Thursday, October 22, 2009

(HERALD) Amend Indigenisation Act

Amend Indigenisation Act

Zimbabwe faces two priorities when it comes to investment: we need external capital to develop rapidly, and we would like the benefits of this development to be shared by the people rather than solely going to the investor.

To answer this second requirement, there are provisions in the Indigenisation Act that can theoretically force external investors to sell off 51 percent of their business to indigenous Zimbabweans, and even force local non-indigenous citizens to do the same.

There are also provisions in the Mines and Minerals Act for high levels of local investment although in that legislation there is also provision for this to be varied where there is a substantial foreign investment; but it is not an automatic right.

Investors are seeking changes; they say that the present requirements, even when not enforced, are unreasonable and discourage them from making the sort of investments they would like to make.

An additional problem is that the legislation as it exists would favour wealthy indigenous Zimbabweans, rather than the small investor and even the State.

At the same time some of the large investors have created whole new industries and towns in Zimbabwe to support their operations, already giving quite a bit to the country.

We refer to the comments by President Mugabe on his several visits to Zimplats when he has referred most favourably to the sort of development the largest single investor since independence has created.

We do not see a major conflict between the twin desires of external investment and local benefit. But we believe that there should be far more options than those laid out in the Indigenisation Act and that some of these options should allow ordinary Zimbabweans to participate and should allow the State to benefit as well.

The Zimbabwe Stock Exchange offers an obvious vehicle for raising local capital and allowing ordinary people and pension funds to invest in major projects.

So one option might be to encourage external investors to list on the local bourse.
We might need a special category of shares, so that only Zimbabweans and local funds, rather than foreigners, could buy these shares, but that should not be an insurmountable obstacle. The external investor would have some of their investment covered by local capital.

In the mining world, we should remember that the Zimbabwe State owns the mineral rights, having bought them off the British South Africa Company in the 1930s. Owners of mineral rights can set royalties and the BSA Company used to set some pretty stiff ones once. Governments here though have set a zero royalty.

Perhaps we need to change this. Zambia now sets a very modest royalty, of 3-5 percent, and has found this solves a lot of problems. There is no argument over mining taxes, a notoriously difficult subject, no problem with transfer pricing, no need for a State shareholding and an immediate benefit to the people as a whole.

The very small percentage royalty in terms of income would be equivalent to the profits on a far vaster shareholding; the royalty being pure income with the investor still covering costs. South African companies dislike royalties, not really understanding them since in that country a landowner owns the minerals underneath, but they have adapted well in Zambia.

It should be possible to introduce in Zimbabwe a complex formula whereby the percentage of shares that need to be sold locally, the royalties payable and the investment into infrastructure could all be offset against each other. It might be possible, for example, for infrastructure investment, or at least a significant percentage of this, to be taken from the future royalties.

A percentage of dividends payable to local investors could also be deducted from royalties.

The formula would present options to the investor. One who spent much on infrastructure and floated a modest percentage of shares on the ZSE would pay minimum royalties. One who wanted to keep everything and invest as little as possible in ancillary development would pay royalties at the top rate.

In all cases Zimbabwe and its people would benefit, one way or the other, yet an investor would be able to choose how they paid for the right to mine.

Obviously, this sum for mining rights could not be set too high, but it should be possible to work out a price that will not discourage investment yet still benefit the people and so, through options and offsets, ensure continued investment and ensure that Zimbabwe benefited as well.

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