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ZNCC’s submissions on Indigenisation Bill

Below is the full text of the Zimbabwe National Chamber of Commerce (ZNCC)’s submission to parliament on the proposed Indigenisation and Economic Empowerment Bill.

AS the

ZNCC we feel honoured to be invited to a public hearing on a subject as important as the indigenisation of the economy.

This is a subject that has been on the agenda since the early years of Independence. Below follow a few submissions that the esteemed committees could consider in their deliberations on the Bill.

As the voice of business it is necessary that we participate in the formulation of a bill meant to create a conducive environment for the business community.

Powers of the minister

It is business’ view that the minister administering the proposed Act will have too much power, most of it in the form of unfettered discretion.

The powers are so wide that they require that checks and balances be incorporated into the Bill in order to ensure good corporate governance values and transparency in the administration of the proposed Act, and that the responsible minister must be clearly defined.

Structure/composition of the board

The National Indigenisation and Economic Empowerment Board is appointed by the minister after consultation with the president. There is very little representation of business or other non-governmental stakeholders in the board.

There is a need to improve the appointment process of the board. We recommend a situation where business, labour and other key stakeholders submit a list of nominees from which board appointments are then made and ratified by such a body as parliament.

This avoids situations as have been observed in parastatals where each minister who comes aboard changes the boards by appointing his own people thereto.

Corporate governance values need to be incorporated into the appointment process of the board.

In South Africa, the president chairs the BEE Advisory Council. The responsible minister and three other ministers also sit on the council.

This is more effective than the proposed Zimbabwean board, as decisions taken by the council in which the national president is a member are more likely to be implemented.

The powers of the proposed board are severely limited and are subject to intrusive ministerial directions. This would make the board pander to the whims of the minister.

Timing of the Bill

Zimbabwe attained her Independence in 1980. The racial imbalances were part of the reason why the war of independence was executed. For that reason, the correction of the historical imbalances should have been placed on the strategic agenda at Independence.

It, however, must be appreciated that 27 years down the road there has been an evolution and there is now a significant change in ownership of business in Zimbabwe. The timing, therefore, does not appear appropriate for the following reasons:

*the economy is in a tailspin;

*inflation is the highest in the world;

*international perception about proprietary rights protection in Zimbabwe is at its lowest;

*the possibility of further capital flight from Zimbabwe is not far-fetched;

*the real crisis facing the country is not about indigenisation, but the crippling shortages facing the people; and

*the implementation of the Sadc and Comesa free trade areas and associated reforms are imminent.

In view of the current macro-economic environment, there is a real possibility that the Bill could influence systematic asset stripping by organisations so that by the time the Bill becomes law, beneficiaries will only inherit empty shells. Given the experiences of the land reform programme, proprietors could be influenced to externalise their monies.

Inclusiveness of the Bill

Previous efforts at indigenisation seem to have benefited a handful of well-connected individuals. There are inadequate safeguards in the Bill to suggest that this will not happen if the Bill becomes law.

There is need for assurances from the Bill’s provisions that the people that are really disadvantaged, the poor and rural folk, are beneficiaries. There are three groups of potential beneficiaries from the Bill:

lThose that have made it in business;

lThose that have the potential but do not have the capacity; and

lThose that are poor and struggling to keep afloat.

The last group constitutes the majority of Zimbabweans, and it is key that the Bill identifies these as the core beneficiaries, if the programme is not to lose public support. The programme should not be used as a vehicle to benefit a handful of well-connected individuals. It should therefore be an inclusive national programme in which the public generally has a say and a sense of ownership.

Who is indigenous?

The definition of who is indigenous in the Bill appears clouded by virtue of attempts to steer away from issues of race. The South African broad-based Black Economic Empowerment Act (No.53/2003) states in no uncertain terms the racial groupings to which it refers. It is respectfully suggested that there would be no harm were this approach to be taken. It is our considered opinion that indigenous should mean those that were previously disadvantaged: the blacks.

Tax burden

The creation of the National Indigenisation and Economic Empowerment Fund would create an additional tax burden from the very corporates that would be affected by indigenisation. It would also add to the inflationary spiral. Estimates put this at nine percentage points.

It is, therefore, recommended that the state should principally fund the programme. Donations and other sources of revenue could also be considered.

Foreign direct investment

There was a likelihood of a 30% drop in foreign direct investment following passage of the proposed Act. A decline in the gross domestic product is also to be anticipated after implementation of the indigenisation programme.

Need for a transmission period

It is suggested that there be transitional mechanisms built into the Bill. These would acknowledge situations where corporates were already in the process of implementing their own indigenisation programmes. Further, this would also give timeframes for proposed takeovers.

There seems to be an over-reliance on the criminal law to seek compliance. There is a limit to the extent to which criminal law sanctions can be used as a tool for social engineering.

This needs to be acknowledged. The South African BBE Act has no criminal provisions, and yet has made significant delivery.

The stock exchange

It is also not entirely clear what the implications of the Bill will be for those corporates that are listed on the Zimbabwe Stock Exchange. How will trade in stocks on the market be handled? Will issues of race be incorporated into the stock exchange?

However, it must be acknowledged that the intentions of the Bill are noble as it seeks to create an enabling environment that will result in increased participation of indigenous Zimbabweans in the economic activities of the country.

There is however need to continue with the consultation process whilst we focus on the need to create more business opportunities so that we can sustain and share a bigger cake.

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