not obtain investment licences for diamond or platinum mining unless a controlling interest in their businesses was reserved for an appropriate designated entity.
Section 3(1) after its amendment
Now that it has been amended, section 3 applies not only to diamond and platinum mining but to businesses involved in extracting any minerals that the Minister responsible for administering the Act may choose to prescribe by notice in the Gazette [The Act is currently assigned to the Minister of Industry, Commerce and Enterprise Development but her title seems to have morphed to Industry and Commerce].
A consolidated version of the Indigenisation and Economic Empowerment Act showing the latest amendment can be accessed on the Veritas website [link].
The Minister has not yet prescribed any minerals for the purpose of section 3, so currently the section is inoperative. But at any time she may decide to reserve particular sectors of the mining industry for indigenous miners, and she can give effect to that decision simply by consulting two colleagues – the Minister of Mines and Mining Development and the Minister of Finance and Economic Development – and publishing a short notice in the Gazette designating the particular minerals that are to be reserved. In fact, by virtue of section 21(2)(a) of the Interpretation Act, she could designate all minerals, thereby reserving the entire mining industry to indigenous control.
In other words, the Minister can at any time, without warning to the miners concerned, publish a short notice in the Gazette which reserves all or part of the mining industry to indigenous people. The effect of such a notice will be that:
- Existing miners, if they merge or demerge, will have to ensure that a controlling interest is held by an appropriate designated entity [see above] on behalf of indigenous people,
- Anyone who relinquishes a controlling interest in a mining business will have to dispose of it to an appropriate designated entity, and
- Foreigners will not get investment licences to engage in mining operations unless controlling interests in their businesses are held by an appropriate designated entity.
Is the Amendment Lawful?
The legality of the amendment may be open to challenge on two grounds:
1. That it infringes mine-owners’ right to property, guaranteed by section 71 of the Constitution
If the Minister issues a notice prescribing minerals under the amended section 3(1), it will affect all miners currently mining those minerals, and will limit their ability to dispose of their mining assets. The amendment will certainly diminish their property rights, therefore, but it is a moot point whether it will do so to such an extent that it amounts to compulsory acquisition of property so as to bring it within the ambit of section 71 of the Constitution.
2. That it delegates Parliament’s primary law-making power, in violation of section 134(a) of the Constitution
This is perhaps a stronger ground on which to challenge the amendment. The effect of section 134(a) of the Constitution is that while Parliament can confer power to make statutory instruments on Ministers and other authorities, it must not delegate its “primary law-making power” to them. The amendment surely gives the Minister of Industry and Commerce primary law-making power. The effect of prescribing minerals under section 3(1) of the Indigenisation and Economic Empowerment Act will largely be to fence off sectors of the mining industry from foreign investment. If that is to be done at all it should be done by Parliament itself through an Act of Parliament after careful debate, rather than by a single Minister after consulting two other Ministers.
Legislation by Stealth
The way the amendment was slipped through Parliament is deplorable.
Finance Acts are enacted each year to provide a legal framework for the Government to raise revenue through taxes, customs duties and other imposts. This purpose is reflected in their long titles, which define their scope: here is the long title of the Finance (No. 2) Act, 2000, which is typical of them all:
“An Act to make further provision for the revenues and public funds of Zimbabwe and to provide for matters connected therewith or incidental thereto.”
Finance Acts are supposed to deal with taxation and the collection of revenue by the State, not with broad matters of economic policy such as indigenisation. Members of Parliament cannot be expected to scrutinise Finance Bills to check that there are no clauses that stray outside the Bills’ legitimate scope. They are entitled to expect that Government lawyers will not insert such clauses in Finance Bills or, if they do, that the Minister who presents the Bills will inform Parliament of those clauses and will explain their effect.
That was not done in the case of clause 37 of the Finance (No. 2) Bill (now section 36 of the Finance (No. 2) Act). The clause had far-reaching implications for the economy and fell outside the legitimate scope of a Finance Act, yet it was not explained or even mentioned in the Bill’s explanatory memorandum, nor did the Minister of Finance and Economic Planning explain or even mention it when he piloted the Bill through Parliament. Indigenisation was not even mentioned in the Minister’s 2021 National Budget Statement which he presented to Parliament on the 26th November last year.
Zimbabwe is Open for Business?
In his inauguration speech in November 2017 the President announced that “Zimbabwe is open for business”. As explained in a Government website:
“Zimbabwe is open for business is a call by the President to Investors and Traders or Business Entities, both Local and International, to take up abundant opportunities in the country.”
Pursuant to that call, the Indigenisation and Economic Empowerment Act was amended in 2018 so that only diamond and platinum mining were reserved for indigenous Zimbabweans [though some other sectors of the economy were reserved for Zimbabwean citizens whether indigenous or non-indigenous].
Now the Indigenisation and Economic Empowerment Act has been amended again, apparently reversing the 2018 amendments. No explanation has been given and the amendment was slipped through Parliament almost furtively.
The Minister of Finance and Economic Development owes it to Parliament and the country to explain clearly:
What the Government’s new policy on indigenisation is and why the policy has been changed, and
Why the amendment was slipped through Parliament without full or indeed any explanation.