Testing time for Zimbabwe’s indigenisation plan

By Gemma Ware and Frank Chikowore in Harare

Posted on June 14, 2012 11:06

Zimplats is one of the first major foreign companies to face the new indigenisation law that will lead it to divest 51% of its operations in the country to empower local employees, communities and investors.

Zimplats is one of the first major foreign companies to face the new indigenisation law that will lead it to divest 51% of its operations in the country to empower local employees, communities and investors.

The house at the end of the long, pot-holed road bordered by tobacco and maize fields is home to one of the men at the vanguard of Zimbabwe’s new era of economic empowerment. Barnabas Machipisa, the traditional ruler of Ngezi in Mashonaland, leads one of the communities that will receive 10% of the nearby Zimplats platinum mine set aside for community ownership.

In October 2011, Zimplats – part of South Africa’s Impala Platinum Holdings group – gave the Mhondoro-Ngezi-Svimba Community Share Ownership Trust a $10m cheque. “I don’t want to benefit myself but I want the community to benefit,” said Machipisa, whose community of 23 wards sits in Mashonaland, a key base of support for President Robert Mugabe.

Mining companies in the political heartland of the ruling ZANU-PF party are the first to bear the brunt of an indigenisation drive designed to raise funds ahead of crucial elections. Foreign investors are worried about the government’s implementation of new local ownership rules that aim to give Zimbabweans a 51% stake in companies across the economy.

Miners have learnt to pay attention to the power these traditional rulers can wield. Last year, Machipisa said the community “threatened to put logs in the road so trucks couldn’t get through until they complied.”

In January, traditional rulers from the area received a week of training on how to manage the funds. The communities held a meeting on 12 April in Ngezi to elect a committee to manage the money. Some want it to be spent on schools, hospitals and roads, while others have suggested the trust use it to buy tipper trucks that can then be leased back to Zimplats – embedding the community in a lucrative supply chain that is currently dominated by South African companies.

Related stories:
Zimplats capitulation props up Mugabe’s election campaign
Zimbabwe politicians in community trust abuse
Minister Kasukuwere denies nationalistion of mines
Zimbabwe diamond mining shrouded in secrecy
Zimbabwe Mining: Politics goes underground

The Zimplats case provides a major test of how much muscle the Zimbabwean government will use to enforce indigenisation. On 13 March, Zimplats, which is 87% owned by South Africa’s Impala Platinum (Implats), announced a deal that would apportion 10% of Zimplats to the community share scheme, 10% to a similar scheme for employees and 31% to the state’s National Indigenisation and Economic Empowerment Fund (NIEEF), a sovereign wealth fund.

Zimplats has a lot to lose. Since August 2010, it has invested $290m of a $450m expansion plan at the Ngezi mine that will not be completed until April 2013, according to Sibusiwise Chindove, head of corporate affairs.

In early April, negotiations were still ongoing about the value of the 51% stake and how the state would pay for its share. Implats insists it must receive “fair value” under a bilateral trade agreement between South Africa and Zimbabwe. Zimbabwe is in no position to pay in cash. The country is facing a liquidity crisis and in March launched a strategy to start negotiations on repayment of $6.9bn in debt to multilateral and bilateral creditors.

In further pursuit of Zimplats, on 23 May the company was instructed to immediately localise all its off-shore bank accounts by the Reserve Bank of Zimbabwe. In a statement, Zimplats said it was “most unfortunate”, but said it would comply with the demand.

Indigenisation minister Saviour Kasukuwere has his own ideas on how to proceed with indigenisation. On 5 April he placed a public notice in newspapers saying 51% of non-compliant companies were now “deemed to be owned by the state”. Such a recourse is not included in the Indigenisation and Empowerment Act passed in 2007. Prime Minister Morgan Tsvangirai, of the Movement for Democratic Change (MDC), was quick to dismiss Kasukuwere’s statement.

The MDC’s line is that empowerment should come through jobs and growth rather than redistribution. Economic planning minister Tapiwa Mashakada, who is doggedly trying to bring in $800m of foreign direct investment in 2012, says that if the the MDC wins the next elections, the legislation will be implemented in a way to attract investment. “We won’t insist on 51%, we have to review that threshold because an investor doesn’t want to lose controlling interest. Indigenisation yes, but thresholds to be reviewed,” he said.

Amid the confusion, investors complain of unpredictability in the way the law is being implemented. Even Zimbabweans of Indian and Chinese descent are unsure how their businesses will be affected. Kasukuwere says decisions are being made on a “case-by-case” basis.

“It’s an issue that is definitely a concern with investors in terms of them wanting to understand its impact,” says Richard Mbaiwa, chief executive officer of the Zimbabwe Investment Authority. He made the distinction between existing investors struggling to reach agreement on how to comply and greenfield investors for whom it is “much easier”.

The foreign business community is divided about whether new investors should use indigenous partners or try to build a stronger relationship with the government. Some believe that is the only way to abide by the law, others are convinced such deals will only serve to enrich a cohort similar to those who have benefited from South Africa’s Black Economic Empowerment legislation.

They point, in hope, to the success of Indian firm Essar in negotiating a 54% stake in the privatisation of the Zimbabwe Iron and Steel Company (ZISCO) and its taking of a 80% stake in iron ore miner NewZim Minerals – although that deal is still held up in the courts. ●

Interview: Saviour Kasukuwere, minister of youth development, inigenisation and empowerment

The Africa Report: How are you going to pay for 31% of Zimplats?We will take into account the resource value. You do due diligence on a company. What are the assets in this instance? It’s your resources. It’s the equipment that they’ve brought in. The technology that has been brought to the asset. So you do your valuation. Whoever has the lesser or greater share will then have to pay.Isn’t that, in effect, nationalisation? What we are doing, we are not nationalising. We are doing a commercial transaction.The National Indigenisation and Economic Empowerment Fund (NIEEF) is effectively a sovereign wealth fund. Where will its money come from? From our platinum. Nigeria’s comes from oil; ours is coming from our platinum, from our minerals. I’m sure that when we do the numbers, and once we’ve completed all these transactions, it will run into some serious billions of dollars.Have you had many Chinese companies that have agreed? Many of them actually complied quietly. Anjin [mining diamonds in Mwange] is compliant. I look at all the companies in the country that are owned by… Continue reading this interview

Understand Africa's tomorrow... today

We believe that Africa is poorly represented, and badly under-estimated. Beyond the vast opportunity manifest in African markets, we highlight people who make a difference; leaders turning the tide, youth driving change, and an indefatigable business community. That is what we believe will change the continent, and that is what we report on. With hard-hitting investigations, innovative analysis and deep dives into countries and sectors, The Africa Report delivers the insight you need.