Govt overhauls indigenisation

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GOVERNMENT has reluctantly taken bold steps to overhaul and remove rough edges on its controversial indigenisation and economic empowerment policy in material changes expected to be announced today in a major climb-down as pressure has been brought bear on it by investors and critics, the Zimbabwe Independent can reveal.

Elias Mambo

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Information obtained this week shows Indigenisation minister Patrick Zhuwao is expected to address a press conference in Harare today, with Finance minister Patrick Chinamasa and Reserve Bank governor John Mangudya, to announce significant amendments and changes to the policy — widely seen as racketeering by regulation — which has damaged the economy by spooking and keeping investors at bay, while triggering capital flight running into billions of dollars.

While the broad policy remains, among critical changes to be announced today are new flexible timeframes for compliance, which include giving foreign investors five years to comply with the required 51/49% shareholding structure in favour of locals.

The period of compliance can now go up to 20 years if investors want and authorities agree. This will largely apply in the resource-based sector.

According to a document titled Proposed Frameworks, Procedures and Guide for Implementing the Indigenisation and Empowerment Act, the cocktail of new measures will include empowerment credits and shareholding rebates depending on the extent to which businesses would have complied with the policy.

This means compliance is no longer just going to equity-based, but will also include other considerations like supporting the country’s economic objectives, empowering society by providing or reinforcing critical economic linkages, employment, value-addition and corporate social responsibility. Components of the supply-side model will also be incorporated into the policy.

There is also another key element signalling a policy shift: if a foreign company neglects or refuses to comply with the indigenisation policy it won’t be closed down, forced out or nationalised as previously threatened by some government hardliners, but will be charged a levy or tax for non-compliance. So companies can choose to comply or not depending on their business models and routes they prefer to take. Government will also now only pursue indigenisation through state enterprises and structures, and not allow individuals to capitalise on it for self-enrichment as they tried to do in the past. “The changes are significant and this shows that we are determined to ensure Zimbabwe is open for business in 2016,” a senior cabinet minister said yesterday. “The underlying feature of the amendments and changes is flexibility. Depending on whether it’s a resource-based, non-resource-based or reserved sector (small-to-medium scale local enterprises) investment, the process and requirements have been simplified. There is no more dogmatic demands; but business arrangements.”

This came as government yesterday said it was committed to improving the ease of doing business to help local and foreign investors.

Industry and Commerce minister Mike Bimha told a press conference in Harare on the ease of doing business initiative that the environment will soon change as government is pulling out all the stops to improve the business climate.

The minister was reporting back on submissions made to cabinet on Tuesday on the progress made against set targets for the first 100 days on the ease of doing business initiative.

“According to the multi-stakeholder review of the 100-day initiative, the Rapid Results Approach is yielding positive results and that cabinet noted that the processes that straddle government agencies have been streamlined,” Bimha said. “Of particular mention is the consolidation of the processes to pay taxes at Zimbabwe Revenue Authority by the Zimbabwe Manpower Development Fund and The National Social Security Authority through the adoption of a single-window tax payment system,” he said.

“The number of days taken to process the requirements for starting a business have been significantly reduced from the 90 days to 30 days. On construction permits, the days were reduced from 448 to 120, and property registration now takes 14 days from 36 days, whilst the time taken to pay taxes was reduced from 242 hours to 160 hours.”

The Rapid Results Initiative concept was adopted to set targets that would help improve government’s capacity to diagnose institutional constraints and improve capacity for programme planning and implementation.

The areas identified by government that needed reforms included; starting a business, construction permits and registering property, getting credit and resolving insolvency, protecting minority investors and enforcing contracts, and paying taxes and trading across borders.

The ease of business initiative is a government-wide and multi-stakeholder programme started in September 2015 driven by the Office of the President and Cabinet, with the support of the World Bank. It focuses primarily on improving the business environment and attracting foreign direct investment (FDI).

Compared to its neighbours, Zimbabwe got a paltry US$545 million in FDI last year while Mozambique received US$4,9 billion, nearly nine times more, pacesetter South Africa US$5,7 billion and Zambia US$2,4 billion. Southern Africa received US$10,8 billion of FDI in 2014, down 2,4% from 2013.

Zimbabwe ranks 171 out of 189 countries on the latest World Bank Ease of Doing Business index, an indicator as to why the country is not attracting meaningful investment. Top of the list in repelling investors is the indigenisation policy.

In the World Bank Report of 2015, Zimbabwe is ranked 155th out of 189 economies on the Ease of Doing Business globally. “It should be noted that the implementation of some of the reforms may not be immediately felt on the ground due to their nature and the need for setting up legal frameworks and re-engineering shorter processes of implementation. The Ease of Doing Business Reforms will be supported by a robust communication and capacity building strategy aimed at making our institutions more service delivery oriented and responsive to the needs of the public,” Bimha said.

In his 2016 budget statement last month, Chinamasa promised the indigenisation policy was going to be reformed before Christmas tomorrow.

As a result a committee comprising Zhuwao, Chinamasa and Mangudya has been working around the clock to overhaul the indigenisation framework.

“In terms of the new guidelines no individual would be allowed to participate for personal gain, but only companies and institutionalised structures which include Zimbabwe Mining Development Company, Zimbabwe consolidated Diamond Company, Sovereign Wealth Fund, community share ownership schemes, employment ownership trusts and the National Indigenisation and economic empowerment fund will take part,” the document says.

“The position on the resource-based sector is that government will maintain the 51% shareholding for local entities with the resource underwriting government equity taking into account the state’s sovereign ownership of minerals.

“The general notice 114 of 2011 provides for indigenisation in the mining sector by requiring that businesses operating within this sector must dispose of 51% equity to designated entities. Under the new regulations, companies will be given up to five years to comply and latitude which could be relaxed up to 20 years. After five years companies will be allowed to apply for a further grace period of up to 20 years.”

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