Since publication of the Reuters story below Zimbabwe’s Minister of Youth, Indigenisation and Economic Empowerment, Patrick Zhuwao has rejected claims made by Patrick Chinamasa, Minister of Finance and Economic Development that foreign banks complied with the country’s Indigenisation and Economic Empowerment Act. Read Zhuwao’s full statement below
HARARE (Reuters) – Foreign banks operating in Zimbabwe have submitted credible plans on how they intend to transfer majority shares to locals, the country’s finance minister said on Saturday, reducing the chances the government could cancel their licences.
Under an Indigenisation and Economic Empowerment Act all foreign companies operating in Zimbabwe were given a March 31 deadline to sell at least 51 percent of their holdings or have their licences cancelled, part of President Robert Mugabe’s black empowerment drive.
Finance Minister Patrick Chinamasa said empowerment plans from Barclays Plc, Standard Chartered Plc, Old Mutual Plc and its two banking subsidiaries as well as South Africa’s Standard Bank and African banking group Ecobank were consistent with the law.
“I am pleased to advise that all the affected foreign-owned financial institutions operating in Zimbabwe have submitted credible indeginisation plans before the deadline of the 31st March 2016,” Chinamasa said in a statement.
Chinamasa is leading efforts to end Zimbabwe’s isolation from the West and trying to woo the International Monetary Fund, which has previously said the government should ease up its economic empowerment law to attract investment.
His comments come two days after another cabinet minister said most foreign banks and mining companies in Zimbabwe had not complied with Thursday’s deadline to transfer majority shares to locals.
Under the empowerment rules, foreign-owned financial services companies will have to sell at least 20 percent of shares directly to locals, while empowerment credits, such as funding for agriculture and youth and women programmes, make up the balance.
Mugabe’s black economic empowerment drive has unsettled foreign investors, some of whom fear that Harare could grab their assets in the same way that the government has seized more than 6,000 farms from white commercial farmers since 2000.
Press Statement by the Minister of Youth, Indigenisation and Economic Empowerment, Honourable Patrick Zhuwao, on Compliance with the Indigenisation and Economic Empowerment Act [Chapter 14:33] by the Financial Services Sector
2nd April 2016
It is with a heavy heart and great disappointment that I am forced to issue a press statement in response to the press statement issued by Honourable Minister P. A. Chinamasa, Minister of Finance and Economic Development, on submission of Indigenisation Plans by the Financial Services Sector as published in the print media of today, 2nd April 2016.
It is unfortunate that Honourable Chinamasa has chosen to engage in the media on an issue that ought to have been clarified outside the glare of the public given the sensitivities that may adversely affect depositors and shareholders in the financial services sector.
I have previously requested my colleagues to desist from making utterances that display their ignorance of the Indigenisation and Economic Empowerment Act [Chapter 14:33] and advising them that such actions would leave me with no option other than having to force me to correct them in public.
In the interest of the public, and in pursuance of the observance of the Constitution of Zimbabwe and the Indigenisation and Economic Empowerment Act [Chapter 14:33], I am duty bound and obligated to correct the record. To that end, this statement serves to outline the following issues that relate to compliance with the Indigenisation and Economic Empowerment Act [Chapter 14:33] by the Financial Services sector
1 Section 3(1)(a) sets out the principal objective of the Indigenisation and Economic Empowerment Act [Chapter 14:33] as requiring that at least 51% of the shareholding in all businesses should be indigenously owned.
None of the financial institutions mentioned in Honourable Chinamasa’s press statement satisfy that specific requirement of the legislation. This thus renders them as non-compliant.
I communicated this position to the Reserve Bank of Zimbabwe Governor in a letter to him dated 31st March 2016 which I copied to Honourable Chinamasa and the Chief Secretary in the Office of the President and Cabinet. See Annexure A.
My letter to the Reserve Bank of Zimbabwe Governor was in response his communication to the Zimbabwe Investment Authority in which he erroneously sought to usurp the authority of the National Indigenisation and Economic Empowerment Board.
2 It must be borne in mind that foreign owned financial institutions are obligated, individually, to observe the laws of the land and that the Reserve Bank of Zimbabwe cannot shield their illegality by submitting that the letter that was written by the Governor constitutes compliance with the laws of the land.
It is unbelievable and astounding that a national institution can be used as an accomplice to subvert the principle of indigenisation which is enshrined in the Constitution of Zimbabwe and the Indigenisation and Economic Empowerment Act.
3 It is critical to make an enquiry into whether the plans allegedly submitted by the financial institutions are in line with the provisions of the Indigenisation and Economic Empowerment Act [Chapter 14:33] and its subsidiary legislations, primarily the Indigenisation and Economic Empowerment (General) Regulations, 2010 set out in Statutory Instrument 21 of 2010.
It must be noted that General Notice No. 9 of 2016 does not supersede the primary act and the regulations. In fact, General Notice 9 of 2016 simply sought to direct companies on how best to achieve the provisions within the Act and Regulations.
Ultimately any plans to be submitted by 31st March 2016 must remain guided by provisions of the Act and regulations.
4 The Regulations of 2010, require that the minimum 51% indigenous shareholding must be achieved, by business that were already in existence at the time, over a period of five years, between 1st May 2010 to 27th February 2015.
5 Should any business, for whatever reason, require lesser shares than the 51% indigenous shareholding, then such business must have, within its plan submitted in 2010, requested such a lesser share and only for a period prescribed by the Minister.
6 Given the above points at law, as provided for within the Act and its Regulations of 2010, it is critical to acknowledge that as from 1st March 2015, the foreign owned financial institutions were in fact already in breach of the law as they had, firstly, not achieved the minimum 51% indigenous shareholding within 5 years, between 2010 and 2015, and secondly, they have never applied and had approved a longer period within which to achieve the 51% shareholding.
This critical point of law, being an existing breach of the law by foreign owned financial institutions as at 1st March 2015, must be acknowledged before they can seek to remedy their existing breach.
8 In a letter copied to me by the licensing authority, being the Reserve Bank of Zimbabwe, regarding the assumed compliance position of foreign owned financial institutions, it is clear that the Banks are in fact not compliant with the law. The Reserve of Zimbabwe has misinterpreted “socially and economically desirable objectives” as allowing them to disregard achieving a minimum 51% indigenous shareholding.
9 It is therefore incorrect to state that the allegedly submitted plans are consistent with the letter and spirit of the Act and its Regulations.
It is in this context that I am responding to Honourable Chinamasa’s statement that suggests that foreign owned financial institutions are now compliant on two grounds, namely that they submitted their new plans by 31st March 2016, and that such new implementation plans make provision for “socially and economically desirable objectives” that remedy their initial breach which came into effect from 1st March 2015.
The first point is still at issue. My officials do not yet have records that foreign owned financial institutions submitted their plans by 31 March 2016.
The second point at issue is the misrepresentation that foreign owned financial institutions have now remedied their non-compliance through submitting within the implementation plans certain “socially and economically desirable objectives.
The law is very clear, that “socially and economically desirable objectives” or the approval of “lesser shares” shall not and can never do away with the Indigenisation and Economic Empowerment Act [Chapter 14:33]’s obligation that a business must and shall come to achieve a minimum 51% indigenous shareholding.
The law will only allow an additional period, beyond the five year period, over which such a business can achieve 51% indigenous shareholding. During that period of exercising “lesser shares” such a business must be undertaking “socially and economically desirable objectives” that are being referred to.
What is clear from the Implementation plans said to have been submitted by the foreign owned financial institutions before the deadline of 31st March 2016 is that there is no commitment by these foreign owned financial institutions, already in breach of the law since ist March 2015, of achieving the minimum 51% indigenous shareholding over a stipulated period of time. These foreign owned financial institutions cannot, in perpetuity, remain with only 20 – 31% indigenous shareholding. Such a situation is in clearviolation of the law. Moreso, “socially and economically desirable objectives” can never dispense with the obligation to arrive at a minimum 51% shareholding.It is therefore my view that the statement by Honourable Chinamasa is incorrect as it does not outline the correct compliance position of foreign owned financial institutions as is required by the law. Such a position puts at risk the savings and investments of depositors and shareholders in an all-ready compromised financial services sector.