The relevant act could be unconstitutional in several ways, says a report released last week by the Research and Advocacy Unit.
"They (regulations) violate the freedom of association and (if implementing provisions are put into place, as has purportedly been done in the case of mining companies) violate protections against the compulsory deprivation of property, as well as equality clauses," says the report, entitled Racketeering by regulation.
"The first two constitutional provisions do not provide for any derogation from the rights protected on the grounds of an 'affirmative action programme', and while the last does, it is doubtful that the scheme envisioned by the Minister could be held to be such a programme."
Zimbabwe's mining companies have complained that the new government plan was silent on the commitment of designated entities to pay for the shares by September 25, raising fears the government wanted to expropriate the mines for free.
Disregarded
The minister of Indigenisation, Saviour Kasukuwere, who has been Zanu (PF)’s point-man on the legislation, disregarded recommendations of the Mining Sector Committee on Indigenization, which recommended 26 percent direct equity, 10 percent to communities in the form of a tax on gross profit and 15 percent through social credits.
RAU said the regulations vest massive discretionary powers in the hands of the minister, which are open to challenge.
"The appointment of the maker of the regulations (the minister of Youth Development, Indigenisation and Economic Empowerment, Saviour Kasukuwere) is itself questionable," RAU says.
"Zimbabwe’s Constitution provides for the appointment of 31 Ministers only.
Kasukuwere is one of the 10 ministers appointed beyond this quota. If his appointment is held to be invalid then so too may be any regulations made by him."
Dubious decision
Principals in the GNU expanded the size of Cabinet after the GPA limiting the number of ministers to 31 to accommodate cronies such as Kasukuwere. The appointment of the 10 extra ministers was challenged in the High Court, and is currently being appealed after a dubious decision by the Judge President, Justice George Chiweshe.
The RAU said the Act only empowers the minister to make regulations governing indigenisation in respect of businesses which are merging, de-merging, restructuring, relinquishing a majority shareholding or similar transactions.
"It does not grant the minister the power to make wide ranging regulations governing indigenisation for all non-indigenous business enterprises in the manner in which the Minister has arrogated to himself. Specific sections of the regulations are either ultra vires the Act, internally contradictory or unintelligible, and thus legally unenforceable, or any combination of these factors.
No control
"Many of these problems arise from the fact that the regulations seek to compel companies to do that over which they have no control; i.e. to dispose of shares which they do not own. Shareholders, and not companies, own shares. The legislative difficulties which arise are particularly acute in the case of publicly listed companies.
This problem is itself symptomatic of the fact that the minister has arrogated to himself the right to make regulations for all non-indigenous businesses, and not merely those undertaking specific transactions as provided by the act."
Irene Petras, the Zimbabwe Lawyers for Human Rights executive director concurs that the regulations are open to legal challenge.
"The regulations are, in a number of instances, ultra vires the Act, and there are strong and persuasive legal arguments to indicate that there has been unlawful delegation of the legislative function to the minister," Petras says.
“The minister is empowered through the regulations to apply these criminal sanctions at his whim, even for the most simple and unintentional breaches of certain procedural provisions, and clearly this can only lead to an abuse of powers with impunity. Indeed, one is left with a vague discomfort about what appears to be an abuse of broad principle to achieve something other than social justice through the promulgation of the Regulations."
Indigenous?
Petras says the manner in which the definition is laid out has not, however, been correctly drafted, and is open to an interpretation wherein even a non-Zimbabwean who suffered disadvantage prior to 18th April 1980 may claim that they can benefit in terms of the regulations.
"This flows from the definition of an 'indigenous Zimbabwean' being 'any person' who was disadvantaged prior to 18th April 1980, rather than 'any Zimbabwean'," Petras said.
The mixed race and coloured community has already lodged its objection with Vice President Joice Mujuru protesting their characterisation in the regulations as "aliens."
RAU's observations also dovetail with the Chamber of Mines president Victor Gapare that the regulations grant the minister wide powers that are subject to challenge.
Like many other economic observers, Gapare said the move was likely to discourage foreign investment. "The minister has decided to fast track indigenization without taking into consideration the negative consequences on investment and growth.
If a mining company cannot lay claim on the reserves or other inferred resource, it is not possible to raise capital," he said.
Analysts said impoverished Zimbabwe does not have the money to buy controlling stakes through the investment vehicles. –
What the Act says
According to a government gazette extraordinary dated March 25 announcing the requirements for the mining sector to comply with the indigenization law, all foreign owned mining firms with a net asset value of more than US$1 shall dispose of 51 percent of the shares to indigenous Zimbabweans.
The gazette says the disposal of the shares to indigenous Zimbabweans must be completed within a period of six months or by September 25 2011. Previously, a compliance period of five years had been given in Statutory Instrument 21 of 2010.
Post published in: Business Analysis