Foreigners may lose their companies to indigenous Zimbabweans in 2016

By 2016, only Chinese companies, company (ies) owned by Africa’s richest man Aliko Dangote and a few others, will be free from being taken over by Zimbabweans as the Robert Mugabe led-government plans to enforce its indigenization law next year.

Zimbabwe’s finance minister Patrick Chinamasa, Thursday, gave foreign-owned firms operating in the country a March 2016 deadline to submit plans on how to comply with the law.

“All companies that have not yet submitted their indigenization implementation plans as required by the Act should submit their applications by the new deadline of 31 March 2016,” Patrick Chinamasa said in a statement. The deadline had earlier been set for January 2014.

The Indigenization and Economic Empowerment Act, which was passed in 2008 under President Mugabe’s black empowerment drive, requires foreign companies to sell at least 51 percent shares to locals. However, with the economy struggling over the years, implementation of the law has been largely non-existent as potential foreign investors warned that it could discourage investment. But Zimbabwe seems ready to begin enforcement regardless of the perceived disadvantages of the policy.

The Act defines an indigenous Zimbabwean as “any person who before the 18th of April 1980 [independence] was disadvantaged by unfair discrimination on the grounds of his or her race, and any descendant of such person.” Such persons can take up majority stake in foreign companies. Indigenisation is defined in the law as “a deliberate involvement of indigenous Zimbabweans in the economic activities of the country, to which hitherto they had no access, so as to ensure the equitable ownership of the nation’s resources”.

Chinese-owned companies may not be affected by an enforcement of the law as they are believed to be exempted from it, unofficially though. The minister for indigenization and empowerment has the power to allow some companies to be exempt of the transfer law for some time. This prerogative is expected to be applied in China’s case as the country has been a trusted ally of Zimbabwe for decades. Recently, the Asian powerhouse said it will cancel $40 million worth of Zimbabwe’s debt due to mature this year. This is coming at a period lenders have stopped giving out loans to the southern African country which has been finding it hard to service its debts. Chinese-owned companies may not be the only ones to be exempted, Nigerian billionaire Aliko Dangote was also said to have been assured of exemption from the indigenization law before going ahead with his investment plans in Zimbabwe.

Dangote plans to invest in the country’s power and mining sectors. He is also building a $400 million cement plant in Zimbabwe.

Finance Minister Chinamasa said existing foreign-owned firms could continue operating in the country  without compliance to the law for up to five years, including a possible extension, but would be forced to pay an “indigenisation compliance levy as a trade-off for non-compliance.”

To give up 51 percent stake of their holding, foreign-owned companies in manufacturing, financial services and construction will have to directly sell between 20 and 30 percent shares to locals, while the balance will be covered by empowerment credits, such as funding youth and women programmes.

In May, the African Economic Outlook projected Zimbabwe’s real GDP to marginally improve to 3.2 percent in 2015, riding on the back of planned investments in agriculture, mining, communications and other infrastructure projects, including in the water and energy sectors. How the indigenization law affects this remains to be seen.