ZIMBABWE INDIGENISATION LAW

Background
The Indigenisation and Economic Empowerment Act is an official affirmative action programme conducted by the Government of Zimbabwe in order to right historical inequalities between the races in Zimbabwe but also to economically advantage and empower Zimbabwean locals.  An indigenous person is defined as any person, who prior to 1980, was disadvantaged or discriminated against on the grounds of his/her race.  This therefore excludes Zimbabwean citizens of the European descent.  The definition includes the aboriginal peoples of Zimbabwe, the Zezuru, Karanga, Tonga, San, Ndebele, Manyika, Kalanga, Nambya, etc.  It also includes people of mixed race, that is, those commonly known as “coloureds”, citizens of Indian descent and citizens of Asian descent.

This economic affirmative action enactment essentially required that 51% of shares in all economic concerns be ceded to indigenous peoples.  In the past 3 years, it was seen that this provision in the law was strictly applied and as such, it led to hesitation on the part of investors to commit their investment into the country.  It also resulted in a great deal of confusion on issues as to how the policy and the law would be implemented.  Numerous statements over the past 3 years, have been made by Government attempting to rationalise the process but without modifying the law, which is what the investor first looks at.
Confusion

Within the Government, there have been numerous contradictory statements and as such, investors have naturally stood by awaiting Statutory Instruments before making a decision.  Nothing more highlights this than the recent pronouncements by the Minister of Finance who announced the promulgation of Government Notice 394A/2015 titled “FRAMEWORKS, PROCEDURES AND GUIDELINES FOR IMPLEMENTING THE INDIGENISATION AND ECONOMIC EMPOWERMENT ACT [CHAPTER 14:33]”.  This announcement on Christmas Eve was largely welcomed.  However, on Christmas Day, the Minister of Indigenisation issued a press statement distancing himself from these Regulations.  A couple of days after New Year’s Day, the Minister of Finance, Minister of Indigenisation and the Governor of the Reserve Bank were pictured in the media smiling broadly and announcing that they had thrashed out their differences and that they had worked on an acceptable product.  The impression given was that a new legal instrument had been fashioned.  This impression however, is not borne out by the legal facts on the ground as no contrary legal instrument has been published.  Therefore, the legal position would remain as reflected in General Notice 394A/2015.
Untangling the confusion

The indigenisation laws apply essentially to three sectors: i) resource-based sectors; ii)non-resource based sectors and iii)reserved sectors.

i) Resource-based sector;

In the resource-based sectors, which include mining, farming, water usage and development etc., indigenous persons must own 51%.  The approved indigenous persons are:-

  • National Indigenisation and Economic Empowerment Fund;
  • Sovreign Wealth Fund
  • Employee Share Ownership Trusts;
  • Community Share Ownership Trusts;
  • 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.

This is clearly and improvement on the previous regulation which required the investor to find a local partner, but in reality ended up being a tool for corrupt and extortionate practices.

 

ii) Non-resource sector;

This includes manufacturing, financial services, tourism, construction and energy.  In this sector, indigenisation may be delayed for up to 5 years.  In respect of the energy sector, indigenisation may be delayed for up to 20 years.  These periods may be extended in terms of the Regulations.  The indigenisation in this sector does not necessarily have to be by way of ceding shares to indigenous persons but may be achieved by acquiring empowerment credits.  Empowerment credits can be earned by embarking on youth programmes, vocational training, low-cost housing, educational bursaries, etc.

 

iii) Reserved Sector;

Foreign ownership in the following sector is not permitted:

  • farming
  • motor vehicle transportation
  • retail trade
  • employment agencies
  • estate agencies
  • advertising agencies
  • tobacco grading and packaging
  • cigarette manufacturing
  • milk processing
  • grain milling

Current Legal Position and Action to be Taken by Companies

Foreign-owned companies are permitted to continue to operate, but will be required to pay an Indigenisation Compliance Levy.  All companies will be required to submit their Indigenisation and Implementation plans to the Zimbabwe Investment Authority by 21 March 2016.