Foreign businesses in reserved sectors to continue operating under amended Indigenisation Act
HARARE – All foreign-owned businesses which were operating in the reserved sectors of the economy under the Indigenisation Act before January 1, 2018, have been allowed to operate only if they are registered with the Zimbabwe Revenue Authority and they open and maintain bank accounts in accordance with the Bank Use Promotion Act.
This is contained in the amendments to the Indigenisation and Economic Empowerment Act gazetted under the Finance Act last Friday. The amendments mainly repeal the main part of the Act by ensuring that any person is free to invest in, form, operate and acquire the ownership or control of any business not in the diamond and platinum sectors and those in the reserved sectors of the economy. Government reserved 12 sectors of the economy for Zimbabweans with a view to empowering them and also to curb capital flight out of Zimbabwe. This is down from the 15 sectors, which were there initially. The three removed sectors are Agriculture, Milk Processing and Tobacco Processing. The Government also changed the definition of a Zimbabwean to citizen of Zimbabwe and not indigenous Zimbabwean as was the case previously.
The reserved sectors include; Transportation – passenger buses, taxis and car hire services; Retail and wholesale trade; Barber shops, hairdressing and beauty salons; 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. A few of the sectors like grain milling and retail have in the past been subject to various lobbying for the application of the reserved sectors law. The Grain Millers Association of Zimbabwe lobbied against the acquisition of Blue Ribbon Industries by Tanzanian milling giant Bakhresa Group saying the firm was in a reserved sector and therefore locals should have purchased it. There have also been various objections over the Chinese, Eritrean, Nigerian and Lebanese businesses operating in the retail sector who are at times blamed for mopping up and externalizing US dollars.
However, despite past concerns and objections; under the new dispensation, foreign businesses already operating in the sectors should comply with the registration by no later than July 1, 2018. Failure to comply may result in prosecution (a fine and six months’ imprisonment) and the assigned minister may direct any licensing authority to revoke the operating licence.
According to the amendments, any person who is not a Zimbabwean citizen, who after January 1, 2018 wishes to operate a business in the reserved sector of the economy shall seek the permission of the Minister for special dispensation only if the business will provide significant and sustainable employment creation and that it will establish sustainable value chains. The business should also show that it will transfer skills and technology for the benefit of Zimbabweans.
The amendments also include transitional provisions, which include the continuation of certain tax incentives enjoyed before March 4, 2018 and an opportunity for businesses to revise indigenisation implementation plans already approved under SI 21/2010.
The President, Emmerson Mnangagwa has not yet announced the Minister who will be responsible for administering the Act further delaying its operationalisation.
The new amended Act does away with the National, Indigenisation and Economic Empowerment Board replacing it with the National Indigenisation and Economic Empowerment Unit to be headed by a director in the Civil Service. The Unit and its staff will have appropriate powers of inspection and access to information to carry out their functions under the Act. It will then submit its reports to the minister every quarter.
An 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.
Further to the amendments to the requirements of the diamond and platinum sectors of 51% local ownership threshold, no merger or restructuring of the shareholding of two or more related or associated businesses in the sectors and acquisition by a person of a controlling interest in the business shall be approved unless the 51% is held by an appropriate designated entity. This is provided that some part of the 51% may be held by a community or employee ownership scheme or trust or both.
Under the new requirements the indigenisation and empowerment quota may be achieved through the use of credits the minister shall prescribe.
Government hopes its new view on empowerment will grow the economy and attract foreign direct investment.