Zimbabwe’s indigenisation legislation has been a subject of debate for a long time.
The issue that is not understood by many people is that economic empowerment is no longer a policy goal; it’s now law.
It has been law since its enactment in 2007. It’s only that it was dormant for three years until government gazetted the Indigenisation and Economic Empowerment General Regulations in January this year to put it into force.
It’s no secret that government is having difficulty in implementing the law. It has twisted and turned several times.
In the latest turn, government has agreed to freeze the contentious subject for the time being.
But it has to be noted and understood that government has not repealed the law. It’s still very much in force and still states that at least 51% of foreign companies’ share register has to be held by indigenous people.
And the term “for the time being” certainly doesn’t mean “indefinitely” because the indigenisation and economic empowerment general regulations still state that foreign companies have to comply with the law five years from the date of notice, that is January 2010.
In pronouncing the Cabinet decision, Industry and Commerce minister Welshman Ncube said: “Until such a time when the economy recovers and rebuilds capacity, it’s not possible for every sector to achieve 51% (minimum indigenisation equity).”
He further said: “We need foreign investors with the balance sheet and the capacity. But the capacity is not available locally . . . That’s why we have to engage foreign investors.”
Going by these two statements, some sectors will be exempted from the 51% indigenisation equity requirement while others will still be required to comply.
Furthermore, if the economy recovers today, the law is likely to be enforced fully forthwith.
The latest move should therefore be understood as a deferment of the inevitable for the purpose of giving the economy some breathing space in order to recapitalise and recover.
The only hope for foreign companies is the reprieve they received in June when government amended the Indigenisation and Economic Empowerment General Regulations, allowing for a mix of both equity and equity-equivalent empowerment credits.
Under the new deal, the 51% indigenisation equity will comprise both equity or shareholding and empowerment credits earned through the technical rating of a company’s investments in community development, technology transfers, skills training, local procurement and infrastructure development.
But the ratio of equity and empowerment credits will vary according to sectors, based on their recapitalisation needs and level of development. The sector-specific indigenisation equity thresholds are currently being worked out by 13 technical committees of the National Indigenisation and Economic Empowerment Board.
No doubt the latest development shows that government is trying as much as possible to heed the voice of reason in both shaping the provisions of the legislation and implementing it.
But certainly there are other sticking issues, particularly those to do with the funding of the process and the awarding of credits.
For now, however, government should act in a way the ensures that the Indigenisation and Economic Empowerment Act does not constitute “asset-stripping”, nationalisation or expropriation of private property.
Moreover, current shareholders will not necessarily have to surrender board control; they will have a say in the way their companies are run, provided they belong to the right sector.