Zimbabwe lays out 51% ownership law

Sapa and Miningmx reporter | Tue, 09 Feb 2010 18:52
[miningmx.com] -- White business executives in Zimbabwe will be forced to ensure that blacks have a 51% controlling interest in their companies within the next five years, according to a draconian new law published on Tuesday.

The so-called "Indigenisation and Economic Empowerment" regulations say that by mid-April, all businesses have to submit a form detailing the racial composition of their current shareholding to the government.

Based on the declaration, the government would assess how much of the company's shareholding had to be "ceded" to "indigenous Zimbabweans".

Any business missing the deadline faces a maximum penalty of five years in jail, according to the regulations. A yet-to-be-named "minister of indigenisation" would keep a list of candidates to whom shares could be ceded.

White businesses that appoint black employees as a "front" to avoid being taken over would face going to jail to five years, the law said.

"It's going to put a stop to any possibility of new investment," said economic commentator John Robertson.

"For existing businesses it will bring a complete stop to replacement investment. It's very grim."

Roy Pitchford, CEO of Central African Gold, which is looking at investing in its gold mines in Zimbabwe, told Miningmx that the country's chamber of mines had submitted a proposal to government for 10% of local ownership and that this had been apparently well received.

"It's not clear if this new regulation will include the mining sector. It's difficult to tell until you've actually studied the documents. Let's wait and see," Pitchford said.

Impala Platinum, one of the largest mining investors in the country, has taken steps to head off a confrontation at its Zimplats subsidiary.

An agreement between Impala and the Zimbabwean government in May 2006 allowed for the return of 36% of Zimplats’ 140.8 million ounces mineral resources to the government for which Zimplats was to receive an empowerment and cash credit of $153m, calculated to be equivalent to 30% empowerment.

Asked about the new regulations, head of investor relations Bob Gilmour said: "We have seen it and we're studying it. We have no comment to make."

At the Mining Indaba in Cape Town last week, Rio Tinto diamonds and minerals chief executive Harry Kenyon-Slaney, said that "the only threat to our operations are indigenisation programmes." Rio Tinto operates the Murowa diamond mine there.

A PLOY TO BOLSTER SUPPORT

The law came within a week of Prime Minister Morgan Tsvangirai saying at the World Economic Forum in Switzerland that "confidence has returned" to Zimbabwe following a decade of economic collapse.

"This is the time to look at the country in a more positive light," he said.

Last year President Robert Mugabe declared that there would be "no nationalisation" of business in Zimbabwe.

The law includes a let-out clause that allows for a lesser black shareholding "in order to achieve other socially or economically desirable objectives."

The regulations take effect on March 1 and companies have 45 days in which to complete and submit to the government a form that gives the names, nationality and identity details of their shareholders, and whether they are "indigenous" or "non-indigenous" Zimbabweans.

Economists say that Zimbabwe's racial profile has fundamentally changed since independence from white British rule nearly 30 years ago, when the economy was heavily dominated by whites.

Since then, the white population has fallen from 200,000 to about 30,000. Most major businesses are now run by black Zimbabweans.

Multi-national mining companies, like South Africa's Impala Platinum and Rio Tinto, are seen as most at risk by the new law.

Hundreds of small white family businesses, like butcheries, restaurants and garages, are also threatened, executives said.

Some political analysts say that the law is a political strategy of Mugabe's to try and bolster his support by distributing patronage to voters, in the way he allowed party loyalists seize white-owned land over the past decade.

The government passed an indigenisation act in 2008, but held off on passing the regulations that would formally put it into effect, leading many to mistakenly believe the law had been shelved.