The anatomy of indigenisation law changes

15 Feb, 2015 - 00:02 0 Views

The Sunday Mail

Zweli Lunga

In January 2015, Government — through the Minister of Finance — gazetted important amendments to the Indigenisation and Empowerment Act (14:33).

These amendments fundamentally change the approach to indigenisation and empowerment dating back to 2010, and are seen as key changes done in an effort to create more room for a flexible empowerment policy.

The purpose of this paper is to analyse and assess the amendments and their import, and to offer a clear interpretation to an otherwise obscure legislative regime, for the benefit of investors, legal advisors and the general public.

 

New provisions

Section 3 of the Indigenisation Act has been amended to provide power to line ministers to:

assess and approve or reject indigenisation plans; carry out an indigenisation assessment rating of all businesses within their sector; and issue a provisional or final certificate of compliance to businesses.

A final certificate is given to a business that has implemented Government’s indigenisation policy, and a provisional certificate is given to a company that has undertaken to implement Government’s indigenisation policy, or a company that has been given specific directives to implement by the line minister.

This is a key amendment to the Indigenisation Act.

The new Section 3(7) of the Act abolishes the role of the Minister of Youth Development, Indigenisation and Empowerment as the central regulatory authority for indigenisation matters. This role is now given to the various ministries responsible for the sectors or subsectors of the economy subject to indigenisation law.

So, for example, if a business is operating in the mining sector and requires to submit an indigenisation plan for approval, it does so to the Minister of Mines and Mining Development, and not the Minister of Indigenisation.

According to the new provisions, Indigenisation Compliance Certificates are now being issued by line ministers as the appropriate authority.

The new provisions have relegated the Ministry of Youth Development, Indigenisation and Empowerment, and the National Indigenisation and Economic Empowerment Board (Nieeb) to the role of scribe and record-keeping of all indigenisation certificates issued by the various line ministries.

Finally, the new provisions give line ministers the power to undertake indigenisation assessment ratings of all businesses operating in their relevant sectors or sub-sectors.

While the new provisions, like the old, are not clear on the format of the ratings, it is conceivable that these are designed to gauge the extent to which businesses in the relevant sectors or sub-sectors are compliant with indigenisation and empowerment law.

 

Section 27(2)(b)

All plans that were approved prior to the new amendments are deemed approved. It is implicit that a business can, in fact, proceed to apply to the line minister on this basis to be granted a final certificate of compliance, and the line minister is obliged to do so within 14 days.

Line ministers have been given power to make notices laying out the requirements of indigenisation and empowerment in their own sector.

These notices essentially provide for sector specific thresholds for indigenisation and empowerment. The amendments say that if there were old notices gazetted before the amendment, then those notices remain valid except if they are inconsistent with the new line ministry notices.

My opinion is that the old notices all fell out of disuse by operation of time and are no longer applicable. So, in essence, all ministries need to make new notices specific to their sectors.

 

New Section 3(6) of the Indigenisation Act

 

This is a very important and novel addition to the indigenisation law and follows as a matter of course the new decentralisation policy.

Each minister has been given the power to gazette a notice laying out the requirements of indigenisation and empowerment in their relevant sector or sub-sector.

In the old regime, there were three notices that purported to be applicable to the different sectors of the economy namely; General Notice Number 114 of 2011 applicable to the mining sector, General Notice Number 459 of 2011 applicable to the manufacturing sector and General Notice number 280 of 2012 applicable to the rest of the sectors being finance, tourism, education, services, trade, construction, energy, arts and culture, and health, among others.

The old notices each had specific timelines for compliance with the minimum requirements laid out in them.

In the case of GN 114/2014, it was one year; in the case of GN 459/2011 it was four years and in the case of GN 280 of 2012 it was one year.

It is apparent that all these notices have expired by operation of the specific timelines. The new amendments thus provide for the creation of new notices with new requirements for compliance with indigenisation and empowerment policy.

Critically, the old notices adopted a straightjacket and narrow approach to indigenisation and empowerment with an overemphasis on equity at the expense of empowerment.

In all the notices, the sole requirement was the disposal of 51 percent shareholding without a single aspect of empowerment.

The new amendments thus provide an opportunity for line ministers to adopt flexible, balanced and open frameworks for indigenisation that take into account the different economic and material realities of each sector and sub-sector of the economy.

This will see the beginning of a much-needed departure from a rigid application of indigenisation and empowerment law, and allow for the adoption of best practices in affirmative action.

That, in fact, Government has been contemplating this can be seen from the attitude to the sectors such as banking and manufacturing, and the realisation that these sectors are sensitive and require more open and more flexible approaches to indigenisation and empowerment.

We think that the indigenisation and empowerment policy will be best served to achieve the objectives of Government, while attracting the much-needed foreign direct investment, by line ministers adopting a balanced scorecard or a multi-factor approach to indigenisation and empowerment.

The content of these two variable approaches could include a balancing of all key elements of indigenisation and empowerment such as equity, board representation, ownership by special interest groups (the equity side) and procurement, skills and enterprise development, training, employment creation, infrastructure development and social services, among others (empowerment side).

There is an opportunity to leave it up to the businesses to decide the precise mix of the above elements in a way that fits in their investment plans and business outlook.

Such greater autonomy will encourage investment while at the same time allowing Government to broadly meet its indigenisation and empowerment objectives.

 

Section 27(3) and (4) of the Amending Act, Finance Amendment Act No 3 2014

 

Businesses have been given an opportunity to revise and amend their plans by applying to line ministers within 60 days of gazette of the notices referred to above.

There seems to be an impression that the 60 days is from the date of amendment, which is not the case.

Line ministries have to gazette their notices and afterwards can the business apply within 60 days. So far, no ministry has gazetted such a notice.

Businesses are, of course, not compelled to apply for amending their prior approved plans, where the business is satisfied with that approved plan.

The intention here seems to be that if a business deems that its plan as approved has somehow become onerous to implement, or some other unforeseen circumstances have arisen that makes the approved plan obsolete, or for any reason whatsoever, it can apply to change that prior approved plan.

It is also conceivable that the new notices may carry flexibilities as anticipated in 3 above, which flexibilities a business may find better suit their model of business in the sector in which it operates.

The business will also have the opportunity to take advantage of the new requirements to amend its old plan to be in line thereof.

 

General Regulations Number 21 of 2010

 

The new amendments preserve expressly, the validity of this general notice. This, therefore, means aspects covered by the general regulations, such as community trusts, employee trusts, reserved sectors of the economy, etc, remain applicable and binding.

The new amendments implicitly extend the period of validity of the general regulations, which would have prescribed by operation of time, since the regulations required compliance with the law within five years from promulgation (2010).

It is now apparent also that the timelines for compliance will be determined by line ministers in the new notices to be gazetted in accordance with the new provisions.

 

Zweli Lunga is a former general manager of Compliance at the National Indigenisation and Economic Empowerment Board and is working as an investment and corporate attorney in Harare.

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