BILL WATCH 5/2018

[17th March 2018]

Indigenisation Act Amendments Are Now Law

It was expected that amendments to the Indigenisation and Economic Empowerment Act would have been made in Indigenisation and Economic Empowerment Amendment Bill.

Instead they were tucked away in the annual Finance Act, which deals mainly with taxation and as usual was passed by Parliament with little debate.

The amendments are in section 42 of the Finance Act [Act 1/2018] pages 19 to 30, which was gazetted as law in a Government Gazette Extraordinary dated 14^th March.  The  amendments make sweeping changes and constitute a huge step in the Zimbabwe is Open for Business programme.  

The complete Finance Act can be downloaded on the Veritas website [link].  Veritas will also soon post on its website an updated version of the Indigenisation and Economic Empowerment Act incorporating all amendments.

Brief Highlights of the Changes to the Indigenisation and Economic Empowerment Act

Limited application of the Act from now on

A new section 2A of the Act confirms that:

·          the Act will henceforth apply only to the following businesses:

• a designated extractive business, i.e., one involved in the extraction of diamonds or platinum, and
• a business in one of the twelve reserved sectors of the economy [these sectors are now reserved for “citizens of Zimbabwe” [not indigenous citizens] and are specified in the amended Act itself – see below].

·          accordingly “any person is free to invest in, form, operate, and acquire the ownership or control” of any other business.

Indigenisation of extraction of diamonds or platinum

The new section 3 of the amended Act is designed to ensure that in the course of time at least 51% of any designated extractive business is owned through an appropriate designated entity, with or without the participation of a community share ownership scheme or employee share ownership scheme or trust. 

Compliance does not have to be immediate.  The Minister responsible for the Act is empowered to give written permission to a business  to comply with the Act over a period specified by the Minister. 

There are three “designated entities” – the Zimbabwe Mining Development Corporation, the Zimbabwe Consolidated Mining Company and the National Indigenisation and Empowerment Fund.

Reserved sectors

Previously the reservation of certain sectors for “indigenous Zimbabweans” have been dealt with by regulation.  Now “reserved sectors” are reserved for “citizens of Zimbabwe” and the rules are laid down in the Act itself, in a new section 3A.  This section lays down the general rule that only a business owned by a citizen of Zimbabwe may operate in the twelve reserved sectors.  But non-citizens who commenced business before 1^st January 2018 are allowed to continue in business subject to registering with both the Zimbabwe Revenue Authority and the new Indigenous and Economic Empowerment Unit, and, in addition, subject to opening and maintaining a bank account in accordance with the Bank Use Promotion Act.  Non-citizens wishing to open a business in a reserved sector after 1^st January 2018 need the permission of the Minister, which will only be granted in certain circumstances stated in the new section 3A. 

The 12 reserved sectors are:

• Transportation – passenger buses, taxis and car hire services;
• Retail and wholesale trade;
• Barber shops, hairdressing and beauty saloons;
• Employment Agencies;
• Estate Agencies;
• Valet Services;
• Grain milling;
• Bakeries;
• Tobacco grading and packaging;
• Advertising Agencies;
• Provision of local arts and crafts and their marketing and distribution;
• Artisanal mining.

The Indigenisation and Economic Empowerment Unit and Fund

This will be a unit within the Ministry staffed entirely by members of the Civil Service and headed by a Director.  It will replace the former National Indigenisation and Economic Empowerment Board, which functioned as an autonomous body outside the Civil Service framework.

The amended Act gives the Unit and its members appropriate powers of inspection to carry out their functions under the Act.  

The Indigenous and Economic Empowerment Fund will now be administered by the Minister through the Director of the Unit, who must follow the Minister’s instructions.

Transitional provisions

These are set out in subsections (2) to (4) of section 42 of the Finance Act, page 30.  They provide for:

·      Continuation of certain tax incentives enjoyed before 14^th March 2018]; and

·       An opportunity for businesses to revise indigenisation implementation plans already approved under SI 21/2010.

Existing Regulations and General Notices

It is not clear to what extent the Indigenisation and Economic Empowerment (General) Regulations, 2010, remain in force.  The same goes for the plethora of general notices made under the Act.  The responsible Minister should clarify this by amending or repealing the regulations and notices as soon as possible.

Who is the Responsible Minister?

It is also not clear which Minister will be responsible for the Act.  No current Minister has the word “Indigenisation” in his or her title, and the new definition of “Minister” in the Act does not point to any particular Minister.  The President should clarify the position as soon as possible by assigning the Act to one of his Ministers and publishing notice of the assignment.