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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.
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.
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.
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.
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.
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.
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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