Commercial Farmers' Union of Zimbabwe

Commercial Farmers' Union of Zimbabwe

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New mining BEE law a bombshell

New mining BEE law a bombshell — Analysts

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 

The market waited and the recommendations of the sectoral committees never 

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 

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 

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.


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