The Indigenisation and Economic Empowerment Act: Lessons from the last 11 years

By Isaac Munyuki

THE Indigenisation and Economic Empowerment Act (Chapter 14:33) (Act 14/2007) (“Act”) came into operation in April 2008.
The Act is a transformative piece of legislation that is committed, among others, to provide support for measures for the economic empowerment of indigenous Zimbabweans.
Upon coming into force, the Act required that at least 51 percent equity in companies and any other businesses be owned by indigenous Zimbabweans.
In March 2018, at least 10 years after the Act came into operation, significant amendments were effected to it.
The effect of the 2018 amendments were primarily to restrict the 51 percent ownership requirement to those companies operating in the diamond or platinum extractive industries only.
When it is considered that the Act has been in force since April 2008 and yet more than a decade later, there is not even a handful of notable success stories of the expansion of benefits from the exploitation of the nation’s mineral resources, one has to recognise that something went wrong.
Without being exhaustive, this article only seeks to highlight certain pitfalls that may have impeded the indigenisation and economic empowerment programme from a legal perspective.
In my view, the indigenisation legal framework suffers from certain pitfalls that rendered it ill-suited to deliver a project of indigenous economic empowerment.
One of the major pitfalls is the disconnect between the Act and other pieces of legislation including the Constitution.
For instance, there is a disconnect between the Act and the Companies Act [Chapter 24:03], as amended (“Companies Act”).

The Companies Act, promulgated in 1952, is archaic and lacking in modern merger and takeover methods and contains little on corporate governance, corporate finance, transparency and accountability. This out-dated law coupled with insufficient anti-corruption legislation or the absence of a specific anti-fronting statute in respect of the indigenisation empowerment agenda seriously compromised the structuring of empowerment transactions and potentially undermined the objectives of the Act.
Out-dated and inadequate laws are not only ill-equipped to respond to changing market conditions but also create room for the establishment of parasitic structures that may be aimed at eroding value or circumventing legislative requirements.
This inadequacy potentially created room for the creation of complex simulated indigenous empowerment schemes that, on the face of it, appeared to be aligned with the objectives of the Act but in substance did not result in any real economic benefit for the indigenisation partners.
The recently widely publicised Choppies indigenisation saga, which led to the exit of an indigenisation shareholder from the company, wherein it was alleged that the indigenisation partner did not in fact hold the 51 percent percent indigenisation stake which it purported to own, could be a pertinent example of the commercial realities that attend to some of the empowerment transactions concluded under the Act.
Given this example, it needs hardly be said that the objectives of the Act, in the absence of complimentary laws, could have been frustrated by the implementation of empowerment schemes that technically advanced indigenisation imperatives but in reality, had the consequence of disempowering the very same stakeholders they were designed to benefit.
Closely related to the above, and potentially the most significant pitfall that seriously undermined the objectives of the Act is that it appeared to afford unfettered and broad administrative discretion to multiple regulators in contravention of the principle of the rule of law.
The rule of law requires law to be certain, clear and stable and that the exercise of powers and discretions under the law not be undertaken in an unconstrained manner. The well-publicised spats between various senior government officials over the application of the Act over the years are pertinent examples of this overbroad discretion and how the Act failed to provide guidelines to regulators on how to conduct themselves.
The aforementioned instances of regulatory uncertainty and instability coupled with government’s failure to protect rights enshrined in bilateral investment treaties stemming from the land reform era made the country unattractive to investors.

Consequently, Zimbabwe has repeatedly been ranked in the Fraser Institute’s Annual Survey of Mining Companies as one of the least attractive mining jurisdictions in the world.
Given the above, it is not surprising that more than 10 years later, the Act has failed to deliver commensurate with the theoretical expectations that it raised.
The 2018 amendments were a positive step as they were aimed at opening the economy to foreign investment and to stimulate economic growth in the country.
However, the impact of these amendments on investor confidence has been limited by the fact that concerns still remain regarding the country’s approach to law enforcement. The on-going financial crisis also compounds this issue.
Similarly, repealing the Act as recently proposed by others will unlikely help matters, unless the repeal is supported by measures that indicate that there has been a ringing and decisive break with the past in the way government crafts and implements policy.
Restoring investor confidents requires, among others, that government be, and be seen to be, respecting and promoting the rule of law.
Observations over the past decade indicate that the manner in which the Act was implemented had the consequence of negating market liquidity and stunting private equity transactions in the country.
It is hoped that in the ‘new dispensation’, care will be taken to remedy these pitfalls. Although the hype that came with this new dispensation is gradually giving in to disillusionment and a feeling of regression.
Nevertheless, the on-going reform of the country’s company laws is encouraging. The referral of the Mines and Minerals Amendment Bill back to Parliament by the President for reconsideration is laudable.
These reforms are also likely to trigger a review of the listing requirements of the Zimbabwe Stock Exchange. It is hoped that these regulatory reforms will give birth to a globally competitive legislative regime and a stable environment for investors to operate and to meaningfully uplift locals.
Of course, without the requisite political will, these regulatory reforms will yield very little.

The views expressed in this article are the personal views of the writer and do not constitute legal advice. Feedback: isaacmunyuki@gmail.com