Unpacking Zimbabwe's Indigenisation Policy, Legislation and Way Forward
AFRICA RESOURCESINVESTMENT CONGRESS Unpacking Zimbabwe’s Indigenisation Policy, Legislation and Way Forward Prince Mupazviriho – Permanent Secretary Ministry of Youth Development, Indigenisation and Empowerment, Republic of ZimbabweIRONMONGERS’ HALL, CITY OF LONDON TUESDAY-WEDNESDAY, 14-15 JUN 2011www.ObjectiveCapitalConferences.com
Prince Mupazviriho Permanent SecretaryMinistry of Youth Development, Indigenisation and Empowerment
The presentation covers: the rationale for indigenisation and economic empowerment policy strategies the legal framework The way forward in the implementation of the indigenisation and economic empowerment agenda
Growth of the private sector has remained a key strategy for economic liberalisation since early 1990s economic reform programmes The development and growth of the small to medium scale enterprises became an empowerment model targeted at facilitating equity participation by indigenous investors in the privatized state enterprises The Social Dimension Fund was meant to cushion those affected by retrenchments The National Investment Trust was to warehouse equity on behalf of the generality of the disadvantaged indigenous investor.
The current indigenisation and economic empowerment programme commenced over two decades ago Economic liberalization characterized organizational restructuring The rationale for indigenisation is to create a vibrant economy that has a private sector underpinned by broad opportunities that facilitate the utilization of the highly skilled and educated population Dominant requirements for growth with employment, poverty eradication and social transformation as the bases upon which the indigenisation and economic empowerment agenda is premised
The Government’s first policy framework on indigenisation of the economy was published in February 1998 and this led to the creation of the National Investment Trust of Zimbabwe that was intended to spearhead the participation of indigenous Zimbabweans in the mainstream economy The policy was revised in October 2004 with the adoption of the “Revised Policy Framework for the Indigenisation of the Economy”. This policy framework provided the principles for the formulation of the Indigenisation and Economic Empowerment legislation, culminating in the promulgation of the Act [Chapter 14:33], which become law in January 2008.
To economically empower the previously disadvantaged Zimbabweans by increasing, mainly through economic expansion, their participation in the economy so as to create wealth and eradicate poverty. To create conditions that will enhance the economic status of the hitherto disadvantaged Zimbabweans by facilitating their contribution to and benefit from the economic development of the country. To democratize (increase access to) ownership of the productive assets of the country. To promote the development of a competitive domestic private sector that will spearhead economic growth and development. To develop a self sustaining economy in which there are opportunities for all to attain better and satisfactory living standards.
The Government has adopted six main policy strategies: Increase indigenous private investment and participation in the economy by promoting the establishment of new indigenous enterprises, joint ventures, acquisition of shares in existing companies, privatization of state enterprises, takeovers, employee share ownerships schemes or trusts and subcontracting by large businesses to indigenous companies. Promoting industrialisation of the economy. Promoting skills development programmes which would empower the indigenous majority for active participation in the economy. Mobilise financial resources for medium to long term finance. Review laws that constrain indigenisation and economic empowerment. The National Investment Trust of Zimbabwe Fund was setup in September 2000 with the mandate to promote the acquisition of shares in previously Government owned enterprises, to assists indigenous people to acquire greenfield projects through provision of project funding, management buy-ins, management-buy outs and bridging finance. The fund has now been transformed into the National Indigenisation and Economic Empowerment Fund (NIEEF)
The Act provides the legal framework for the implementation of the programme in a market driven environment. It is a strategic and transformative legislation aimed at mainstreaming indigenous Zimbabweans into the economy. The aspiration of the Act is to achieve at least 51% of indigenous shareholding in the majority of businesses in all sectors of the economy.
The major elements of the Act include the following: All mergers, restructurings, unbundling of business, de-mergers, relinquishment by a shareholder of a controlling interest in a business is required to comply with the 51% indigenisation requirement unless the Minister has determined a lesser share and timeframe within which to achieve the 51% indigenous shareholding. The Act also requires the equitable representation of indigenous Zimbabweans in the governing body of the business. All public entities and all companies are encouraged to procure 50% of their goods and services required to be procured in terms of the Procurement Act (Chapter 22:15) from businesses whose controlling interest is held by indigenous Zimbabweans.
Provides for the establishment of the National Indigenisation and Economic Empowerment Board, its functions and management: The Board is responsible for the management of the National Indigenisation and Economic Empowerment Fund, advises the Minister on Government’s indigenisation and economic empowerment strategies and oversees compliance with the National Indigenisation and Economic Empowerment Charter. Provides for the establishment of the National Indigenisation and Economic Empowerment Fund: The fund avails financial assistance for share acquisition, warehousing of shares under employee share ownership schemes or trusts, management buy-ins/buy-outs, business start-up, consolidation and expansion. Provides for the establishment of the National Indigenisation and Economic Empowerment Charter: The charter underscores ethical business conduct for all businesses and outlines the fundamental principles, which have to be observed and followed by businesses as they undertake their day to day activities.
Disclosure of company shareholding structure: Every company shall be obliged to furnish the Minister on his/her written request with information on its shareholding structure. Regulations: The Minister, after consultations with the National Indigenisation and Economic Empowerment Board, may make regulations providing for any matters relevant to the Act or which are necessary or convenient to provide for the implementation of the Act, offences and penalties, which may be imposed for contravening the regulations. Appeals: If any person is aggrieved by a decision by the Minister to disapprove an indigenisation and empowerment arrangement or by any order issued by the Minister to a licensing authority of any non-compliant business ordering that the licensing authority concerned decline to renew the license, registration or other authority to operate a business, he/she may, within 30 days after being notified of the decision or action being taken, appeal to the Administrative Court.
All businesses with an asset value of at least US$500 000 comply with the 51% indigenous shareholding requirement of the Act within a period of 5 years from 1 March 2010 for existing businesses, while new businesses shall achieve the same target within 5 years from the date of commencement of business operations. Within 45 days from the date of coming into force of the regulations (i. e. 1st March 2010), every existing business with a net asset value of US$500 000 shall declare its shareholding status to the Minister through the prescribed form (i. e. IDG 01 Form). New businesses, commencing operations after the coming into force of the regulations, shall declare their shareholding status within 60 days from the date of commencement of business on the same prescribed IDG 01 Form. All businesses (whether existing or new), which do not meet the 51% indigenisation requirement, shall submit, together with their IDG 01 form, their indigenisation plan outlining how they intend to meet the 51% indigenous shareholding requirement within 45 days from 1st March 2010.
In assessing whether a lesser share of indigenisation or a longer period for compliance with the 51% indigenous shareholding requirement is desirable, the Minister will take into account the following considerations: The business has undertaken or intends to undertake certain development work in the community within which it operates. The business has transferred or taken concrete measures to transfer new technology to Zimbabwe to a specified extent. Utilisation of local skills or imparting of new skills to indigenous Zimbabweans to a specified extent. Beneficiation of raw materials extracted in Zimbabwe to a specified extent. Whether the business has met other socially and economically desirable objectives not mentioned above.
The threshold refers to net-asset value of a business and for the time being the threshold is US $ 500 000, except for the mining sector whose threshold has been placed at US$1 through General Notice 114 of 2011. However, sector specific sub-committees are currently considering the most applicable sector thresholds and timeframes guided by respective legal instruments. Choice of partners and valuation of business: The Government will not impose indigenous partners on companies or businesses. In cases where a company fails to identify a suitable partner, Government will provide from its database a list of potential indigenous entrepreneurs from which the foreign companies could choose from and negotiate.
Where it is desirable for Government to partner an investor, this will be done through a designated agency, i.e. the ZMDC. Where the issues of specific empowerment of communities, disadvantaged groups such as women, youth and the disabled it will be through NIEEB as a designated agency which warehouses shares for that purpose.
The National Indigenisation and Economic Empowerment Fund will provide loans for acquisition of shares, business start- up, rehabilitation and expansion. Initial Public Offer Model (IPO):The IPO model presents opportunities to facilitate the rapid and broad based indigenisation of the economy and empowerment of indigenous Zimbabweans. The National Indigenisation and Economic Empowerment Fund shall establish investment vehicles to mobilise financial resources from indigenous Zimbabweans (both locally based and in the Diaspora) through the IPO model. Employee Share Ownership Schemes or Trusts: The Indigenisation and Economic Empowerment (General) Regulations, 2010 , encourage the introduction of Employee Share Ownership Programmes. ESOPS shall take the form of a Trust at a prescribed minimum of 10% shares in a company. ESOPS shall, among others, be paid for through employee’s own funds, bonuses, employees foregoing leave days and dividends through mutually agreed internal arrangements, loans from the National Indigenisation and Economic Empowerment Fund and recognition of employees’ sweat equity by companies.
Government shall continue to consult all stakeholders for their input on indigenisation and economic empowerment issues. Our legislative framework is anchored on the need to foster mutually beneficial partnerships between indigenous Zimbabweans and the non-indigenous investors to our economy. The program is about partnership not expropriation or nationalisation It is also about sharing with the indigenous people who were once marginlised. The program is not about prescription but it is about reaching an agreement to come up with a win-win situation. The government will not prescribe who a foreign investor should or should not partner, neither is the government going to dictate terms of agreements. All approved transactions are published for transparency purposes.