Indigenisation law and policy glaringly inconsistent

01 Jun, 2014 - 00:06 0 Views
Indigenisation law and policy glaringly inconsistent Minister Chinamasa

The Sunday Mail

The announcement in Parliament by Finance and Economic Development Minister Patrick Chinamasa that Cabinet had directed Youth, Indigenisation and Economic Empowerment Minister Francis Nhema to prepare a position paper has been welcomed by businesses and diplomats since the contradictions between Government’s policy pronouncement and the provisions of the Indigenisation and Empowerment Act had the effect of creating serious confusion.

The law must now match what the Government is saying.
It is important to recognise that the law was written when Zimbabwe was going through a difficult hyper-inflationary period that necessitated bureaucratic interventions by Government.

Those interventions are now redundant if not decidedly disruptive. It is clear that the current law is cumbersome and it is refreshing to note the cross-party consensus and goodwill prevailing in support of the proposed changes.

In 2010, the then Indigenisation Minister Saviour Kasukuwere had a bit of a chance to bring in changes when the law was promulgated (in as far as the specific regulations are concerned) but he was heavily constrained by the Act and could not bring any amendments to Parliament because the MDC was viciously against indigenisation.

The circumstances are now quite different given that Zanu PF has the majority in Parliament, now there is potential to completely rework the law to make it corroborate with the Zimbabwe Agenda for Sustainable Socio-Economic Transformation (Zim-Asset) objectives as well as other policy pronouncements made by Government. Some of the key areas that need to be looked at in the Act are listed below. Though the whole Act needs to be revisited, these are the areas that are in obvious contradiction:
1. Section 3(1)(a) of the Indigenisation and Economic Empowerment Act  provides that:
“At least fifty-one per centum of shares of every public company and any other business shall be owned by indigenous Zimbabweans”. This is a clear one-size-fit all legal provision that contradicts the pronounced policy that the fifty-one per centum only applies to companies in mining and land based enterprises including those engaged in wildlife businesses.

There is a need for clarity in the interpretation of this legal provision. While the Act mentions a fifty-one per centum threshold to every public company and any other business, the pronounced policy position limits the threshold to companies involved in the exploitation of the country’s natural resources.

2. Section 3(a) of the Indigenisation and Economic Empowerment (General) Regulations, 2010 provides that:
“These regulations are framed with the general objective that every business of or above the prescribed value threshold must within the next five years from the date of operation of these regulations, or within five years from the commencement of the business concerned, as the case may be, dispose of a controlling interest of not less than fifty-one per centum of the shares or interests therein to indigenous Zimbabweans; unless in order to achieve other socially or economically desirable objectives, a lesser share of indigenisation or longer period within which to achieve it is justified.”

This introduces a number of very serious policy problems.
While the pronounced policy is that the fifty-one per centum shares in companies that are involved in the exploitation of Zimbabwe’s natural resources shall not be bought by the indigenous population, the law requires that all shares across all business sectors be purchased by the indigenous population at fair value.

It is perhaps one of the most serious conflicts between the law as it currently is and the policy as expressed by Government.
The conflict needs to be urgently rectified.

The provision also allows for wide administrative discretion which creates wide scope and opportunity for corruption by providing that a lesser share of indigenisation or a longer period within which to comply can be justified.

This means the law allows companies exploiting Zimbabwe’s natural resources to be exempted from meeting the fifty-one per centum threshold for indigenisation or from the compliance period constraints under the powers of administrative discretion in circumstances that have no transparency, clarity or consistency.

The other problem with the provision is that whereas the policy pronouncement is that all new business ventures must comply with the indigenisation policy thresholds, the law as it currently stands does not support that.

Thoughts on the Production Sharing Model
From the coverage on the proposed Production Sharing model, there seems to be a bit of confusion, if not outright ignorance in some of the commentaries. Some analysts have suggested that the model would allow investors to exaggerate their costs and to take an indefinite period to recover those costs before sharing profits.

The Production Sharing Model is precisely just that — a model, not a contract.
Under that model you have individual contractual agreements which would state the agreed amount of the investment and the method and time for recovering the cost of that investment.

The magic is in the contract.
If Government signs a prejudicial contract that allows a company to use creative accounting then certainly a company could do so but that would be a problem with the particular contract signed by Government not the model itself.

In any case, it is also important to understand that under the Production Sharing Model, it’s not only profits that can be shared but production output which can be marketed independent of the investor.

For example, in a gold mine, the gold produced can be shared and not profits.
It is also important to note that this model is not new in any way, neither is it an experiment.
Resource rich nations in the Middle East are using this model and even closer to home, Angola is using the same model is some contracts. Government needs to move with speed and capture the prevailing goodwill.

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