Harare scraps contentious ‘indigenisation’
Zimbabwe eases path to investment by citizens and foreigners
● In March 2008, Robert Mugabe, then Zimbabwe’s president, signed the Indigenisation and Economic Empowerment Act into law. The law gave a 51% controlling stake in foreign-owned companies to black Zimbabweans.
Last week, 10 years later almost to the day, his successor, President Emmerson Mnangagwa, repealed the law and removed, among other things, the major impediment that foreigners must cede their controlling stake in companies to locals.
It is a significant break from the hard line taken under Mugabe, which had been cited as a major reason that investment flows into Zimbabwe had dried up.
The push by Mugabe to control foreignowned companies accompanied another disastrous economic policy he had embarked on in 2000 — the takeover of whiteowned commercial farms. As a result of the violent farm seizures, agricultural production plummeted. Zimbabwe’s breadbasket status in the Southern African Development Community was spectacularly reversed and the country became a net importer of grain.
Under the indigenisation law, foreignowned companies such as mining houses, banks, insurance firms and retailers became the new targets. Foreigners could hold only a minority stake of up to 49%.
Foreign investors were rattled. In particular, South African firms such as Zimplats, a unit of Impala Platinum, and banks such as Stanbic, owned by Standard Bank, squared off with Mugabe’s ministers, amid persistent threats to cancel their operating licences.
“Forty-nine percent is a hell lot of equity; it is only the foolish ones who will say no. Wise ones will take it up,” Mugabe said in 2010, as he snapped at suggestions that the law had driven off investment.
At the time of his fall in November, Zimbabwe was only attracting about $300-million (R3.5-billion) in investment, in comparison to Mozambique’s $3-billion.
Mugabe’s fall provided an opportunity to start the process of unpicking of some of his failed economic policies. Mnangagwa made it clear early on that his administration would go after the indigenisation law.
Finance Minister Patrick Chinamasa intimated at the budget statement presentation to parliament in December that the indigenisation law would be revised by April.
Over the years, the law had also become increasingly confusing, and at one time, cabinet ministers clashed over the extent to which the law could be applied. Foreign companies had to submit indigenisation plans. Then there was a ruling about reserved sectors such as saloons and bakeries, in which foreigners could not operate.
Brian Mataruka, the head of insolvency and business rescue at law firm Gill, Godlonton & Gerrans in Harare, an associate office of Norton Rose Fulbright, said the introduction of the Finance Act of 2018, under which the indigenisation law was repealed, was a positive step towards the economic development of Zimbabwe by the new government.
“The repealed provisions had been seen by potential investors as a stumbling block to foreign direct investment. Further, the racially discriminatory drafting has now been removed. With the introduction of the amendments, business ownership is no longer based on racial lines by reference to indigenous Zimbabweans but now relates to and is open to Zimbabwean citizens irrespective of race,” said Mataruka.
“The new amendments also open up all sectors of the economy to foreign ownership — save for platinum, diamonds and 12 sectors that are reserved for Zimbabwean citizens post January 1 2018. Accordingly, any investor can own 100% of their investment entity with operations in the country and will no longer be required to have a local partner, save for in the reserved sectors and the two mining sectors of diamonds and platinum. These amendments will go a long way in telling the world that Zimbabwe is open for business.”
Tara O’Connor, director of Africa Risk Consulting in London, said the repeal of the indigenisation law would lift Zimbabwe up from among its peers in SADC. Mineral resources have become a sticky issue in the region, with South Africa’s focus on a new Mining Charter and the Democratic Republic of Congo seeking to raise royalties on cobalt.
“It is arguable that Zimbabwe needs to work harder than its neighbours to give future investors assurances, but the scrapping of the indigenisation law will go a long way in engendering investor confidence,” she said.
On Thursday, a $4.2-billion deal was inked with Cypriot investor Loucas Pouroulis to develop a platinum mine and refinery.
“Zimbabwe is open for business and whoever stands in the way, hurting business in this country, will fall. It is not business as usual anymore. Things have to change,” Mnangagwa said at the mining deal’s signing ceremony in Harare.
Next month, Mnangagwa will take his “Zimbabwe is open for business” mantra to Beijing, where he is expected to hold talks with Chinese President Xi Jinping.
Zhao Baogang, an official at the Chinese embassy in Harare, said this week that a date for the visit had been set and preparations were under way.
“We fully support President Mnangagwa’s government and I can assure you more investors are coming,” he said.
Business ownership is now open to Zimbabwean citizens irrespective of race
Brian Mataruka Head of insolvency and business rescue at law firm Gill, Godlonton & Gerrans in Harare