On 25 March 2011, The Zimbabwean Minister of Youth Development, Indigenisation and Empowerment ("the Minister") published the Indigenisation and Economic Empowerment Regulations in the Zimbabwe Government Gazette ("the 2011 Regulations") in terms of section 5(4) read together with section 5A of the Indigenisation and Economic Empowerment (General) Regulations, 2010 ("the 2010 Regulations"). Key amendments to the implementation of the indigenisation and empowerment program by qualifying companies that are not controlled by indigenous Zimbabweans are set out below.
1. Reduced minimum thresholds
The 2010 Regulations were intended to apply to non-indigenous mining companies with an asset value of or above US$ 500,000, who were required to cede at least 51% of their shareholding or other interests to indigenous Zimbabweans within five years of its publication (ie by 28 February 2015) or from the date of commencing operations. The 2011 Regulations have significantly altered the minimum threshold by requiring that the disposal of 51% of the shares in non-indigenous mining companies to designated entities will apply to all companies with a net asset value of more than US$ 1 ("qualifying non-indigenous companies"), drastically widening the scope of the indigenisation program to encompass all non-indigenous mining companies operating in Zimbabwe.
The definition of indigenous Zimbabweans to whom the 51% stake must be transferred has shifted from individuals in the 2010 Regulations ("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") to predominantly parastatal entities. "Designated entities" are defined in the 2011 Regulations as:
the National Indigenisation and Economic Empowerment Fund;
the Zimbabwe Mining Development Corporation;
any company formed by the Zimbabwe Mining Development Corporation;
a statutory sovereign wealth fund; or
an employee share ownership scheme, or trust, or community share ownership scheme
3. Valuation of shares
The valuation of shares and interests to be disposed of by a qualifying non-indigenous mining company to a designated entity is to be determined by agreement between the qualifying non-indigenous company and the Minister. The valuation must, however, take into account "the State's sovereign ownership of the minerals". While this concept is not defined further, the deliberate absence of "market value" language makes it unlikely that a designated entity will be required to pay a market-related price for the controlling interest in the qualifying non-indigenous company. Furthermore, whilst the qualifying non-indigenous mining company is required to have transferred the 51% by a definitive date, there is no similar obligation placed on the designated entity to have paid for the shares prior to the transfer.
4. Deadlines for compliance
The 2010 Regulations provided for the transfer of at least 51% of the shareholding or other interests in the business to indigenous Zimbabweans within five years (i) of its publication, ie by 28 February 2015 or (ii) from the date of commencing operations. The timeframe for compliance has been shortened under the 2011 Regulations, which requires the disposal to designated entities to be completed by 25 September 2011 (six months from the date of publication of the 2011 Regulations). Furthermore, Regulation 2 of the 2011 Regulations requires that qualifying non-indigenous companies submit an indigenisation implementation plan in line with the 2011 Regulations by 9 May 2011 (45 days from the date of publication of the 2011 Regulations).
Please click here to read a copy of the 2011 Regulations.
The governments of the Republic of South Africa and the Republic of Zimbabwe signed a Bilateral Investment Protection Agreement ("BIPA") on 27 November 2009. The BIPA came into effect on 15 September 2010 and may provide a remedy for certain South African investors.
Written by Nkikia Moshesh and Peter Leon at Webber Wentzel Attorneys