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Indigenisation and Economic Empowerment (General) Regulations –
Bill Watch 6/2010
February 22, 2010
Indigenisation and Economic Empowerment (General) Regulations [Statutory
which were gazetted on 29th January, have caused consternation in
many quarters. Economists and business commentators fear they will
discourage foreign investment at a time when Zimbabwe desperately
needs it, and some foreigners who were intending to invest in the
country have indicated that the regulations are a significant obstacle
to their plans.
The Prime Minister
claimed that neither he nor the Cabinet had seen the regulations
before they were published; they were therefore null and void. He
assured business executives that they would not be punished if they
failed to comply with the law. The Minister responsible for the
regulations, on the other hand, said he had consulted widely before
preparing the regulations and that they had indeed been considered
by the Cabinet. In any event, he said, the regulations merely implemented
the indigenisation programme set out in the Indigenisation
and Economic Empowerment Act, which had already been passed
Last week Acting
Prime Minister Khupe told an investment conference that the responsible
Minister and the Minister of Economic Planning and Investment Promotion
had agreed “to return to the drawing board” on the regulations.
But public statements of this sort, even by the Prime Minister or
Acting Prime Minister, do not unmake the regulations. The latest
statements by the President that they are “irreversible”
and the responsible Minister that there is “no going back”
make it clear that at best there may be amendments to the regulations
to take account of concerns.
regulations will remain on the statute book until they are properly
repealed by another statutory instrument gazetted by the Minister
of Youth Development and Economic Empowerment.
the regulations validly promulgated?
were made in terms of section 21 of the Indigenisation and Economic
Empowerment Act, which allows the Minister to make regulations providing
for “all matters … which, in his or her opinion, are
necessary or convenient to be provided for in order to carry out
or give effect to [the] Act." There is nothing in section 21
of the Act obliging the Minister to consult the Prime Minister or
the President before making the regulations; all he has to do is
consult an advisory board called the National Indigenisation and
Economic Empowerment Board. While it is the general practice for
all regulations which are likely to have a significant impact on
society to be submitted to the Cabinet Committee on Legislation
before being promulgated, and for really important regulations to
be considered by the Cabinet, this is merely a practice and not
a legal obligation. The Inter-party Political
Agreement, as embodied in Schedule 8 to the Constitution,
states that the Prime Minister must “ensure that … Ministers
develop appropriate implementation plans to give effect to the policies
decided by Cabinet”, and obliges Ministers to “report
to the Prime Minister on all issues relating to the implementation
of such policies and plans” [Article 20.1.4(e)]. But the Agreement
does not make the Prime Minister’s consent a prerequisite
for the publication of regulations [although in the spirit of the
GPA, the Minister should have brought the regulations to the PM].
If a Minister publishes regulations in accordance with an Act of
Parliament, therefore, but fails to keep the Prime Minister properly
briefed, the failure does not invalidate the regulations. The Prime
Minister’s assurance that people will not be punished if they
disobey the regulations is legally invalid, because he has no power
to exempt anyone from compliance with the law.
is that the Act, passed when ZANU-PF had a majority in Parliament,
gives the Minister inordinately broad powers to make regulations,
and he has exercised them to the full, at a time that is most unpropitious
for the recovery of the economy and damaging to the inclusive government.
This is a political issue which must be resolved politically. Meanwhile,
the regulations will remain in force.
do the regulations say?
of Regulations, and Definitions: The regulations apply to all
businesses in Zimbabwe with an asset value of or above US $500 000
[sections 3 & 4]. The term “business” is defined
in the Act as meaning companies, associations, syndicates and partnerships
whose object is the acquisition of gain; effectively this covers
everything other than literary and charitable associations. The
term “asset value” is not defined, however, and is not
at all clear: does it mean net assets, share capital [issued or
nominal] or what?
The term “indigenous
Zimbabwean”, as defined in the Act, is also unclear. It means
anyone who, before Independence, was subjected to unfair discrimination
[presumably in Zimbabwe] on the ground of their race, and includes
a descendant of such a person. So more people are covered than would
ordinarily be regarded as indigenous Zimbabweans: Indians and Chinese
suffered discrimination before Independence, so they and their descendants
must be regarded as indigenous Zimbabweans for the purpose of the
Act and the regulations.
Must Submit Forms to Minister by 15th April: Under section
4 of the regulations, all businesses with an asset value of more
than US $500 000 must send the Minister a form [which is set out
in the regulations] showing the extent to which they are indigenised
and, if they are not majority-owned by indigenous Zimbabweans, their
plans for indigenisation; these plans must conform with guidelines
provided in the form [though in fact there aren’t any such
guidelines]. Existing businesses must submit the form to the Minister
by the 15th April but it is not a criminal offence to fail to submit
the form — if a business fails to do so, the Minister can
send it a form and order the business to complete it; only if the
business fails to comply with the Minister’s order will it
commit an offence [section 4(4)].
Response to Forms: Having received a form from a business,
the Minister has 45 days within which either to approve the business’s
indigenisation plans or to make his approval dependent on the plans’
conformity with a notice which the Minister is supposed to publish
in the Gazette before the 1st March 2011 [see section 5(1) &
(4)]. Since the Minister has not published such a notice, and since
there are no guidelines in the form indicating how indigenisation
plans are to be prepared, the effect of the regulations is that
the Minister must approve all plans submitted to him. That may not
be what was intended, but it is certainly the effect of section
5. And if the Minister makes no “positive response”
[whatever that means] to a plan that has been submitted to him,
the plan is deemed to have been approved [section 5(5)].
when Businesses Merged or Split Up: Section 6 deals with the
indigenisation of businesses that are merged, where the merger falls
within the purview of the Competition Commission under the Competition
Act. In such cases the merger is subject to the Minister’s
approval, which will be granted if he considers that it conforms
to targets set out in an approved indigenisation plan.
Section 7, similarly,
deals with the splitting up of businesses whose asset value exceeds
US $500 000. The resultant businesses will have to conform to indigenisation
targets set out in a plan approved by the Minister.
when Controlling Interest Relinquished: If a person or company
that controls a business whose asset value exceeds US $500 000 relinquishes
control over the business, the transaction will have to be approved
by the Minister, and the approval will be conditional on the transaction
conforming with indigenisation targets set out in an approved indigenisation
plan [section 8].
Investment Licence Applications: Under section 9, anyone who
“projects or proposes an investment for which an investment
licence is required in terms of the Zimbabwe Investment Authority
Act” will have to obtain the Minister’s approval before
obtaining such a licence, and “any investor requiring a licence
in terms of the Zimbabwe
Investment Authority Act” will have to obtain the Minister’s
approval before investing in sectors of the economy which are listed
in the Third Schedule [these sectors include agriculture, transport,
“wholesale or retail trade”, barber shops, advertising
agencies and milk processing — it is a rather disparate list].
Although the section does not say so, one must assume that the Minister’s
approval will be conditional upon satisfactory provision for indigenisation.
The problem with this section is that it presupposes that investors
need a licence from the Investment Authority before they can invest
in Zimbabwe. That is not so: there is no such requirement. As a
result, people can invest in any sector in Zimbabwe without complying
with the regulations, so long as they avoid obtaining a licence
from the Investment Authority. If, however, their investment creates
a business worth more than US $500 000, they will have to prepare
an indigenisation plan in accordance with section 4 of the regulations.
Contracts: Much the same anomaly occurs in section 12, which
deals with the sub-contracting of procurement contracts. Under the
section, if goods or services are obtained from a supplier under
the Procurement Act and the supplier is not controlled by indigenous
Zimbabweans, the supplier must subcontract to competent indigenous
businesses — but only if the supplier “is required by
the Act [i.e. the Indigenisation and Economic Empowerment Act ]
to subcontract to businesses whose controlling interests are held
by indigenous Zimbabweans.” The problem is that the Act itself
does not require anyone to subcontract to indigenous Zimbabweans;
it merely allows regulations to impose such a requirement [see section
3(1)(g) and (4) of the Act]. Hence there is no situation in which
section 12 can operate, and parties to procurement contracts can
subcontract freely to indigenous or non-indigenous contractors.
Reports to Minister: Under section 13, businesses will have
to satisfy the Minister annually that they are indigenising in accordance
with the law.
Database of Would-be Indigenous Partners: Under section 15
the Minister will establish a database of people who want indigenous
Zimbabweans to acquire an interest in their businesses, and of indigenous
Zimbabweans who wish to “partner” those people. There
is no provision allowing the Minister to compel businesses to take
on particular indigenous Zimbabweans, and there is no such provision
in the Act. It is not correct, therefore, to say that the Minister
will be able to foist politically-acceptable “partners”
upon reluctant businesses.
the Regulations be Legally Challenged?
Validity: Are the regulations constitutionally valid? They
are certainly discriminatory, in that they favour indigenous over
non-indigenous Zimbabweans and the discrimination is based on race.
On the other hand, they are intended to implement an affirmative
action programme for the advancement of people who were previously
disadvantaged by unfair discrimination, and as such they are authorised
by section 23(3)(g) of the Constitution.
It might be
argued that the regulations contravene section 21 of the Constitution,
which protects freedom of association. That freedom extends to commercial
activities such as the right to form companies and partnerships.
Partners have a fiduciary relationship with one another and it is
obviously important that they should have the greatest freedom to
choose their fellow-partners. Much the same applies to company directors.
A law which compels partners and directors to take someone into
their partnership or company on the ground of that person’s
race, or on the ground that that person had previously suffered
unfair discrimination, undoubtedly limits their freedom of association.
This argument has some merit, but it is unlikely that a Zimbabwean
court would adopt it in order to declare the regulations unconstitutional.
penalties? There is one further ground on which the regulations
could be challenged: the penalties prescribed in them are out of
all proportion to the conduct sought to be penalised. In every case,
whether the prohibited conduct consists in the making of a false
statement or merely failing to submit a form to the Minister, the
penalty is the same: a fine of US $2 000 or five years’ imprisonment,
or both. That is the maximum penalty the Minister is allowed to
prescribe in the regulations, and by prescribing it in all cases
he has laid himself open to this challenge.
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