Multiple factors prompt amendment of Zim law

The announcement of the intention to repeal the Indigenisation and Economic Empowerment Act by the Zimbabwe government in March 2019 was driven by various factors, including investor, political and legal motivations, global law practice and legal services provider Eversheds Sutherland tells Mining Weekly.

The Act, implemented by former Zimbabwe President Robert Mugabe in 2008, stated that 51% of mines had to be black Zimbabwean-owned, thereby limiting foreign ownership. The Act was subsequently amended to limit this requirement to platinum and diamond mining companies. Since Zimbabwe President Emerson Mnangagwa has come in to power in July 2018, there have been calls for this law to be repealed.

“The primary driver behind the intitial amendments limiting the requirement to diamond and platinum mining companies only, and the subsequent announcement that the Act would be repealed and replaced, was the concern of the Zimbabwean government that the Act was impacting on economic growth and development.

“These concerns were based on the extremely vocal views expressed by existing and potential investors on how this law impacted negatively on their investments and investment decisions, often despite support for the objectives which the law was trying to achieve. Although this was the primary motivation to amend and replace the law, it was however not the only factor,” says Eversheds Sutherland partner and mining and infrastructure head Warren Beech.

He adds that there was also a political driver. After the regime change, Mnangagwa publicly announced that the country was “open for business” and he now needs to deliver on the commitments given and meet the expectations of the Zimbabwean people, created after the ousting of Mugabe.

A further factor is the legal and political groupings in Zimbabwe that are motivating for legislative and policy change.“There has been extensive policy development, particularly in relation to Zimbabwe’s diamond mining subsector, as well as good policy development in relation to other minerals,” Beech points out.

These groupings, which have been supported by international organisations, such as international financial institution World Bank Group, have been working on redrafting Zimbabwe’s laws pertaining to diamonds and other minerals.

“The motivation behind this work has been to facilitate the implementation of an investor-friendly policy and regulatory framework and regime in Zimbabwe, which also acknowledges that its mining sector can contribute meaningfully to growth and development.

“Various presentations are being made to Parliament in support of policy and regulatory change. It is hoped that this momentum will be maintained, and that the policy and regulatory framework achieves the balance between investor friendliness and truly benefiting the Zimbabwean people,” Beech comments.

Impact on Commodities

The Act also has a direct effect on commodities, and while it was amended to remove the restrictions in relation to companies operating in many sectors, the restrictions still applied to diamond and platinum mining companies. The announcement that the Act will be repealed means that the restrictions in relation to diamond and platinum mining companies will fall away, opening up investment opportunities in relation to these commodities.

Zimbabwe’s primary commodities are platinum-group metals, coal, gold and diamonds. “Government has recognised the benefits and potential benefits from investment in Zimbabwe’s substantial platinum mining subsector, and the potential benefits from diamond mining.”

“While the Zimbabwean government has announced that it will repeal the Act, it will be replaced with a new law. The content of the new law is unclear at this stage, and as is the case with most, if not all new laws, it will not satisfy all stakeholders and there may be a lengthy period of disputes, which will contribute to investment uncertainty,” Beech says.

South Africa’s broad-based black economic-empowerment ownership in the mining sector can be a practical example for Zimbabwe’s indigenisation programmes, he adds.

“South Africa’s experience could be a useful starting point, as Zimbabwe grapples with the need for extensive investment in not only the mining sector but also the associated sectors, particularly infrastructure such as roads, rail, ports and power, which is a substantial concern, particularly to the mining sector.”

Beech concludes that there is also an opportunity for the Zimbabwean government to require the implementation of the so-called ‘open source’ arrangements where, for example, a railway network is built by the mining sector to transport its product to market and where the infrastructure can be developed in such a way that it also benefits a related sector, such as the agriculture sector, which also requires access to markets to grow and develop.