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Empowerment law: finer details
Vote Muza, Financial Gazette
October 25, 2007

THIS week it is my intention to commence a critical assessment of some important provisions of the Indigenisation and Economic Empowerment Act whose launch has been met with intense negative and positive comments.

An interesting clause exists in the Act's preamble where it is stated that it shall provide measures for "further indigenisation". By implication therefore, the Act appears to acknowledge that its purpose is to consolidate or improve a process that is already in place.

This significant admission, obscured as it may seem, is further evidence that the formalisation of the indigenisation process has come rather late since before that, affirmative action came automatically as a natural reaction triggered by post-independence demands.

]One of the most controversial provisions of this statute is the forcible relinquishing of a 51 percent shareholding in those businesses that are controlled by elements perceived to be non-indigenous. Extreme panic has arisen within those affected who believe that surrendering of equity shall become mandatory upon promulgation of the Act into law. What I have observed from a simple perusal of this law is that a time-frame shall be set by the responsible Minister through regulations.

This confusion and misunderstanding about immediate surrender of equity therefore needs to be cleared. The Minister is empowered to lay down a transitional period to attain the 51 percent threshold, which may be a year, three, five of even 10 years. In the intervening period, and through regulations, the Minister may prescribe a threshold less than the controversial 51 percent.

I can only speculate here that this lesser percentage could be prescribed at 10 percent, 20 percent or 30 percent, or any other figure below the 51 percent controlling interest. In light of this, I am of the view that the intense criticism against the set maximum controlling interest is premature and should at least have been reserved until after passing of the regulations. Who knows, may be the government might see it prudent to prescribe a 20-year transitional period, which may help to placate the restive and paranoid local business sector as well as potential international investors.

My advice to the powers-that-be is that too much haste is dangerous and may lead to adverse consequences that may end up doing more harm than good. Our economy is in an extremely delicate state and it needs to be treated with absolute care. Any mishandling through unwise policies or thoughtless legislation may scare away international capital that we desperately need to assist in the tapping of our natural resources. In any case, after 27 years of independence, a survey of ownership demographics can confirm that our economy is now firmly in our hands.

Because the formal affirmative action policy is already late, and there is now no reason to rush, I submit that relinguishing of equity should be gradual and long. Therefore, a 10 to 15 year period is recommended. I have serious objection, just like many other observers and commentators to the excessive power and responsibility that has been bestowed on the Minister. Looking at Section three of the Act, one is left in no doubt that this Minister has a job and a half to do, and for him to come out successful, he will really need to be superhuman.

The Act imposes this mammoth responsibility that has the effect of turning him into a clerk, a manager, a judge and a prosecutor, and the shear volume of the paperwork he shall be expected to handle makes me doubt that he shall act with due diligence, integrity, objectivity, honesty and impartiality. Would it not have been prudent to thrust this important responsibility in the hands of an impartial commission?

This would certainly ensure efficiency and would also keep this sensitive business from abuse, corruption, nepotism and populist tendencies of the political breed. In terms of Section 3(1)(a), the 51 percent controlling stake is imperative for every "public company" and any other company, association, syndicate or partnership operating for gain.

Since Trusts, clubs and societies operating for gain and controlled by non-indigenous people exist, I wonder whether those shall also be affected by this law. Similarly, non-governmental organisations operating for gain under the control of foreigners may still be called upon to comply with the law if a strict interpretation of this definition of "business" is anything to go by.

Company mergers, demergers and reconstructions shall also be affected since after a certain period, no such mergers or reconstructions can be approved by the Minister unless 51 percent controlling stake will be in the hands of perceived indigenous people. Here one sees the powers of the Competition Commission being usurped, since approval or disapproval under these circumstances will be directly by the Minister responsible for indigenisation. It would appear therefore that there is an inconsistency between the Competition Law and the statute under discussion and in particular, with regard to who exactly should exercise powers of approval in applications submitted by affected business organisations. This apparent confusion on the administering of these two statutes needs to be rationalised otherwise government might find itself in an extremely embarrassing situation.

Next week I continue to discuss key provision of the Indigenisation law.

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