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Finance minister Mthuli Ncube

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Govt beats hasty on indigenisation

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AFTER  series of exclusive reports by The NewsHawks on the secret Zimbabwean government move to seize control of the mining sector through an amendment of Section 36 of the Finance Act promulgated last December, authorities this week beat a hasty retreat on the damaging and toxic policy path.

On his first day at work after his month annual leave, President Emmerson Mnangagwa ensured his government climbed down and quickly withdrew on the issue as investors, lobbyists and media — The NewsHawks in this case — showed going back to the late former president Robert Mugabe’s indigenisation policy would drive the final nail in the ailing economy’s coffin.

Mnangagwa’s trademark “Zimbabwe is open for business” mantra — which has now gone mute — had effectively been thrown out the window in one fell swoop after government clandestinely reverted to Mugabe’s disastrous indigenisation policy on mining.

This had spooked investors who have always thought mining provides the most attractive prospects and dividends — a silver lining — in Zimbabwe’s dark economic cloud.

Mining is seen as a safe haven for investors seeking to enter the local market or grow their existing investment portfolios.

The country is reeling from a deep structural and functionality economic crisis triggered by leadership, governance and policy failures.

An amendment of Section 36 of the Finance Act (No. 2), 2020, promulgated in December 2020, gave government the new prerogative to indigenise a controlling equity holding in any mineral in this country.

For perspective on the secret manoeuvre, Section 3(1) of the Indigenisation Act allowed ministers of Mines and Finance to prescribe 51% equity stake ownership by Zimbabweans only in diamond and platinum, but authorities had been given powers to do so over all other minerals in Zimbabwe.

This meant blanket indigenisation of mining had returned. An analysis of the unexpected move to revert to Mugabe’s indigenisation policy on mining done by Manokore Attorneys, a local commercial law firm, raised important points and ominous warnings about the dangers of the move.

The analysis unpacked Section 36 of the Finance Act (No. 2) 2020 on indigenisation, promulgated in December 2020.

Besides, several ministers had said they were not aware that the Zimbabwean government is reverting to Mugabe’s indigenisation policy on mining.

“I have seen what you have sent to me, but to be honest I’m not aware of this policy shift. It’s hidden under the Finance Act amendment,” one minister had told The NewsHawks.

The operative part of the recent amendment, Section 36 of Finance Act (No. 2), 2020 (“Section 36”) gave power to ministers of Mines and Finance to prescribe minerals that should be indigenised.

This made the ministers the new driving force behind indigenisation.

However, on 2 February — upon Mnangagwa’s return to office – government issued a clear  statement on the issue, saying all those new changes have now been discarded and there is no more indigenisation on the mining sector.

When Mnangagwa took over in 2017 through a coup, he swiftly said Mugabe’s indigenisation policy would be put aside and be repealed, except in relation to diamonds and platinum.

So the new amendment had clearly marked a significant departure from the Indigenisation and Economic Empowerment Act [Chapter 14:33] as amended by the Finance Act No.1 of 2018 that allowed locals to have at least 51% only in diamond or platinum extractive industries.

Before that it was in all minerals.

After The NewsHawks reports, legal think-tank Veritas issued an analysis saying the recently promulgated indigenisation provisions could spark legal challenges as the law infringes on mine owners’ constitutional right to property.

“The legality of the amendment may be open to challenge on two grounds. That it infringes mine-owners’ right to property, guaranteed by section 71 of the constitution,” Veritas said.

The legal think tank argued that if the minister issues a notice prescribing minerals under the amended section 3(1), it would affect all miners currently mining those minerals, and will limit their ability to dispose of their assets.

“The amendment will certainly diminish their property rights, therefore, but it is a moot point whether it will do so to such an extent that it amounts to compulsory acquisition of property so as to bring it within the ambit of section 71 of the constitution,” said Veritas.

Veritas also argued that the new amendment violates the primary role of law making to the ministers.
In essence, it delegates parliament’s primary law-making power.

“The effect of section 134(a) of the constitution is that while parliament can confer power to make Statutory Instruments on ministers and other authorities, it must not delegate its ‘primary law-making power’ to them,” it said.  “The amendment surely gives the Minister of Industry and Commerce primary law-making power.”

The argument came amid revelations that there was little debate on the amendment in the national assembly and the senate, while some lawmakers have no clue the law even exists.

“The way the amendment was slipped through Parliament is deplorable,” the legal think-tank said.
“The effect of prescribing minerals under section 3(1) of the Indigenisation and Economic Empowerment Act will largely be to fence off sectors of the mining industry from foreign investment. If that is to be done at all it should be done by Parliament itself through an Act of Parliament after careful debate, rather than by a single minister after consulting two other ministers.

“An Act to make further provision for the revenues and public funds of Zimbabwe and to provide for matters connected therewith or incidental thereto.”

Veritas called upon legislators not to shirk their legislative and watchdog responsibilities.

“Members of parliament cannot be expected to scrutinise Finance Bills to check that there are no clauses that stray outside the Bills’ legitimate scope.  They are entitled to expect that Government lawyers will not insert such clauses in Finance Bills or, if they do, that the minister who presents the Bills will inform Parliament of those clauses and will explain their effect.”

Another clause which was likely to cause a stir among miners was that the ministry had not yet prescribed any minerals for section 3, making the section invalid.

“The Minister has not yet prescribed any minerals for the purpose of section 3, so currently the section is inoperative,” Veritas said.

But at any time the minister could decide to reserve particular sectors of the mining industry for indigenous miners, and can give effect to that decision simply by consulting two colleagues – the minister of Mines and Mining Development and the minister of Finance and Economic Development – and publishing a short notice in the government Gazette designating the particular minerals that are to be reserved, noted Veritas.

“In fact, by virtue of section 21(2)(a) of the Interpretation Act, she could designate all minerals, thereby reserving the entire mining industry to indigenous control,” the legal think-tank says, warning that foreigners will not get investment licences to engage in mining unless controlling interests are held by an “appropriate” designated entity.

The indigenisation amendment has spooked investors in the mining sector which has often been considered a safe haven for foreign capital.

Reeling from unrelenting economic troubles for decades now, Zimbabwe desperately needs foreign investment, and the last thing it wanted to hear about was Mugabe’s moot indigenisation policy.
However, at least government has abandoned the controversial and deleterious mining policy — courtesy of pressure behind the scenes from investors, lobbyists and The NewsHawks.

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