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Zimbabwe Fails to Enforce Compliance to Indigenization Law

Youth and Indigenization Minister Patrick Zhuwao
Youth and Indigenization Minister Patrick Zhuwao

Zimbabwe’s once rigid indigenization or black empowerment law that compels foreign companies to cede majority shares to the country’s indigenous blacks, has taken on a softer, more accommodating stance, following internal and external pressure.

The Indigenization and Economic Empowerment Act, which became law in March 2008, was controversial from the start.

Propagated by the ruling Zanu-PF party as a means to empower the country’s black majority, opposition groups, some economists and civic groups, pushed back against it, fearing that it would deter foreign investors from doing business in Zimbabwe.

But Zimbabwe’s government pressed on declaring any foreign company unwilling to comply with the law, which stipulates that foreign and white-owned companies with assets of more than $500,000 should cede or sell a 51-percent stake to black nationals or the country’s National Economic Empowerment Board, unwelcome in Zimbabwe.

Many foreign companies in the country, including Impala Mining, Zimplats and international banking institutions like Barclay’s and Stanbic Bank, have yet to comply.

Indigenization Minister Patrick Zhuwao conceded there was a challenge with that.

“If you look at the framework, I do acknowledge that there’s been rampant non-compliance with the legislation,” said Zhuwao. “What we are concerned about is that there have been some sectors where compliant levels are not as we would like them to be and this is where the President [Robert Mugabe] has said that we want to make sure that we get compliance.”

As a result, over the years, Zimbabwe’s once rigid, hardline tone on enforcing the law, gave way to more conciliatory assurances that the government was open to negotiating terms of compliance as it was not a one size fits all policy.

Fast forward to 2016, while the law is still intact, the country has clearly made a turn, analysts say, though the government has not conceded to its defeat.

On Monday, Zhuwao and Zimbabwe’s Finance Minister Patrick Chinamasa, who had openly clashed on the law’s implementation, jointly introduced new measures or what they called clarifications, where it affects foreign companies that have not complied.

“These frameworks are not new, they are frameworks that seek to accommodate current policy positions, of government, with regard to the Zimbabwe Agenda for Sustainable Socio-Economic Transformation [ZIMASSET] and the 10-point plan guideline, to enable businesses that have not yet complied with indigenization, to start making efforts to start making compliance, in line with the pronouncement made by his excellency the President [Mugabe],” Zhuwao said.

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Zhuwao said foreign companies that have not complied with the indigenization law will be charged a levy, or a fine of sorts, and are expected to submit their indigenization plans of compliance by March 31st.

“Obviously we will be putting in place a levy, and the levy will effectively enable us to effectively punish those entities from a monetary perspective,” he said, adding that the government will take even sterner measures against those who break the law.

“We still have other measures within the act that can allow for the cancellation of the license. So if those companies continue to not respect the laws of the land, then we have no option but to ask them to stop operating in Zimbabwe,” Zhuwao said.

However, Zimbabwe’s former Finance Minister and leader of the opposition People’s Democratic Party, scoffed at Zhuwao’s threats, saying the country had no leverage to take such measures.

“This is crazy in that this economy is overtaxed, this economy is in a recession, companies are shutting down, because they can’t bear the weight of cost overrun, so to add an additional tax in the form of an empowerment levy, is just crippling the remaining companies,” he said.

Biti concluded that if the levy or other actions were enforced on foreign companies, it would cripple the country’s already faltering economy, by driving away their business.

“I can assure you that many companies, many individuals, would rather shut down than pay this additional levy.”

Biti also dismissed the new regulations announced by Zhuwao and Chinamasa as a ploy to hoodwink the International Monetary Fund which last year stressed Zimbabwe’s need to clarify its indigenization law as a means of unlocking investments.

Biti said for foreign investment to come in, Harare must amend the act, not introduce cosmetic regulations. He noted that until the law itself is repealed, no changes can be made.

“The key thing that drives indigenization in Zimbabwe is the Indigenization and Economic Empowerment Act, Chapter 14;33. And that section has got a section which is very clear – Section 31A of the act, and this says that all companies in Zimbabwe, at least 51% should be held by indigenous people. So that section has not been repealed. So you can’t put make up or try to panel beat or try to mitigate this provision.”

Among some of the changes under the new regulations, companies will be given up to five years to comply with the 51% threshold and the latitude which could be relaxed for up to 20 years.

Companies will also be allowed to apply for a further grace period of up to 20 years after the five years.