New mining BEE law a bombshell — Analysts
http://www.theindependent.co.zw/
Friday, 01 April 2011 13:05
Chris Muronzi
WHEN government gazetted empowerment regulations compelling foreigners to
“cede” controlling stakes in companies valued at US$500 000 to indigenous
Zimbabweans in March last year, foreign investors on the Zimbabwe Stock
Exchange (ZSE) retreated, triggering a share plunge on the exchange until
the last quarter of the year.
After the Confederation of Zimbabwe Industries and the Chamber of Mines
raised concerns over some of the terms in the regulations such as “cede”,
government went back to the drawing board and replaced the word “cede” with
“dispose” and promised to look at indigenisation on a sector by sector
basis.
The market waited and the recommendations of the sectoral committees never
came.
Meanwhile the empowerment clamour continued, with President Robert Mugabe
ordering Youth Development, Indigenisation and Economic Empowerment minister
Saviour Kasukuwere to indigenise Nestlé for not buying milk from his (Mugabe’s)
Gushungo Dairy Estate.
But investors eventually came back to the ZSE and all seemed to be going
well again. And just when investors thought they would have a breather from
the empowerment and indigenisation threats, Kasukuwere was at it again. He
threatened last week to go after nominee shareholders on the Zimbabwe Stock
Exchange, with a view to unraveling their identities and compelling them to
dispose of their shareholding to indigenous Zimbabweans.
Kasukuwere’s biggest and latest and bombshell however, has been his
gazetting last Friday of General Notice 114 of 2011, which outlined changes
to the law originally passed last year.
Under this altered law, Government now says all foreign owned mining
companies with a net asset value of US$1 would have to comply with the new
regulations by September 25 this year. This is a change from the net asset
value of US$500 000 gazetted last year.
Essentially, every mining company in the hands of foreigners shall be sold
to “designated” entities. But that is not the catch.
The instrument says the value of the shares or other interest required to be
disposed of shall be calculated on the basis of valuation agreed to between
the minister and the non-indigenous mining business concerned “ which shall
take into account the state’s sovereign ownership of the mineral or
minerals exploited or proposed to be exploited” by the foreign investors.
Legal experts say the clause is meant to effectively lower the values of
mining companies.
Asa Bridle of London-based Seymour Pierce Investment Bank questioned the
valuation method to be used and whether it would be give fair value.
Bridle said,“What is the valuation methodology to be used and how fair will
it be, is the great question. I get the feeling that Aquarius do not have
much clarity and they are not alone in that”.
Economic analyst Eric Bloch said the new regulations were tantamount to
theft and an attack on property rights enshrined in the constitution.
He said, “The new regulations evidence even greater contempt and disregard
for Zimbabwe’s Constitution, which seeks to protect property rights. That
constitution prescribes that ‘no property of any description or interest or
right therein shall be compulsorily acquired,’ with the sole exceptions of
land required for settlement, for purposes of land reorganisation, forestry,
environmental, conservation or like purposes, or as necessary in the
interests of defence, public safety and like considerations.”
Bloch added that the constitution also prescribed that where property is
acquired for any such reasons, “fair compensation” must be paid.
“Moreover, even if a genuinely fair value were to be paid for the mining
interests to be acquired in terms of the Minister’s ill-considered,
peremptory, and economically-disastrous regulations, the harsh fact is that
those designated to be acquirers of the mining interests do not have the
resources with which to make payment,” said Bloch.
But industry leaders say the move is problematic and would hit investor
confidence. They question Zimbabwe’s commitment to ensuring a sound
investment climate.
According to the general notice, affected companies must submit
indigenisation plans by May 9 2011.
In contrast, South African mining companies were given 10 years to reach the
26% black ownership threshold, and such the ownership included milling and
prospecting rights, depending on the empowerment levels, social plans and
staff development.
The decision to drop the net asset value of an eligible company to US$1 from
more than US$US$500 000 seems to be in reaction to prominent corporate
lawyer and senior partner at Scanlen & Holderness Sternford Moyo’s assertion
that the previous law was meaningless as not many companies would have that
kind of net asset value.
Moyo told delegates to an economic symposium in January that the net asset
value of $500 000 would be difficult to enforce, given the decline of the
economy prior to the multi currency system and the huge liabilities most of
the Zimbabwean companies had.
Analysts say the dramatic lowering of net asset values to a dollar is an
attempt to ensure that all companies would be targeted.
There are also other glaring changes to the indigenisation policy in terms
of share recipients or people who are supposed to benefit from such an
exercise.
The new law now uses words such as “designated entity” to describe the
authorised recipients of the shares to which companies must dispose of their
stake. The original act merely stated that shares were to be disposed of to
“indigenous” persons.
The act defines “indigenous” as “any person who, before the 18th of April
1980, was disadvantaged by unfair discrimination on the grounds of his or
her race, and any descendant of such persons.” This left the door open to
even non blacks to claim the indigenous status.
On the other hand, “designated entities” refers to the National
Indigenisation and Economic Empowerment Board, the Zimbabwe Mining
Development Corporation, any company formed by the Zimbabwe Mining
Development Corporation, a statutory wealth fund, an employee share
ownership scheme, or trust, or community share ownership scheme.
This, analysts say, is a confined approach to empowerment with state
companies benefitting the most.
Analysts say, Kasukuwere could end up with too much power under the new
regulations.
This comes after Mugabe early this month empowered Kasukuwere to indigenise
Zimplats, Barclays and Nestle first and come up with measures to deal with
the named companies.