UPDATE: Mugabe to amend indigenisation law, softens ownership demands

UPDATE: Mugabe to amend indigenisation law, softens ownership demands

HARARE, April 12 (The Source) –Zimbabwe’s President Robert Mugabe on Tuesday announced a major shift in his government’s controversial empowerment policy, indicating the law could be amended to reflect softening local empowerment demands on foreign mines and banks.

In a statement after a Cabinet meeting on Tuesday, Mugabe said he was prepared to amend the law “forthwith” to reflect the refined policy thrust. This is the first time Mugabe has offered to amend the law since it was enacted in 2008.

Mugabe’s statement comes after public disagreements by his ministers over the implementation of the law, and just days after a March 31 deadline imposed on foreign companies to comply or risk losing operating licences.

Indigenisation and economic empowerment minister Patrick Zhuwao had threatened to close down non-compliant foreign firms, citing a Cabinet directive. But the government now says it will not demand majority stakes in foreign banks and may allow existing mines to retain control.

While government would continue to insist on 51 percent ownership of new mining business, it would allow existing mines to operate if they retain 75 percent of their earnings in Zimbabwe. Foreign banks can retain control of their institutions, Mugabe said, striking down recent hardline remarks by his own indigenisation minister.

According to the statement, government and its designated entities would seek to hold a 51 percent stake in new investments in the natural resources sector, with the remaining 49 percent belonging to partnering investors.

“The need for investors in this sector to comply with the prescribed indigenization obligations is therefore non-negotiable,” says the statement issued via the office of information minister, Christopher Mushohwe.

“Business in this sector deal with the exploitation of our natural and depleting resources, such as minerals. Government has, therefore, a sacrosanct duty to ensure that such resources are exploited in a manner that safeguards the best interests in the country’s current and future generations.”

However, Mugabe appears to leave an option for existing foreign mines to retain ownership control, as long as they retain the bulk of their earnings in Zimbabwe.

“For existing businesses in this sector where government does not have 51 percent, compliance should be though ensuring that the local content retained in Zimbabwe by such businesses is not less than 75 percent of gross value of the exploited resources.”

The statement says “local content refers to the value retained in Zimbabwe in the form of wages, salaries, taxation, community ownership schemes, and other activities such as procurement and linkage programmes”.

It remains unclear whether “gross value of exploited resources” will apply to a mine’s revenues or profits.

At Zimplats, the country’s largest miner and the target of much of Zhuwao’s empowerment rhetoric, local spend as a percentage of its revenue is around 51 percent, according to data from its 2015 annual report. The company’s local spend, as a percentage of all expenditure, is 71 percent.

Foreign banks will be allowed to retain majority shareholding in their local units, Mugabe said, although they would be expected to increase funding to “key economic sectors and projects”.

“The banking sector shall continue to be under the auspices of the Banking Act, which is regulated by the Reserve bank of Zimbabwe, and the insurance sector under the auspices of the Provident and Insurance Act,” Mugabe’s statement read.

“This policy position is essential for the promotion of financial sector stability, confidence and financial inclusion. These institutions will, nonetheless, be expected to make their contributions by way of financing facilities for key economic sectors and projects, employee share ownership schemes, linkage programmes and such other financial empowerment facilities as may be introduced by the Reserve Bank of Zimbabwe, from time to time.”

This stance on banks sharply contradicts that of Zhuwao, who had demanded that foreign banks cede control of their units, a position that led to a public fallout with Finance Minister Patrick Chinamasa and central bank governor John Mangudya. Zhuwao had called Chimamasa a “liar” after the Finance Minister released a statement saying banks were compliant with the law.

Mugabe, in his statement, admits that the “conflicting positions” among his ministers were hurting the economy.

“This has caused confusion among Zimbabweans, the business community, current and potential investors, thereby undermining market confidence. It is therefore fit and proper that I provide clarification on this very vital national policy, for the guidance of Government Ministries, the business community and current and would-be foreign investors,” Mugabe said.

Significantly, Mugabe said he was now prepared to amend the law, a centerpiece of his reelection campaign in 2013.

“To the extent that the Indigenisation and Economic Empowerment Act may not sufficiently conform with this policy position, I have directed that the law be amended or changed forthwith accordingly,” he said.