Marking Guide Question 1

A brief background of the colonial heritage is essential, to illustrate how the colonial process transposed the
economic birthright of indigenous people, bringing about the skewed economic scenario based on race, some of
which has endured even after 3 decades of independence of Zimbabwe. A combination of deliberate colonial policy
and legislature was responsible for advantaging one race at the expense of the locals, starting with the 1894 order in
council up to the 1969 land tenure Act.

Recently, the Zimbabwean government through the Indigenisation and Economic Empowerment Act, with an
effective date of 1st March 2010, has embarked on the path to reverse the economic bequest of the colonial period,
thus ensuring increased partaking by indigenous people in the economy of Zimbabwe. Indigenisation and Economic
Empowerment Act, defines an indigenous Zimbabwean as any person who, before 18 April 1980 – the date of
Zimbabwean independence – “was disadvantaged by unfair discrimination on the grounds of his or her race, and any
descendant of such person.”

Objectives of the Act are as follows

(a) at least fifty-one percent of the shares of every public company and any other
business shall be owned by indigenous Zimbabweans;
(b) no—
(i) merger or restructuring of the shareholding of two or more related or associated
businesses; or
(ii) acquisition by a person of a controlling interest in a business;
that requires to be notified to the Competition Commission in terms of Part IVA of the
Competition Act [Chapter 14:28] shall be approved unless—
(iii) ifty-one percent(or such lesser share as may be temporarily prescribed for
the purposes of subsection (5)) in the merged or restructured business is held
by indigenous Zimbabweans; and
(iv) the indigenous Zimbabweans referred to in subparagraph (iii) are equitably
represented in the governing body of the merged or restructured entity;
(c) no unbundling of a business or demerger of two or more businesses shall, if the value
of any business resulting from the unbundling or demerger is at or above a prescribed
threshold, be approved unless—
(i) fifty-one percent (or such lesser share as may be temporarily prescribed for
the purposes of subsection (5)) in any such resulting business is held by
indigenous Zimbabweans; and
(ii) the indigenous Zimbabweans referred to in subparagraph (i) are equitably
represented in the governing body of any such resulting business;
(d) no relinquishment by a person of a controlling interest in a business, if the value of the
controlling interest is at or above a prescribed threshold, shall be approved unless the
controlling interest (or such lesser share thereof as may be temporarily prescribed for
the purposes of subsection (5)) is relinquished to indigenous Zimbabweans; and
(e) no projected or proposed investment in a prescribed sector of the economy available
for investment by domestic or foreign investors for which an investment licence is
required in terms of the Zimbabwe Investment Authority Act [Chapter 14:30] shall be
approved unless a controlling interest in the investment (or such lesser share thereof as
may be temporarily prescribed for the purposes of subsection (5)) is reserved for
indigenous Zimbabweans;
(f) all Government departments, statutory bodies and local authorities and all companies
shall procure at least fifty percent of their goods and services required to be
procured in terms of the Procurement Act [Chapter 22:15] from businesses in which a
controlling interest is held by indigenous Zimbabweans;
(g) where goods and services are procured in terms of the Procurement Act [Chapter
22:14] from businesses in which a controlling interest is not held by indigenous
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Zimbabweans, any subcontracting required to be done by the supplier shall be done to
the prescribed extent in favour of businesses in which a controlling interest is held by
indigenous Zimbabweans.

NB the ACT is Sector specific in its implementation

Loopholes may include the following:

-Access to information about the Act by the majority of the indigenous people who are supposed beneficiaries is
limited. This is against the background that information is power.

-Misunderstanding about indigenous ownership. There seems to be a general tendency or assumption that foreign
companies are free for takeover. Those who take over these firms in the Empowerment scheme are also supposed to
be aware of financial liabilities of these companies, so as to avoid financial ruin in the future. The process has to be
sustainable. Even if it had been made clear that controlling shares in a business will need to be paid for at market
rates, given that the threshold for acquisition pertains to businesses with a value of or above $500 000, a 51% share
means that the indigenous Zimbabwean, or consortium of indigenous Zimbabweans, would need to have capital of
at least $255 000 and the business acumen required to control a company effectively. Since the majority of
Zimbabweans who are intended beneficiaries do not have these attributes, the Regulations appear to miss their target

-The Act grants excessive power and responsibility to one minister and lacks clearness of how equity ownership by
previously disadvantaged people is going to be traded subsequently. The Act should be comprehensive enough to
spell out every transaction related to indigenisation without any need to refer to parent ministry for answers. NB
look at Zimplats issue.

-There are questions over compensation. Even if companies were willing to part with a 51% share in their business,
which seems unlikely, the regulations are unclear as to whether companies will be appropriately compensated for
this share. Further, even if the intention is that companies will be compensated, questions exist over the extent to
which “indigenous” Zimbabweans have access to the funds necessary to facilitate such compensation.

-there are concerns about the beneficiaries of such regulations. Despite indications by the Minister that
indigenisation is intended to fight poverty among the majority of the people, and the inclusion in the regulations of
reference to employee share ownership schemes, the regulations do not seem overly focused on achieving broad-
based indigenisation. Rather, it seems possible that the regulations will simply benefit a small group of elites.
Such concerns are reinforced by clauses in the regulations that require the Minister to maintain a database of people
who are potential beneficiaries, and allow the Minister broad discretion in determining who should be included on
such a list.

-The indigenisation regulations, if they were genuinely aimed at alleviating poverty and extending the reach of the
benefits of economic activity, they would perhaps have adopted a bottom-up rather than a trickle-down approach.NB
this was a central tenet and weakness of ESAP. An effective indigenisation policy should aim to create wealth from
below, in particular in the marginalised areas of the society, such as local rural communities and the giant informal
sector which provides jobs .

-There is no clear-cut criterion in the Act that is known to the public on how investors for meeting indigenous
thresholds are met. The information about foreign investors looking for indigenous investors to meet the ACT
thresholds is privy to a few, exposing the policy to manipulation and corruption.

-The fact that the minister is currently consulting (eg his recent trip to South Africa to study platinum empowerment
to rural communities) is a sign that the Act still needs more information and refinement, though a positive move.

-Zimbabwe should learn from South Africa’s Black Economic Empowerment, which has not raised so much noise
about Foreign Direct Investment, though the legislation is not free from criticism.
NB more points can be raised and illustrative examples necessary.