Zimbabwe is set to repeal the Indigenisation and Economic Empowerment Act as the country moves to enhance the attractiveness of the minerals sector to foreign direct investment (FDI). This is remarkable because it is the first time in 11 years since foreign investors stopped owning 100% stakes in companies they set up in Zimbabwe. For the economy, this is by far a direct way of telling investors to come to do business in Zimbabwe.
Here Is The Deal
- Under the new arrangement, the Indigenisation and Economic Empowerment Act will be replaced by a more “business-friendly” Economic Empowerment Act, but in the interim, the Indigenisation Act has been amended to remove the critical diamond and platinum sub-sectors from the reserve list.
“Government, through the 2018 Finance Amendment Bill amended the Indigenisation and Empowerment Act and platinum and diamonds are now removed from the reserve list and shareholding will depend on negotiations with investors.
“Subsequently, the Indigenisation and Economic Empowerment Act will be repealed and replaced by the Economic Empowerment Act, which will be consistent with the current thrust “Zimbabwe is Open for Business,’’ Zimbabwe’s Finance and Economic Development Minister Mthuli Ncube, was quoted as saying while presenting the Mid-term Fiscal Policy Review statement and Supplementary Budget in Parliament yesterday.
- The Indigenisation Act which is due for repeal requires foreign companies to give shareholdings of up to 51% in joint ventures to local partners.
The Implication Of The Intended Repeal
- This repeal is expected to be revolutionary. First, it now means that local shareholding will depend on agreed terms by investors, while foreign shareholding can reach up to 100 percent.
- Then again, it means that foreign investors can now work under an environment with less threat of breach of contract.
- Such threats had a negative effect on the global investor community on Zimbabwe as a breach of contracts is anathema to investors.
- The mining sector remains a key driver of Zimbabwe’s economic development, typically contributing circa 10 percent to the country’s gross domestic product (GDP) and around 60 percent to exports.
- And true to form, during the first half of the year, the sector contributed US$1.3 billion, about 68 percent of the total exports of US$1,9 billion during the period.
- The scrapping of the Indigenisation and Economic Empowerment Act is one of the measures that is expected to provide impetus to the economic contribution of the sector.
Expect More Foreign Direct Investment In The Zimbabwe Mineral Sector
- The Indigenisation Act has already been amended to remove the critical diamond and platinum sub-sectors from the reserve list. The rest of the minerals have also been removed from the list.
- The Indigenisation and Economic Empowerment Act worked to discourage and alienate much-needed FDI and investment as the way it was implemented threatened business.
- Around 2013, the indigenization programme shook a lawfully and morally binding agreement between Zimbabwe’s largest platinum producer, Zimbabwe Platinum Holdings (Zimplats) and Government.
Comprehensive Strategy Already In Place for All Foreign Companies
- The Zimbabwean government has over the past several months secured a number of mining investment deals, with the latest being a joint venture agreement between State-owned diamond miner, the Zimbabwe Consolidated Diamond Company and Russian firm, Alrosa.
- The new diamonds agreement will see about US$12 million being invested in the exploration of diamond deposits over the next three years.
Minister Ncube yesterday said that Government will put in place a “comprehensive strategy” to see the coming into fruition of these deals.
“These investments will, however, take some time (up to 10 years of production) to give visible net benefits in view of long gestation periods for mining projects.
“Government will, therefore, in the second half of the year unveil a comprehensive strategy and roadmap towards a US$12 billion mining industry by 2023,” he said.
“The attainment of this milestone is not an event, but a process, which is well underway with concrete start-ups and expansion of projects in a number of minerals, which include platinum, gold, ferrochrome, coal and hydrocarbons, lithium, diamonds, iron ore, among others.”
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world.