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Indigenisation Regulations Amendments & PLC Adverse Reports - Bill Watch 31/2011
August 10, 2011

Indigenisation Regulations Amended Again - Still Not Legally Satisfactory

Minister of Youth Development, Indigenisation and Empowerment Kasukuwere has made further amendments to the Indigenisation Regulations [SI 84/2011, gazetted and coming into effect on 27th July]. [Electronic version of SI 84/2011 available; also main Indigenisation Regulations updated to incorporate all amendments.] The amendments modify changes to the regulations made in April [by SI 34/2011]. Presumably the intention of these latest amendments is to correct provisions in the April amendments which the Parliamentary Legal Committee [PLC] found unconstitutional.

[All Bills and statutory instruments have to be examined by the PLC for consistency with the Constitution. A Bill is examined as soon as it is introduced into Parliament. If it attracts an adverse report stating it is inconsistent with the Constitution, the Minister responsible for the Bill usually agrees to amendments to meet the PLC’s objections. This clears the way for the Bill to be passed by Parliament and eventually be gazetted as an Act. Statutory instruments, however, are only examined by the PLC after they have already been gazetted and become law; so if the PLC issues an adverse report on a statutory instrument, and the responsible Minister agrees to change it, he or she has to gazette a further statutory instrument making the necessary changes.]

In this case the PLC criticised SI 34/2011 for the heavy penalties it laid down for businesses convicted of failing to submit indigenisation plans or substantially undervaluing net assets. The PLC said the penalties of a $2 000 fine or up to 5 years imprisonment, or both, were so grossly disproportionate to the offences as to amount to inhuman or degrading punishment contrary to section 15 of the Constitution. It also criticised as absurd the provision for companies and other “artificial persons” to be given sentences of imprisonment.

The latest SI reduces the penalties to which the PLC objected - fines come down from $2 000 to $1 000 or $700, and sentences of imprisonment from 5 years to 3 months, 4 months or 12 months. It also tries to correct the PLC’s point about the impossibility of sending a company to prison by saying that companies, private business corporations, partnerships and associations will be liable to a fine only. But it adds a new provision that every director, partner or board member will be liable to a $2 000 fine or 3, 4 or 12 months’ imprisonment or both. The Minister has no power under the Indigenisation and Economic Empowerment Act to make this sort of provision, which is also inconsistent with section 277 of the Criminal Law Code. Section 277 of the Code states that such office-bearers will not be liable for a criminal offence committed by their organisation if it is shown they took no part in the offence. Therefore the PLC, which is tasked to report not only on the statutory instrument’s constitutionality but also on whether it is ultra vires its enabling Act, will be bound to issue another adverse report. .

Indigenisation Rules for the Mining Sector: Another Adverse Report from PLC

Separate from the main Indigenisation Regulations are the special rules for the indigenisation of the mining sector that were gazetted in General Notice [GN] 114/2011. The GN purports to have been made in terms of sections 5 and 5A of the regulations.

This GN has also attracted an adverse report from the PLC.

The report states that the GN is inconsistent with the Constitution in two ways:

  • for infringing the right to freedom of association by purporting to compel businesses to transfer shares to partners specified by the Minister of Youth Development, Indigenisation and Empowerment in the GN rather than to partners of their own choice [Constitution, section 21, which includes the right not to be compelled to associate]
  • for authorising unconstitutional compulsory acquisition of company shares, because it requires most of the entities to which shares must be transferred, as specified by the Minister in the GN, are State entities [inconsistent with Constitution, section 16, which requires a compulsory acquisition law to make both acquisition and compensation subject to court approval in cases of disagreement].

In addition to these constitutional points, the report finds the GN to be ultra vires sections 5(4) as read with 5A of the main Indigenisation Regulations, which are the enabling provisions invoked by the Minister in the preamble to the GN. These sections empower only the relaxation of the 51% indigenisation target – which is far from what the Minister has done in the GN. The $1 asset value threshold set by the GN for the mining sector is also found to be inconsistent with the general indigenisation threshold of $500 000 set by the main regulations, and therefore invalid.

Reminder: Procedure for PLC Adverse Reports on Statutory Instruments

The Constitution requires that an adverse report on a statutory instrument should initially go to the Senate [Constitution, Schedule 4, paragraph 8]. It will only be considered by the House of Assembly if the Senate accepts the adverse report and resolves that the SI is inconsistent with the Constitution. In that case the report goes to the House of Assembly, which has the option of resolving, within 21 sitting days after the Senate resolution, that the statutory instrument concerned should not be repealed, notwithstanding the adverse report. If the 21 days elapse without such a resolution, the President must forthwith repeal the offending statutory instrument. The Senate’s Standing Orders say that an adverse report must be set down for consideration by the Senate on the first sitting day following its receipt from the PLC – but the Senate can vote to delay debate.

Speaker’s Ruling on Invalidity of House of Assembly Standing Orders on PLC Adverse Reports on Statutory Instruments

In spite of the constitutional provision that adverse reports on statutory instruments should first go to the Senate, several such reports had been set down for consideration by the House of Assembly before going through the correct procedure in the Senate. On 27th July the Speaker therefore ruled that House of Assembly Standing Orders 138(2) and 205(4B) are void insofar as they relate to how adverse reports on statutory instruments are dealt with. [Note: These Standing Orders had provided for adverse reports on statutory instruments to be submitted direct to the House of Assembly and considered immediately without reference to the role of the Senate; this inconsistency with the Constitution was the basis of the Speaker’s ruling that the Standing Orders were void.] The Speaker accordingly ordered that all current motions for consideration of adverse reports be expunged from the House Order Paper. [Electronic version of Speaker’s ruling available.] These adverse reports now have to be considered by the Senate. There is a procedural problem – there is no Senator on the PLC and usually a PLC member presents and explains the reports.

The Adverse Reports Concerned

The backlog of adverse reports will now, as is constitutionally correct, be debated in the Senate when it next meets. Those to be considered include:

  • the report on the 3rd Amendment to the Indigenisation Regulations [SI 34/2011] [removed from the House of Assembly Order Paper but not yet tabled in the Senate] The PLC has said it would withdraw this report if the Minister made satisfactory corrections, so debate is likely to await the PLC’s verdict on the Minister’s attempt to do that in SI 84/2011 [see comments on this SI above].
  • the General Notice laying down the special rules for indigenisation of the mining sector [GN 114/2011] [the report referred to above - removed from the House of Assembly Order Paper and already tabled in the Senate]
  • a number of SIs laying down penalty provisions in local authority by-laws which the PLC found unconstitutional and/or ultra vires [removed from the House of Assembly Order Paper but not yet tabled in the Senate]

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