In 2007 the Zimbabwean government passed into law the controversial Indigenization and Economic Empowerment Act. The act empowers the government to secure that at least 51% of the shares of every public company and any other company are owned by indigenous Zimbabweans.
An indigenous Zimbabwean is defined in the act as “any person who, before the 18th April 1980, was disadvantaged by unfair discrimination on the grounds of his or her race, and any descendant of such person, and includes any company, association, syndicate or partnership of which indigenous Zimbabweans form the majority of the members or hold the controlling interest”.
The pre-1980 governments in Zimbabwe adopted racist policies which resulted in unfair discrimination against non-white people. Any non-white Zimbabwean would therefore be an indigenous Zimbabwean.
On 25 March 2011, the Zimbabwean government published new regulations under the Indigenization and Economic Empowerment Act, which required 51% of the shares of mining companies in Zimbabwe with a net asset value above US$1 to be ceded to indigenous Zimbabweans. Under the previous regulations, companies with a net asset value of less than US$500,000 were exempt from this requirement.
Threat of seizure
Neither the act nor the regulations dealt with the price at which the shares ought to be transferred to indigenous Zimbabweans, leaving open the possibility of transfer without any compensation.
The publication of the new mining regulations resulted in much consternation in the mining industry in Zimbabwe. Ultimately some of the mining companies agreed to comply. Those companies include Anglo American, Metallon Gold, Mwana Africa, Rio Tinto and Mimosa.
It appears that non-compliant companies are likely to face severe pressure from the government, which has already announced seizures of some of their mines. The government recently announced that it had taken over the Vumbachikwe gold mine, one of the country’s oldest gold mines, for failing to comply with the indigenization laws.
In the face of threats of a seizure of its mine and withdrawal of its operating licence, Zimplats announced a scheme for intended compliance with the laws on 13 March this year. Zimplats is 87% owned by South Africa’s Impala Platinum Holdings Group.
Zimplats’ scheme involves the transfer of 10% of its shares to a community share scheme, a further 10% to an employee share scheme and 31% to the government’s National Indigenization and Economic Empowerment Fund. The announcement states that the shares would be transferred at an appropriate value.
In what appears to be a further effort to expand the laws on indigenization, the minister of youth development, indigenization and economic empowerment, Saviour Kasukuwere, recently published General Notice 280/2012, requiring businesses in other sectors to comply with the indigenization laws within one year.
The affected sectors are finance, tourism, education and sport, arts, entertainment and culture, engineering and construction, energy, services, telecommunications, transport and motor industry.
There is much confusion about the application of the law to the finance sector. Zimbabwe’s central bank governor, Gideon Gono, has criticized the move and has stated that there are no immediate pressures on the banks to comply. Five foreign banks are currently in Zimbabwe – two British (Barclays and Standard Chartered) and three South African (Stanbic, MBCA and CABS building society). The banks had no immediate public reaction to the notice.
The extension of the law to the education sector has been met with particular surprise. Most private schools in Zimbabwe are missionary or trust schools that are not set up with the aim of making a profit. The effect of transfer of shareholding to indigenous Zimbabweans in those circumstances is unclear.
As with the mining regulations, the legality of the latest notice has been questioned. In particular, it appears that Kasukuwere may have gone beyond the scope of the enabling act in publishing the notice, which appears to apply to all businesses in identified sectors valued from at least US$1 (or zero dollars in the case of preschools). The act sets the threshold at US$500,000.
Concerns have also been raised that the notice violates fundamental human rights contained in Zimbabwe’s constitution. These rights include the right to protection of private property and the right to protection of the law.
Criticism of the recent notice is widespread, including within government circles. Key critics including the prime minister, Morgan Tsvangari, argue that the notice is unlawful as it was not approved by the Zimbabwean cabinet. They have also voiced concern that the notice would threaten foreign investment into the country.
Safiyya Patel is a partner at Webber Wentzel. Webber Wentzel is one of the leading corporate law firms in Africa and the South African member of ALN, a group of Africa’s 12 foremost law firms.
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